Monday, August 10, 2009
Calling Spirits fron the Misty Deep: Bob Eisner edition
The Administration needs to get people out there - such as Jared - hammering away at the difference between government consumption and government investment and drawing the relevant consequences for thinking about the effects of budget deficits. High deficits, for example, as the economy moves back towards potential output, will raise the level of the real interest rate relative to what it would have been. But if the deficits are to finance bridges to somewhere, and especially if it is for public investment that complements rather than substitutes for private investment, then worrying about the higher rate is just as misplaced as worrying about the interest rate consequences of a private investment boom. The neat thing about judicious public investment is that it's good for stimulus and good for growth. It's good for stimulus because it doesn't lower and may raise permanent income and so need not lower consumption at all, or even increase it, increasing the bang for the buck of G. And it's good for growth: does anyone think that the post-war to '73 golden age of growth had nothing at all to do with things like the construction of the interstate highway system and the GI bill? And Jared, or someone, could hammer away at the differences in the investment composition of the G we got from Bush's gang versus now, and how that would matter in a rational accounting - with the capital budgeting the late Bob Eisner called for - of the big bad Deficit.