TravisV pointed me toward a couple of posts he thought I might interesting with the first one being a post by Brad DeLong discussing Larry Summers’ suggestion that we undertake infrastructure projects in order to avoid so-called “secular stagnation.”
I don’t necessarily have a problem with infrastructure projects in and of themselves. We do have aged infrastructure, mainly bridges that are in need of attention. But the kinds of projects undertaken, as always, should be justifiable and rational.
When I lived in Southern California, having left almost 20 years ago, the traffic around the Los Angeles area was monstrous. I can only imagine what it is like now after the housing boom of the 2000s. In the early 1990s, the LA Metro line was extended along Interstate 10 from the Inland Empire to downtown LA. No body I knew used it; and there is one main reason – crime. So, when I left in 1994, it had done almost nothing to reduce traffic congestion. The “build it and they will come” mentality of public transportation advocates needs a reality check before we go throwing tons of money at building things like train and bus lines.
More importantly, however, it is the wrong approach to argue that we need these projects to “boost aggregate demand.” The argument that Summers is making is not about pro-growth economic policy, but about allocation of resources. Because, as the Sumner Critique that describes the theory of monetary offset was demonstrated to be at least roughly right, with the latest example being in the US in 2013 with QE3 against the backdrop of mounting fiscal austerity measures that among decades of other such examples from Japan, aggregate demand will be roughly what the Fed wants it to be regardless of from where it comes. And in that sense, infrastructure projects, or any other type of additional government spending that would be undertaken would be like rearranging the deckchairs on the Titanic. If unemployment is a concern, it would be the entirely wrong thing to do without dealing with the Federal Reserve monetary framework as it would simply shift the composition of allowed NGDP, not increase it.
In flipping on the rant switch, I do not understand this stubborn refusal of fiscal advocates to acknowledge that the Sumner Critique has been demonstrated with convincing probability. And if correct, following the recommended course of action would mean upsetting the apple carts, the careers of millions of people who are now meaningfully employed by shifting demand from one area of the economy to another. It makes me wonder whose side they are on – really. They hawk this stuff as if it’s something that is good for us. But frankly, I simply cannot see myself operating a jackhammer – and so if the reallocation were to hit my job, the chances I’d be right back where I was a year ago are probably high.
But, you know I am not entirely against horse-trading. Perhaps if they would agree to reform the Federal Reserve System, and guarantee things like this won’t just shift the composition of allowed NGDP, then I might be more amendable to the idea. But until then, people like Larry Summers really should be more mindful of the implications of the proposals they make for average Joe.
PS: Summer’s bubble argument in an era of great pessimism is laughable. Tight money lowers interest rates – and so the natural solution would be to loosen it up, not build a train to nowhere.