Ep. 47 Time for Lots of Borrowing and Spending?

13 August 2016     |     Tom Woods     |     8

With long-term interest rates low and no shortage of ideas for public-works projects, Krugman says now’s the time to do — wait for it — lots of borrowing and spending.

Actually, you know what it’s really time for?

Krugman Column

Time to Borrow” (August 8, 2016)

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  • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

    Does wealth come from consumption,… or
    Does wealth come from production?

  • http://www.economicmanblog.com Roger Barris

    Note to Bob Murphy: I am surprised that you didn’t get into the most fundamental fallacy behind Krugman’s article, which is that the true cost of undertaking government infrastructure projects is not the borrowing cost of the Federal government — particularly not an artificial borrowing cost massively distorted by Fed action — but the OPPORTUNITY COST of the resources diverted from the private sector? This is one area where Austrian and mainstream economists are in violent agreement.

    The usual Keynesian response to this is that these expenditures would use otherwise idle resources which therefore have zero opportunity cost. But how — in a world of 5% unemployment, booming construction activity and a shortage of precisely the type of labor and capital goods that would be required for this type of expenditure — can anyone maintain this? How can a Keynesian pretend that infrastructure projects have no opportunity cost because there are a bunch of unemployed, 55-year old former coal miners in Appalachia?

    Tyler Cowen has been having a interesting exchange with Brad DeLong (aka, MiniMe to Krugman’s Dr Evil) on this subject. And, to my mind, Tyler won the debate. http://www.bradford-delong.com/2016/08/must-read-storify-_i-think-tyler-cowen-is-confused-about-social-choice-and-investment-spending-hurdle-rates_-lower.html?asset_id=6a00e551f08003883401b8d210265d970c

    (BTW, if you can understand DeLong’s arguments for ignoring risk premia linked to systematic risks, then please let me know, because I am stumped.)

    • http://www.TomWoods.com Tom Woods
      • http://www.economicmanblog.com Roger Barris

        Bob’s article is good — as always — but the point is even clearer now because we manifestly are not in “recessionary non-normality,” particularly with respect to the precise resources that big infrastructure projects would require. Which means that these projects would doubtlessly crowd out private sector activities which would have a return of at least 5-7%. Which means that the opportunity cost of this expenditure is not the 1-2% borrowing rate of the government but the 5.-7% return that is foregone.

        This point bears repeating again and again because every economic illiterate — from Krugman to Larry Summers and from Donald Trump to Hillary Clinton — is pointing to the current low or negative government borrowing rates as an argument for infrastructure spending, while ignoring the Economics 101 concept of opportunity cost.

  • brohemius

    The banter between these two is splendidly entertaining. But do you know where their banter is even better? On board a freaking cruise ship in the freaking Gulf of Mexico! (Yer damn skippy.)

  • Jan Masek

    I didn’t get the joke with “splendid”, is that a pretentious word in the US or something? 🙂

    • http://www.TomWoods.com Tom Woods

      Yes, no one uses it. If you’re under 85, at least.

      • Jan Masek