How about a free sandwich?

[rubato]

Or even a nice hot bowl of chowder?

We can easily jump-start the economy if we kick the party of treason out ...

Borrow at 1% for 30 years to build or re-build infrastructure. Employment goes up, the economy expands again.

________________________________
http://delong.typepad.com/sdj/2011/09/a ... erica.html

September 29, 2011
A Free Lunch for America

We are live at Project Syndicate:

BERKELEY – Former US Treasury Secretary Lawrence Summers had a good line at the International Monetary Fund meetings this year: governments, he said, are trying to treat a broken ankle when the patient is facing organ failure. Summers was criticizing Europe’s focus on the second-order issue of Greece while far graver imbalances – between the EU’s north and south, and between reckless banks’ creditors and governments that failed to regulate properly – worsen with each passing day.

But, on the other side of the Atlantic, Americans have no reason to feel smug. Summers could have used the same metaphor to criticize the United States, where the continued focus on the long-run funding dilemmas of social insurance is sucking all of the oxygen out of efforts to deal with America’s macroeconomic and unemployment crisis.

The US government can currently borrow for 30 years at a real (inflation-adjusted) interest rate of 1% per year. Suppose that the US government were to borrow an extra $500 billion over the next two years and spend it on infrastructure – even unproductively, on projects for which the social rate of return is a measly 25% per year. Suppose that – as seems to be the case – the simple Keynesian government-expenditure multiplier on this spending is only two.

In that case, the $500 billion of extra federal infrastructure spending over the next two years would produce $1 trillion of extra output of goods and services, generate approximately seven million person-years of extra employment, and push down the unemployment rate by two percentage points in each of those years. And, with tighter labor-force attachment on the part of those who have jobs, the unemployment rate thereafter would likely be about 0.1 percentage points lower in the indefinite future.

The impressive gains don’t stop there. Better infrastructure would mean an extra $20 billion a year of income and social welfare. A lower unemployment rate into the future would mean another $20 billion a year in higher production. And half of the extra $1 trillion of goods and services would show up as consumption goods and services for American households.

In sum, on the benefits side of the equation: more jobs now, $500 billion of additional consumption of goods and services over the next two years, and then a $40 billion a year flow of higher incomes and production each year thereafter. So, what are the likely costs of an extra $500 billion in infrastructure spending over the next two years?

For starters, the $500 billion of extra government spending would likely be offset by $300 billion of increased tax collections from higher economic activity. So the net result would be a $200 billion increase in the national debt. American taxpayers would then have to pay $2 billion a year in real interest on that extra national debt over the next 30 years, and then pay off or roll over the entire $200 billion.

The $40 billion a year of higher economic activity would, however, generate roughly $10 billion a year in additional tax revenue. Using some of it to pay the real interest on the debt and saving the rest would mean that when the bill comes due, the tax-financed reserves generated by the healthier economy would be more than enough to pay off the additional national debt.

In other words, taxpayers win, because the benefits from the healthier economy would more than compensate for the costs of servicing the higher national debt, enabling the government to provide more services without raising tax rates. Households win, too, because they get to buy more and nicer things with their incomes. Companies win, because goods and workers get to use the improved infrastructure. The unemployed win, because some of them get jobs. And even bond investors win, because they get their money back, with the interest for which they contracted.

So what is not to like? Nothing.

How, you might ask, can I say this? I am an economist – a professor of the Dismal Science, in which there are no free lunches, in which benefits are always balanced by costs, and in which stories that sound too good to be true almost inevitably are.

But there are two things different about today. First, the US labor market is failing so badly that expanded government spending carries no resource cost to society as a whole. Second, bond investors are being really stupid. In a world in which the S&P 500 has a 7% annual earnings yield, nobody should be happy holding a US government 30-year inflation-adjusted bond that yields 1% per year. That six-percentage-point difference in anticipated real yield is a measure of bond investors’ extraordinary and irrational panic. They are willing to pay 6% per year for “safety.”

Right now, however, the US government can manufacture “safety” out of thin air merely by printing bonds. The government, too, would then win by pocketing that 6% per year of value – though 30 years from now, bondholders who feel like winners now would most likely look at their portfolios’ extraordinarily poor performance of over 2011-2041 and rue their strategy.

___________________________________________

yrs,
rubato

[dgs49]

Such collossal stupidity should not go unrewarded. Give that man a sack of shit.

How could anyone have lived through the past four years of ill-advised, over-promised government boondoggles, seeing no tangible improvement in the economy despite upwards of two trillion dollars in excess spending, and STILL suggest that more government spending is somehow going to provide a solution to the current recession?

It is simply incredible.

If the government can "afford" an extraordinary $500B in deficit spending, does it not make more sense to put that money in taxpayers' pockets (in the form of targeted tax credits or tax cuts), and allow them to spend it on things that they actually want?

Again, Democrats are idiots. They don't see any difference between a "job" created by a superfluous government construction project and a "job" created because of public demand for a product or service.

Incredible.

[BoSoxGal]

a "job" created by a superfluous government construction project

What do the roads and bridges look like where you live? The schools and libraries?

I'd hella rather spend my tax money on improving our antiquated infrastructure than give it to consumers to spend on widescreen TVs and cheap plastic crap - the majority of which is NOT made in the USA and thus doesn't stimulate the job market in terms of living wage jobs.

[dgs49]

It is POSSIBLE for government spending to facilitate economic growth - if, for example, the lack of a road or bridge between two commerce centers is stifling trade - but waste is waste.

If you would kill Davis Bacon (and analogous laws in the states), you could save hundreds of billions in infrastructure costs, with no compromise in quality.

[The Hen]

It worked well in Oz. We were virtually untouched by the GFC.

[rubato]

Some people understand the financial consequences of borrowing at 1% (for 30 years) and building infrastructure.

And some do not.

The latter are too stupid to be listened to. And vote Republican every time.


yrs,
rubato

[quaddriver]

I'd hella rather spend my tax money on improving our antiquated infrastructure than give it to consumers to spend on widescreen TVs and cheap plastic crap - the majority of which is NOT made in the USA and thus doesn't stimulate the job market in terms of living wage jobs.

ifn ya bought the cheap plastic crap when it was made in the usa either way would have worked...

[BoSoxGal]

I took a personal pledge to buy 'made in the USA' whenever possible back in college. I was teased for that by many, who thought my politics too 'lefty' (I had issues with dissident labor in China, etc.) I have continued to keep it, though in recent years find it nearly impossible in the case of some necessary purchases.

The other day my right wing sister sent an email forward urging me to 'buy American' and save my country. Seems like the mass of idiot consumers are getting on the bandwagon - a bit late, now that so little is made here anymore.

[quaddriver]

There is a website that details what you can buy that is made in the USA...for the most part, not enuf to live by.

[BoSoxGal]

I buy very little anymore, so it's not such a big deal to me. But, good luck finding clothing or shoes made in the US - and that's one area I do continue to make purchases - recycling my worn out stuff to Goodwill & Salvation Army.

[liberty]

I took a personal pledge to buy 'made in the USA' whenever possible back in college. I was teased for that by many, who thought my politics too 'lefty' (I had issues with dissident labor in China, etc.) I have continued to keep it, though in recent years find it nearly impossible in the case of some necessary purchases.

The other day my right wing sister sent an email forward urging me to 'buy American' and save my country. Seems like the mass of idiot consumers are getting on the bandwagon - a bit late, now that so little is made here anymore.

That could be fixed if we had the political will to do it.

[rubato]

Imports are not the problem:

____________________________
http://data.worldbank.org/indicator/NE.IMP.GNFS.ZS

imports of goods and services (% of GDP)

Imports of goods and services represent the value of all goods and other market services received from the rest of the world. They include the value of merchandise, freight, insurance, transport, travel, royalties, license fees, and other services, such as communication, construction, financial, information, business, personal, and government services. They exclude compensation of employees and investment income (formerly called factor services) and transfer payments.
2009


country ...... Percentage
China ......... 22
USA ...... ...... 14
Germany ......... 36

yrs,
rubato

[liberty]

Imports are not the problem:

____________________________
http://data.worldbank.org/indicator/NE.IMP.GNFS.ZS

imports of goods and services (% of GDP)

Imports of goods and services represent the value of all goods and other market services received from the rest of the world. They include the value of merchandise, freight, insurance, transport, travel, royalties, license fees, and other services, such as communication, construction, financial, information, business, personal, and government services. They exclude compensation of employees and investment income (formerly called factor services) and transfer payments.
2009


country ...... Percentage
China ......... 22
USA ...... ...... 14
Germany ......... 36

yrs,
rubato

I don’t buy it: I have seen the impact of cheap imports on local industry.
A new road is not going to help our economy if there is not US a manufacture at the end of it.