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Deficit Spending

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Yglesias is making a lot of sense here. With interest rates this low, the nation should just borrow the money to rebuild its infrastructure and not worry about some existential need to pay off the debt. Of course, that no one can say this in the political realm is a sign of just how drastically Republicans have changed the debate in the 40 years, to the point that even as our freeway overpasses are collapsing beneath us and subway systems shutting down, we can’t even begin to talk about these issues without detailed plans on paying back the big, bad, evil debt. Instead, we should just build it and figure it out later if necessary.

The debate we ought to be having about federal infrastructure spending right now is whether we have a way to channel money into useful projects — not how to “pay for” the spending.

America is not currently experiencing a shortfall of financing options. On the contrary, global financial markets are practically begging us to go borrow some more money. The interest rates available are so outlandishly low that virtually anything that was useful at all (i.e., not a mixed-traffic streetcar or a relocation of a bus terminal to a less convenient location) would have a rate of return higher than the cost of funds.

Under the circumstances, there’s no good reason to try to finance projects with taxes rather than debt. Doing so is only going to increase political opposition to your plan — no tax reform, no matter how cleverly designed, can fail to offend a powerful interest group or two — and make it less likely that the project will get done.

And global markets, again, are telling us not that America’s taxes are too low but that we’re not borrowing enough money. There’s a global shortage of American debt. Indeed, a 2014 International Monetary Fund analysis concluded that in rich countries like the US, “public investment that is financed by issuing debt has larger output effects than when it is financed by raising taxes or cutting other spending.”

It’s better, in other words, to just build the projects than to fuss about paying for them. We need a good dose of irresponsibility.

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