Friday, 18 July 2014

Brookings Institution knows all about the deficit?

This is not a bad article by Brookings: I've certainly seen worse articles on the deficit, e.g. the low grade nonsense we get from Pete Peterson and Kenneth Rogoff. However this Brookings article goes astray in its final section (No.10). It makes the following points which don’t stand inspection.
1. It claims "we should simultaneously take steps to lower projected long-term deficits." As I explained here, (and as MMTers keep trying to explain) it makes no sense to aim for ANY PARTICULAR level of debt or deficit.

2. The Brookings authors claim we should invest more in infrastructure. Well the great US of A has rather missed the boat on that one. It actually CUT infrastucture spending during the worst of the crisis. THAT WOULD HAVE BEEN a time (possibly) to increase that form of spending. But now with the economy recovering it’s a bit late to use infrastructure spending as a way out of the recession.

In any case, infrastructure spending is a daft way of escaping a recession, as I explained here.

3. The Brookings authors trott out the old myth that investing in infrastructure NOW is a good idea because interest rates a low. I demolished that idea here.

4. They make the strange claim that "These measures would promote economic recovery right now...". Er . . . no. It takes YEARS to get the average infrastructure up and running. As for the idea that demand can be boosted via infrastructure spending, that idea (as I pointed out above) is now becoming irrelevant since the economy is recovering nicely.

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