US Infrastructure: Austerity is a Bad Investment Strategy

That’s the reasoning by Jordan Weissman in the current issue of the Atlantic.  He cites the usual Keynesian justification for such projects, both in terms of boosting employment in the short run and economic productivity in the long run.  But he also makes the case that, since we’re going to have to take on these projects sooner or later, this is about the best time ever to finance large capital projects:

The cruel irony of this situation is that there’s never been a better time for us to build. The interest rates on 10-year treasury bonds just hit a 220-year low. We’re paying better rates than when George Washington was running unopposed for the presidency. When inflation is taken into account, we’re effectively getting paid by investors to hold their cash. And barring the possibility Europe gets obliterated in a freak super-volcanic eruption, leaving T-bills as the last asset on earth that banks can hold as collateral, chances are we’re not going to see deals like this again.

But the deficit! you say. Dick Cheney is right here: The deficit doesn’t really matter in this case. Most infrastructure spending is not really optional. You either fix the roads, or they fall apart. Perhaps disastrously. A 2011 study by the Urban Land Institute and Ernst & Young estimated the United States needed to spend $2 trillion to fix the country’s physical plant. And unless you believe that we’re going to miraculously eliminate the entire deficit in the near future, we’re going to have to borrow that money at some point. We might as well do it while the financial markets are paying us for the privilege.

The full post is here.


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