Matt Yglesias points out once again that since we can borrow money at basically negative real interest rates, we should do it. We should do it to stimulate the economy, put money into infrastructure like high-speed rail, and get the beast chugging along again. Given that lower-than-projected growth is actually leading to an increase in the size of the deficit, I think he’s right.
Tyler Cowen thinks that since the government spends money on really stupid things, we should not be borrowing even more of it. He has a point, but it misses the mark. Yes, we spend money on lots of stupid things, but I think it’s far likelier that if the economy grinds to a halt and we start hacking at the limbs of the federal government, it’s going to be programs for the poor and working class that get cut first. It’s going to be middle class government workers suddenly out of a paycheck, not billion dollar defense contractors.
There is a time to get spending under control, and a way to go about doing it that doesn’t make the economic pain that much worse for those who can bear it the least. That time is not during a recession.
Besides, how can we justify cutting programs here at home that might actually do a little good, when we continue to spend hundreds of millions in foreign wars? Not borrowing money at these rates seems downright ludicrous to me. Raising taxes and cutting spending strikes me as a horrible idea. Chains first, then crutches – but only if we can get rid of the crutches without causing harm. Right now we need more crutches, not fewer, because we have so many more people who have lost their footing.
Of course, Cowen is right about that in a way. Our spending is likely going to be on chains or crutches for those who don’t need them. That’s a failure of governance, though, it’s not an inevitability. And I fail to see how austerity will change that.