06 Feb 2018

Krugman Should Love Trump’s Infrastructure Plan

Krugman, Shameless Self-Promotion 2 Comments

Seriously. An excerpt:

Krugman should be a huge fan of this approach. After all, Krugman tells us that sure, the economy seems to be doing OK in the first year under Trump, but that “when the next big shock comes…we’ll need an effective, coherent response from officials beyond the world of central banking.” This is because—Krugman claims—we are dangerously close to the “zero lower bound” world of the liquidity trap, so that the Fed can’t just cut interest rates when the next shock hits us.

In that context, then, Krugman should be ecstatic to learn that the Trump Administration has already gotten the wheels in motion for private investors to put up $1.3 trillion on the front end to build infrastructure, in exchange for revenues to be collected over the following decades. That is exactly the kind of plan to promote investment spending via deficit finance that Krugman thinks is necessary when the Fed is rendered impotent because interest rates hit 0%.

2 Responses to “Krugman Should Love Trump’s Infrastructure Plan”

  1. Tel says:

    On Krugman’s own description of it, Trump’s plan has private investors put up a bunch of their own money to do the lion’s share of infrastructure spending, in exchange for the revenues that flow to the projects over time from fees levied on the citizens who use the items (bridges, roads, etc.). In other words, the plan is economically equivalent to financing public works projects through privately financed deficits, except it cuts out the IRS middleman.

    I’m fine with that, it’s called a “Public Private Partnership” or PPP for short. Most of the “turnpike” roads built during the Industrial Revolution were operated along these lines (even the mighty Parramatta Road in Sydney started life as a turnpike trust road).

    There’s one really, really, really, really, really important point that you missed though: who carries the risk if the whole project flops? If the private investor is taking the risk, then it’s a perfectly good scheme, but if the tax donkeys are providing a guarantee then it’s just as bad as tax and spend. This is exactly where Ginnie Mae went wrong.

    As ever, it’s not about aggregates, it’s about the specific decision over what is profitable and what is not. A private investor carrying the risk will think long and hard about this, while a public “servant” will shrug and sign off on whatever gives nice optics.

    BTW: I get it that you made the safe bet, Krugman will never applaud Trump.

  2. Tel says:

    Massively off topic, but I know you are interested in the concept of private police and no one else is posting around here. By all measures the crime rate in London has been shooting up, but dissatisfaction with high crime and lax enforcement has been growing all over the UK … so this kind of enterprise could be worth monitoring.

    http://mylocalbobby.net/

    ‘My Local Bobby Ltd’ is the development of ‘TM-Eye Ltd’ providing bespoke protective services to residents and businesses in small areas known as micro-beats. The service operates on a subscription basis to keep individual costs as affordable as possible.

    Our aim is to work with all parties that have a vested interest in solving crime and anti-social behaviour problems thereby delivering sustainable improvements to the quality of life for all.

    ‘TM-Eye Ltd’ was formed in 2007 and has established itself as a leading organisation in conducting overt and covert investigations into intellectual property and fraud offences. This has been delivered through the work of our highly experienced detectives and cyber experts.

    To date, working with our legal partners, the organisation has undertaken over 300 private criminal prosecutions with 100% conviction rate. This is seen as the ‘pursue’ and ‘prosecute’ element to our work.

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