Opinion
Why Biden Will Need to Spend Big
The economic case for deficit spending is
overwhelming.
Paul
Krugman
By Paul
Krugman
Opinion
Columnist
Oct. 19,
2020
What should
Joe Biden’s economic policy be if he wins (and Democrats take the Senate, so
that he can actually pass legislation)? I’m pretty sure I know what his
economists think he should do, but I’m not equally sure that everyone on his
political team fully gets it, and I’m worried that the news media will
experience sticker shock — that is, they may not be ready for the price tag on
what he should and probably will propose.
So here’s
what everyone should understand: Given the current and likely future state of
the U.S. economy, it’s time to (a) spend a lot of money on the future and (b)
not worry about where the money is coming from. For now, and for at least the
next few years, large-scale deficit spending isn’t just OK, it’s the only
responsible thing to do.
Today’s
column will be about the economics; I’ll talk about the politics another day.
First
things first: If Biden is inaugurated in January, he will inherit a nation
still devastated by the coronavirus. Trump keeps saying that we’re “rounding
the corner,” but the reality is that cases and hospitalizations are surging
(and anyone expecting a lame-duck Trump administration to take effective action
against the surge is living in a dream world.) And we won’t be able to have a
full economic recovery as long as the pandemic is still raging.
What this
means is that it will be crucial to provide another round of large-scale fiscal
relief, especially aid to the unemployed and to cash-strapped state and local
governments. The main purpose of this relief will be humanitarian — helping
families pay the rent and keep food on the table, helping cities and towns
avoid devastating cuts in essential services. But it will also help avoid a
downward economic spiral, by heading off a potential collapse in consumer and
local government spending.
The need
for big spending will not, however, end with the pandemic. We also need to
invest in our future. After years of public underspending, America desperately
needs to upgrade its infrastructure. In particular, we should be investing
heavily in the transition to an environmentally sustainable economy. And we
should also do much more to help children grow up to be healthy, productive adults;
America spends shamefully little on aid to families compared with other wealthy
countries.
But how can
we pay for all this investment? Bad question.
You
sometimes hear people saying that the government should be run like a business.
That’s a poor analogy in many ways. But for what it’s worth, think of what
smart businesses do when they face great investment opportunities and have
access to cheap capital: they raise a lot of money.
We’ve just
seen that the U.S. government needs to invest large sums in the future. What
about access to capital? The answer is that there’s a global savings glut — the
sums individuals want to save persistently exceed the sums businesses are
willing to invest. And this situation — private savings all dressed up with
nowhere to go — translates into extremely low government borrowing costs. In
February, before the coronavirus sent us into recession, the average interest
rate on long-term inflation-protected U.S. bonds was minus 0.12 percent. Yes,
it was less than zero.
Under these
conditions it would actually be irresponsible for the federal government not to
engage in large-scale borrowing to invest in the future.
But
shouldn’t we be worrying about running up more government debt? No.
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