There’s an important exchange about government spending in Ezra Klein’s long, wonky interview with Hillary Clinton.
Klein notes that the government can currently borrow very cheaply, paying virtually no interest. The US has grave infrastructure needs. Businesses normally borrow in order to invest: they don’t pay for a new factory the same year they open it. So why shouldn’t the feds accept the markets’ offer of “free money?” “Shouldn’t we be doing more deficit spending for infrastructure, for middle-class tax cuts—and worrying less in the near-term about deficits?”
Paul Krugman recently put the same case even more forcefully. “Policy makers should be … accepting the markets’ offer of incredibly cheap financing. … America’s aging infrastructure is legendary. …. So why not borrow money at these low, low rates and do some much-needed repair and renovation?”
Clinton responds to Klein that our infrastructure needs are great, and we should “look for ways to pay for our investments. … But I’m not going to commit myself to [borrowing] … because I think we’ve had a period when the gains have gone to the wealthy. … I think we can pay for what we need to do though raising taxes on the wealthy.”
Klein summarizes her answer: “I’ve not heard you say it that way before. So part of the argument of doing pay-fors in the near term is not just balancing the budget or reducing the deficit but also bringing distributional fairness to the aftermath of the recession.”
If liberals could design and implement a coherent policy, they should borrow now to take advantage of the rock-bottom interest rates, and structure the repayment so that upper-income people bear the costs over time. But Clinton is not in a position to write and implement a multi-year policy all by herself. If she can do anything at all, it will have to be a compromise with Republicans in Congress. Her view is that she can get more infrastructure spending and tax equity by paying for everything right away, with some kind of surplus tax on the rich.
I respect her expertise and don’t have any desire to argue with her about economics, but I wonder: 1) How much revenue can really come from upper-income tax increases next year, given the political balance? Couldn’t we get a lot more money by borrowing? 2) Politically, will voters support a tax-and-spend program, given their extremely low trust in government to create jobs? And 3) Shouldn’t we be challenging the widespread assumption that good government requires never borrowing to make investments?
(See also “why Hillary Clinton appears untrustworthy,” in which I proposed that her failure to argue for infrastructure spending exemplifies a general tendency among technocratic liberals to refuse to say what they believe because they don’t trust the American people to understand or accept their reasons.)