There’s a far better case right now for being an infrastructure hawk than a deficit hawk.
Deficit hawks tend to have two worries. The first is a practical concern about interest rates. Too much government borrowing can, in a healthy economy, begin to “crowd out” private borrowing. That means interest rates rise and the economy slows.
The second is a moral concern about forcing our children to pay the bill for the things we bought. This is how Mitt Romney talked about debt during the campaign. “It’s not moral for my generation to keep spending massively more than we take in, knowing those burdens are going to be passed on to the next generation, and they’re going to be paying the interest and the principal all their lives,” he said.
These are real, worthwhile concerns. But in this economy, both make a stronger case for investing in infrastructure rather than paying down debt.
Former Treasury secretary Larry Summers put it with unusual clarity at a Wall Street Journal breakfast Tuesday. “We need to recognize that burdening future generations is a crucial issue,” he said. “But just as you burden future generations when you accumulate debt, you also burden future generations when you defer maintenance.”
Think about what a deficit is: It’s a dollar of debt you passed down to your children instead of paying for it yourself. That dollar of debt could come in the form of a bond owned by China, or it could come in the form of overdue runway repair. Either way, someone is paying, and it’s not you.
Summers used the example of New York’s John F. Kennedy Airport. “Kennedy Airport is going to be repaired at some point. Potholes in roads are going to be filled. The question is whether we’re going to fill them now, when we can borrow to fill them at zero in real terms, and when construction unemployment is near double digits, or whether we’re going to do that years from now, when there will no longer be any multiplier benefits to those expenditures and when the deficit problem will be a more serious problem.”
That last bit requires some explanation. Remember the first concern about deficits: that they’ll lead to rising interest rates. That’s not happening right now. In real terms — which means after accounting for inflation — the U.S. government can borrow for five, seven or 10 years at less than nothing. And yes, I mean “less than nothing.” Look at the Treasury’s list of “real yield curve rates” for yourself. There are little minus signs in front of the numbers. They’re actually negative. That’s extraordinary. It means markets are so nervous that they will literally pay us to keep their money safe for them.
So the thing we’d typically worry about with high deficits? It’s not happening. It’s not close to happening. Interest rates aren’t high. They’re ridiculously, comically, insanely low. But in the coming years, they’ll rise again. So that’s one reason we should do infrastructure now rather than later: If we do it later, it will cost us more, as interest rates will have risen. We’ll have missed the big sale.
The other big thing is that the construction sector remains wracked by unemployment. Putting construction workers on the job today would be a huge boon to the economy in a way it won’t be in, say, 10 years, when they’ll (hopefully) have work.
The opposite is true of deficit reduction. Austerity hurts much more when the economy is weak than when it’s strong. Yet our plan, as framed in current law, is to reduce the deficit while the economy is weak and increase it while it’s strong. The deficit is projected to fall faster over the next two years than at any time since World War II. Then it’s projected to rise for the rest of the decade.
This, then, is the difference between spending the next two years investing in infrastructure and spending the next two years sharply reducing the deficit. Both of them need to be done eventually. Delaying either means saddling the future with debts we declined to pay off in the present. But this is a particularly good time to invest in infrastructure and a particularly bad time to cut deep into the deficit. And yet we’re ignoring infrastructure and rapidly reducing the deficit. We’ve got it backward.
Getting it forward would mean putting in place a 10- or 12-year deficit reduction plan that includes a substantial infrastructure investment in the next two or three years. To its credit, that’s what the Obama administration actually has proposed. But Summers, who served in this White House during the stimulus, had an additional word of warning about infrastructure.
“It’s important to distinguish between fundamental visionary infrastructure investment and maintenance,” he said. “The former is much more glamorous. It also takes much longer and is much more complex. The latter probably has a higher rate of return, as best one can judge these things, and can be geared up much more rapidly.”
The way to get infrastructure investment up and running quickly is to fix what we already have rather than begin bold new projects. But as Summers says, “You can’t name a filled-in pothole. You can’t name an uncollapsed bridge.” Politicians tend to go for big legacy projects rather than small repairs. But small repairs now, and more deficit reduction later, is what we need.
Ezra Klein is a columnist at The Washington Post. His work focuses on domestic and economic policymaking, as well as the political system.