Greg Mankiw has made an implicit call that there are long lags to infrastructural policy – and therefore such policy seems difficult to justify as a short-term stimulus (Anti-Dismal and Kiwiblog also link to this approvingly).
Now this is a very fair point, however I was initially going to criticise it on the simple ground that the government promising to invest in infrastructure increases expected future income which DOES lead to stimulus now (given that we believe that expectations and confidence are key). Hell the government could pay people now to build things in the future.
However, that didn’t take very long. So instead I’m going to discuss this post on a defense of infrastructural spending.
Now I do very much enjoy Economist’s View, it is one of my few regular reads, but this defense of infrastructure spending troubled me.
Even though the post felt like it was supposed to be a defense of infrastructure spending against the idea that infrastructure will be a poor tool for stimulus in the current environment, it didn’t really do that – it simply a stated belief that the government currently under-provides public goods (and as a result that taxes were fundamentally too low).
The post I have linked to so heavily mixed the “stimulus” argument for infrastructure spending (as opposed to tax cuts) and the “optimal allocation” argument that whenever the post could tell one argument was in trouble it would seemingly jump to the other.
If it is always good to have a certain public good then we should build it – but why would you ever try to justify this by saying we need stimulus? If the poster truly believes that all these public goods are of a net benefit to society then why bother justifying them as a form of stimulus?
To be fair – he is also making a case I agree with: A good time to do public investment is when private investment is low – because its cheaper!
However, it seemingly goes beyond that and states that there is a whole bunch of worthwhile NPV positive projects out there that the government (and private investors) have just never picked up. By framing it like this, the author makes it sound like a “win-win” scenario – if we needed stimulus we got it, if we didn’t we were doing socially optimal things anyway. However, there IS a trade-off between different policies (which does depend on our belief of the probability of a long/short recession) and I feel that this post obscures that and takes arbitrary pot shots at economists that believe tax cuts are the appropriate form of stimulus.
I am probably over-reacting – I just find it difficult when economists try to sell a solid political agenda, as economists often do it in a way that they believe “makes them sound objective” – a fact that really just makes them dangerous. All people have blank spots when it comes to ideology, and so do economists 😉