Although fleeting attention is usually paid to what economists say, there was a flurry of debate about a recent op-ed piece in the Financial Times by former Treasury secretary and current Harvard professor, Larry Summers. In the piece, Summers argued that instead of debating what government programs to eliminate and whom we should tax to pay for the ones that survive, we should look for public-sector investments which offer the potential to produce a return greater than the historically low interest rates at which the federal government can now borrow.
Summers’ proposal is sure to set both left and right knees jerking in an automatic response to expanded government activity. But before we offer a cheer—Bronx or otherwise—let’s take a minute to think about where there might be merit in Summers’ argument.
Form your own opinion about what my work contributes to the economy, but it’s certainly less than it could have been if I hadn’t been stuck sitting in airport lounges or on tarmacs waiting out “air traffic control” delays. In the last 10 days alone, a modernized air traffic control system would have given back to the economy the value of one economist’s day, as well as millions of additional business travelers whose time was similarly wasted. Add rail freight tie-ups in critical places like Chicago and Long Beach, and commuter congestion in any city you care to mention, then, consider our abysmal cellphone service—which is a private sector issue—and we’ve got a list of investments that surely meets Summers’s criteria.
I know that what I’m saying may lead you to think that too much federal spending will result in monuments to senators, paying too much for bridges to nowhere, and too little going toward the productive investments Summers is talking about. Nevertheless, federal money did help to build the transcontinental railroad, the Interstate Highway System and the Internet, and our nation is richer for them. Shouldn’t we take a look at what we did right (it wasn’t everything) in cases like those, as well as what we did wrong in some headline cases?
Eventually, we’ll work through our budget issues through some hard tax and spending choices and probably though a greater tolerance for inflation (Treasury bond investors beware). But the best way to improve our debt-to-GDP ratio is to enlarge the denominator. A more productive economy is the best way to have a growing economy.