Larry Summers is a big advocate of public infrastructure spending to lift the economy of what he calls secular stagnation. I have two issues with his arguments:
1. I think government spending provides a smaller "snowballing" boost to the economy (known as multiplier-accelerator effects) than in the past because of the greater share of domestic spending that leaks abroad through imports. As a result, government spending would have to expand at an ever-growing pace to keep the economy's growth rate up.
2. I believe that there is nothing endemic to the US economy to result in secular stagnation. Instead, the slow growth we've had since the recession has resulted largely from policymakers aiming for all sorts of goals -- eg, reducing bankers risk taking, cutting the federal deficit, protecting the environment, net neutrality of the internet -- that by themselves may or may not be desirable but each of which works against economic growth.
Thus, it is interesting that Summers' blog today moves toward my second issue. He does so by recognizing that policymakers' various goals could conflict with effective infrastructure spending:
"Investigating the reasons behind the bridge blunders have helped to illuminate an aspect of American sclerosis -- a gaggle of regulators and veto players, each with the power to block or to delay, and each with their own parochial concerns. Every actor -- the historical commission, the contractor, the environmental agencies, the advocacy groups, the state transportation department -- is reasonable in his or her own terms, but the final result is wildly unreasonable."
From a larger perspective than the failure of of fixing a bridge in reasonable time, the repressive effects on economic growth from policymakers aiming for non-economic goals likely goes a long way in explaining the sluggish GDP growth of the past few years. Summers has yet to make the connection.
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