Imagine the nation’s just suffered a rapid succession of credit-fuelled asset price bubbles and bursts. (Yah, I know – fanciful. But work with me here for a minute.) The last one, involving both stock and real estate like a nasty one back in 1929, was particularly destructive. Credit markets everywhere seized up and simply ceased functioning. Financial firms right and left fell. Those that did not fall, nonetheless shaken, now will not lend. And it’s more than financial firms that hold back: Companies everywhere sit upon mounds of retained earnings cash. They’re no more willing than banks to invest.
The upshot: our economy just idles, growth is still sputtering, productive capacity lies dormant and depreciates, and the employment-to-population ratio hovers below 60% – lower than any time since the 1950s. Yep, slack’s all around. The nation’s central bank, chaired by a renowned scholar of the Great Depression, accordingly frets more about old fashioned Fisher style debt-deflation than newfangled consumer-price-inflation now. That’s ominous. Is this 1937? Are we Japan circa 1990? People have taken to wondering, will the US ever exit its slump? For these and related reasons – some emanating from Europe and Asia, which we now know cannot take the slack in the global economy – US and other financial markets are once again jittery. It’s feeling a bit like 2007 or -08.
One consequence of all the renewed jitters is that investors are seeking ‘safe havens’ once more. Swiss francs and ‘barbarous relics’ – shiny metals – yet again figure among preferred vehicles. But topping the heap in sheer volume, as always, are US Treasury securities. And this is so even post ‘downgrade’ by one of the so-called ‘rating’ agencies, itself partly the consequence of a hostage-taking incident orchestrated by bigoted financial illiterates in Congress last month. Demand for Treasuries is so high, in fact, that yields – that’s US borrowing costs – hover near unprecedented lows. The government can finance operations at next-to-no interest charge.
Let’s add one more wrinkle to the whimsical tapestry (yep, I might still be fantasizing): Not only are markets aquiver in response to the ongoing US recession and near-coup by cretinous Congressmen. Not only are US borrowing costs historically low while unemployment’s historically high. As if all of that weren’t quite enough, the US’s critical infrastructure is in a state of near-catastrophic decay. A major port city was nearly flooded out of existence six years ago. An interstate bridge simply fell into water, taking its interstate drivers down with it, four years ago. Schools, roads, air-transport and railway and water-treatment facilities are all literally crumbling.
So bad have matters become that the US has just fallen to 16th worldwide in the quality of its public infrastructure. In consequence deaths are now multiplying with abandon, health is declining as quickly as water and sanitation quality are dropping, intra- and interstate commerce are snarled and congested, automotive and rail and airline exhaust poison the air to no purpose, school facilities shut down in the name of the safety of students, and the whole blessèd country’s beginning to look and to feel like a third rate banana republic. The nation’s Society of Civil Engineers has therefore concluded that well over $2 trillion will have to be spent right away just to stem further erosion – let alone accommodate future traffic and population growth. Cost escalation, moreover, is such that these projects will require much, much more funding if taken up several years hence rather than now…
Stop, stop, you’re killin’ me, I hear some of you saying. Is there any end to the bad news?
Ah, but now wait a minute, I hear others of you saying. Don’t we hear opportunity knocking here? Doesn’t some of the bad news suggest obvious means of addressing the rest of the bad news, affording the whole sorry story a ‘stitch in time’ happy ending? Why, yes, it does. How about we address all that crumbling infrastructure right now, while it’s much less expensive than it’ll ever be again, and while government investment can’t crowd out (presently near non-existent) private investment? Borrow cheap, as everyone’s now wanting Treasuries enables you to do. Direct upwards of $2 trillion or more in such borrowings to repairing that infrastructure. Put scores of thousands of presently unemployed people to work right away in so doing. Smoothen and quicken the flow of intra- and interstate commerce, eliminate pointless water and air poisoning, get the schools running and educating again. Make this, in a word, America again – the most innovative, dynamic, fast-moving, technically advanced, state-of-the-art, shining city on any hill anywhere.
As you do these things, you’ll grow the economy by much more than you spend – the multipliers, it turns out, are large. Indeed you will grow things by so much that tax takes will grow greatly too – so much that all of the projects in large part will ‘pay for themselves.’ They yield, that’s to say, the public sector equivalent of positive net present values. It would be literally irrational, financially speaking, not to undertake them. Not to do so’s to leave money right on the table. And it’s more money than you might think. For again, these projects have to be undertaken in any event – the question’s not whether, but when. Doing it later will cost much more than doing it now. That would leave money on the table as well.
Ah, but now I hear some of you saying we nonetheless shouldn’t do these great things. We can’t afford it, you say. ‘It’s money we simply don’t have,’ preaches one drawling Congressman from Virginia, who apparently longs for an end to investment altogether since borrowing’s always of money you ‘don’t have.’ It’s ‘intergenerational theft,’ squawks another dim-witted plastic-hair sub-Mason-Dixon-line yahoo who’s running for president (what?!), who threatens the life of our central bank chairman while at it for good measure, and seems to think sticking ‘our grandchildren’ with crumbled roads, bridges, and schools, along with poison air and water and a nation that’s lost a whole state to secession, amounts to some kind of bequest.
Perhaps you are among these people. You don’t believe in fiat currency or finance, notwithstanding that our admired first President, his Treasury Secretary, and all their successors did, fueling ‘miracle’ growth on the part of the early and middle and later republics by borrowing and investing strategically. You say all should be paid for with piggy bank savings, like Chairman Mao advocated back in the ’60s, even if that means no spending, no money, no jobs until … 2050?, or till the capital’s put back into capitalism. Everyone oughta hoard and not spend, put their money in mattresses, swim in the liquidity trap swimmin’ hole, puzzle over the paradox of thrift and watch nothing happen from their dilapidated front porches while crickets chirp all around them. God help you.
You think that the best thing for government to do is ‘get out of the way,’ even though our problem’s that no one is trying to get anywhere owing to want of demand in the macroeconomy. You fret over ‘crowd-out,’ notwithstanding there’s nothing to ‘crowd’ when unemployment’s been stuck at over 9% for three years and 25% of productive capacity sits as idle as your underfed brain. You want to see the Feds ‘tightening their belts’ even though that will mean everyone’s bulimic and no one is paying the farmers. And the Fed, well, you’d like to ‘end’ that like yet another snaggle-toothed yokel who might’a voted for Jefferson Davis, because privately issued scrip-monies and bank runs and wholesale crashes each 20 years until 1913 were the ‘good ole days’ – the happytime rootbeer years back when we all wore red stripes and straw hats, sang in the barbershops, and knew what to do about uppity non-white-folk thinking that they had a right to seek office.
Sound like you? Are these your symptoms? If so, then you suffer a queer mental illness I’m gonna call ‘deficit attention disorder,’ or ‘DAD.’ The problem? You’re unbalanced. You’ve got monocular vision. You suffer a blindspot where the asset sides of all balance sheets are concerned. You see only liabilities. You’re also excessively tactile – you cannot quite hear, listen, imagine, or think. Things like opportunity costs, discounted net present values, book entries and even paper currencies don’t seem quite real to you. Neither does the future. It’s all gotta be dense shiny metal and stuff that is already here – stuff like chickens and barbed wire and guns. If it lies ahead, it doesn’t exist – unless of course it’s ‘the rapture,’ and the end of the world that you’re perhaps secretly praying for.
For the present you attend only to costs – present costs at that – not opportunity costs, nor opportunities at all, nor accelerating and exploding future costs. So backward-looking are you, in fact, that you might now be wearing a tricorner hat and knee breeches. You miss the days when the streets smelled of horse urine, half Philadelphia succumbed to yellow fever, and folk inoculated themselves against smallpox by poking diseased people with pins and then poked themselves too. Yep, those were the days – the days when the ‘constitution’ you claim to defend said that non-whites were 3/5 citizens, and women weren’t citizens at all. You want to go back there. There are probably some military planners abroad who’d be happy to put you there.
But let’s be serious. You don’t really want all of this, any more than people who suffer suicide compulsion really want to die. You’re simply afflicted. You’re in the grip of a mental illness. You need to be cured. What’s the cure? Sex, travel, a deep loving relation with another human being will help. So will real friendships. But ultimately you’ll have to submit to the discipline of some exercises as well: Stop. Look. Listen. Read. Learn just a little more finance and economics – as well as more history. For your nation just about never did what you’re now advocating – certainly not in its prodigious founding era. It didn’t not borrow. It didn’t not spend. It didn’t not invest. In fact it tightened its belt during a debt-deflation but once – catastrophically. Go read a few books and come back to America.
Robert C. Hockett joined the Cornell Law School faculty in 2004. His principal research and teaching interests lie in the fields of organizational and financial law and economics, particularly as these bear upon and are borne upon by economic “globalization” and distributive justice concerns. Prior to entering full-time academe he worked for the International Monetary Fund and clerked for the Hon. Deanell Reece Tacha, then Circuit Judge, now Chief Judge of the U.S. Court of Appeals for the 10th Circuit. While a graduate student and as a judicial clerk he taught respectively at Yale, Harvard, the University of Connecticut, and the University of Kansas.