Paul Krugman Calls Off The Fake Alien Invasion

| About: ProShares Inflation (RINF)

By Adam Ozimek

I have to say that after listening to calls for more infrastructure from so many for years and years I've gotten a bit of whiplash from how quickly the rhetoric has turned. If you are a big fan of infrastructure spending and believe we need more stimulus now, you should see Trump's plan as simply not that bad.

First I want to deal with a big misperception that I've seen repeated a few place: a public private partnership (PPP) does NOT mean you can only do projects that generate tolls or user fees. Pennsylvania recently used a PPP to repair 558 bridges. The deal kept the bridges under state ownership, but paid a private company to repair them and maintain them for 25 years. No tolls. It is possible.

I am also curious about the newfound interest in opposing wasteful stimulus. Paul Krugman has a whole piece where he lays out all the problems with Trump's infrastructure plan and concludes "it's not about investment, it's about ripping off taxpayers". I kept waiting for him to get past all the complaints to the part where he said "but even still, we are in a second best world and this plan is better than nothing so we should do it". But no, the piece ends by calling it a scam and he chooses not to bite the bullet.

What happened to the logic of the second best that we've been seeing for so many years? What happened to the logic of wastefulness not mattering right now? To Paul Krugman a private infrastructure plan is too wasteful, but a fake alien invasion that caused us to build up useless defenses would be a good thing?

Here is Krugman in 2013 on whether wastefulness in stimulus matters:

This is the kind of environment in which Keynes's hypothetical policy of burying currency in coalmines and letting the private sector dig it up - or my version, which involves faking a threat from nonexistent space aliens - becomes a good thing; spending is good, and while productive spending is best, unproductive spending is still better than nothing.

Larry also indirectly states an important corollary: this isn't just true of public spending. Private spending that is wholly or partially wasteful is also a good thing, unless it somehow stores up trouble for the future.

I guess now that Trump is elected Krugman is calling off the fake alien invasion.

Krugman also wonders in his recent piece "…how much of the investment thus financed would actually be investment that wouldn't have taken place anyway?" So now we are concerned with crowding out infrastructure spending. But same could be said all along with respect to more federal infrastructure spending, since the state might have been planning to do this stuff anyway. The extent of this problem is proportional to how much infrastructure spending is going to happen without additional federal action over the next few years, and we have been told constantly the answer to this is "far, far too little".

I have expected some inconsistency for pundits now that the country's most prominent Keynesian is a vulgar, bullying, xenophobic Republican. But I expected stagnationists like Krugman would get their complaints out, demand hard bargaining, but accept in the end we should bite the bullet. The extent of the pivot is really something to behold.

For myself, I remain worried about wastefulness in infrastructure spending like I always have. We should follow through on the old republican demand to repeal Davis-Bacon, and we should utilize more TIGER Grants that utilize cost-benefit and seem to have worked pretty well. We should fund this by increasing the gas tax because that is a good thing by itself. And overall we need to do better to develop best practices to avoid the outrageous costs problem we seem to have compared to other developed nations.

This was my belief before Trump, this is my belief after Trump: more infrastructure spending is good, but it needs to come with reforms. Let's all try for consistency, it doesn't seem to be going well so far.