By FS Staff
Professional economists and political pundits often have a lot to say about how policy should be handled, but more often than not, they're demonstrably incorrect in their prescriptions. What we need, some argue, is a bottom-up approach focusing on economic first principles to help unravel the mess.
This time on FS Insider, we spoke with Dr. Woody Brock, a renowned economist, president of the economic research and consulting firm Strategic Economic Decisions, and author of American Gridlock: Why the American Right and Left are Both Wrong - Commonsense 101 Solutions to the Economic Crises.
Infrastructure Spending Is Necessary Now
We've experienced a slow, weak recovery that has been mismanaged by the Federal Reserve Bank, Dr. Brock stated. Central bankers thought low interest rates and quantitative easing would bring us back to full speed, but these measure didn't succeed.
At the time of the crisis beginning in 2008, we needed a massive fiscal stimulus, which is now the common wisdom, he added.
"Since the last year, it has been recognized that QE did not affect Main Street," he said. "It did not increase (incomes) at all. QE was really a relabeling of who owned which bonds. It had nothing to do with giving more money to people on Main Street."
Where monetary policy wasn't stimulative, fiscal policy will be. New public works projects, such as modernizing and upgrading the nation's electrical infrastructure, which Dr. Brock is passionate about, would benefit us greatly and drive incomes up. Here's a clip of what he had to say:
With infrastructure investment, we could address decaying roads and bridges and defend ourselves from potential attack, Dr. Brock noted.
"We need infrastructure, trillions and trillions of it, over the next 20 years," he said. "Hillary was proposing $250 billion. It wouldn't even make a dent. Trump is the only person who sort of understands, in my view, the true magnitude of the need for it, and the fact that we can afford it."
But What About the National Debt?
While there is much concern over the national debt, the issue opponents of fiscal stimulus need to take into account is that not all borrowing is bad borrowing, Dr. Brock stated.
Borrowing for infrastructure is a positive for the economy, he argued. Any time the government runs up a larger deficit and the money is used to create something that hikes productivity and growth, said Dr. Brock, not only do these projects pay for themselves in the long run, but there is no increase in the debt at all. Rather, we see vast additional benefits accrue.
"Borrowing to build the Interstate Highway System was considered scandalous for some, but it doubled GDP and paid for itself 10 times over," Dr. Brock said.
We need to apply this logic to public spending. If we borrow and spend money on projects that have high rates of return when properly measured to include spillover effects on economic growth, then borrowing for infrastructure is a really good thing, he added.
How well Trump will do executing this plan and letting the money flow to the projects with the highest rate of return remains to be seen, Dr. Brock stated. However, he seems to be more concerned with this and will likely have more leverage considering the Republican majority in Congress.
"It isn't necessarily Trump's fault, but with the system we have in place, every state will want the money for its own projects," he said. "Somebody has to be in charge of saying, 'No, we have national needs. We must address those.'"