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Yglesias is radically under-informed about public finance. He seems blind to the principal question underlying his remarks, namely, what is the output gap? Pay for public consumption, borrow for investment are nearly useless as principles. The real questions are how much for each, how soon, and what is the economic context for the policies. The desired aggregate deficit depends on the anticipated state of employment, GDP, inflation, and interest rates.

Trying to plan beyond the coming year is futile. The only exception I’d make is to schedule revenue increases to cover the growth of Medicare Trust Fund shortfalls, starting in 2024. (Social Security doesn’t go red until the middle 2030s.)

Revenue coming to the Federal government is fungible. The citizen as taxpayer doesn’t care whether his own dollars are “paying for” infrastructure or infant formula. He only cares about the conditions under which taxation is in force.

Politically speaking, the pay-for notion is creeping back into the public debate, but it remains unsubstantiated by any economic content.

To start with, there is still a lot of free lunch available, as I discussed here.

TIGER and New Starts were tiny programs, evidence of nothing. It’s true that some completed projects can be pointed to as misbegotten. That risks myopia. The year after completion, the Brooklyn Bridge might not have looked great either. Now life without it is unimaginable. Big new projects reorganize economic life around them. Their future value is only dimly visible in the present. Secondly, the cure for bad projects is to do more projects. Diversification.

On the spending side, a number of Green New Deal priorities beckon: the electricity grid, solar, rail (regional and inter-city). Also, just urgent targets of more investment spending include school repair and the care infrastructure.


To be fair, it’s not easy to deal justly with these questions in a Substack column thrown off to meet the quota.

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