Should our government spend (and borrow) more at negative real interest rates?

I have read so many posts saying yes.  But is it so obvious?  Let’s put aside the stimulus argument, I’d like to focus on the rate of return argument alone.

Let’s say I could borrow money at negative two percent real, but my seven cousins, three of whom are crazy, would get together and decide how to spend it.  I would get a vote too and they would agree to spend it on me.  I would have to pay it back.

I say no.

Many of the infra-marginal federal dollars are allocated by formula, such as with Social Security, and the cousins don’t have such a big say in the matter.  I am grateful for that.  But is it possible that the hypothetical new federal spending might be controlled by the cousins?  And what if four of them are crazy?

How should I feel about the exorbitant cost overruns on California high speed rail?  You know, the line connecting Fresno and Bakersfield?  That wasn’t even the crazy cousins at work.  (Or was it?)

I absolutely do not see this one as a no-brainer.  By using the “should” language in your thought experiment you can take away the crazy cousins, at least hypothetically.  But in the real world they are still there, and the non-crazy cousins screw up pretty often too.

How close in your family would the spending decisions have to get before you would accept a deal like that outlined above?  How many people would turn it down, even with their spouse in charge of spending the money?


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