Different framings when people agree

Let’s take two cases, namely higher infrastructure spending for the United States today and looser monetary policy for the eurozone.  I favor both, but often I am left discomforted by the endorsements I see, in part because I wish to see those issues framed differently.

On infrastructure spending, I prefer to start with a frustration with current and recent infrastructure spending.  It doesn’t seem very well allocated.  It takes too long.  We just spent a huge chunk through ARRA and couldn’t even clear up the backlogs at LaGuardia and Kennedy airports, the major gateways to America’s #1 city.  We don’t seem able to build up nuclear power as significant protection against climate change.  High-speed rail doesn’t seem like a good investment in the places where it is going through.

One can favor more infrastructure without thinking that “the point” is simply to demand and then get more spending.  “The point,” in my view, is to improve the quality of our decision-making and our processes of implementation.  If it were one or the other, I would rather improve the long-run quality than get the extra $$ today.  So that is the issue people should talk and write about more often, and it seems odd to me to bring up the current $$ issue without insisting on the broader and more important point about massive institutional failure.  It’s almost as if the writers don’t want to weaken their case for the extra $$ to be spent.

Alternatively, I would put it this way: I would like to be able to favor more infrastructure spending than I do (which is still to favor an upgrade).

(I also get nervous when I read 2013 claims that infrastructure spending will significantly boost employment.  I doubt if it will make any more than a very small difference in long-term unemployment, the core of our remaining employment problem.)

Ultimately, I think that these differences in framing are more important than any agreement over the conclusion, although of course both should be reported.

On eurozone monetary policy, I prefer to start by understanding the roots of poor ECB policy.  I don’t ascribe it to bad macroeconomic theory, for the most part, although it is never hard to find examples of bad macroeconomic theorizing, including in the policy community and in speeches.

I ascribe it to the desires of European voters, most of all in the wealthier northern countries.  Very often they have protected professional and service sector jobs and a privileged insider status, for both private sector and public sector reasons.  Four to six percent inflation, to them, means something close to a four to six percent real wage cut.  They won’t be able to renegotiate their way back to the previous real wage because deep down they sense — correctly — that today we live in a different world.   So they hate inflation and prefer to hold on to their insider rents.

So much of eurozone economic policy, and indeed the entire underlying structure of EU interest groups, is based on the desire to protect inside workers from possible real wage cuts.  It therefore should come as no surprise that those same forces have such a stranglehold over monetary policy.  A lot of creditor financial institutions don’t like inflation either.  Nor do old people like inflation, in part because not all of them understand indexing and in part because indexing may be imperfect for the portfolio decisions of the elderly.  The elderly are a major swing voting bloc in many countries.  In the past I have referred to “gerontocratic deflation.”

Now I don’t mind people fulminating against bad (read: tight) eurozone monetary policy per se.  But in my view it misses or at least buries the lede.  The real story here is that a “dysfunctional to begin with” set of EU interest groups have now, due to changing circumstances, become much more dysfunctional.  The core lesson here, in my view, is that governments devoted so obsessively to rent protection won’t be able to make a lot of required tough decisions.  And yes, I become frustrated when I see the whole mess somehow blamed on Austrian economics, the Austerians, or related ideas.  At best that is superficial and at worst misleading or downright false.  It’s mostly a way to score debating points, at the expense of a fuller picture of what is going on.

I don’t like the meme “it’s the xxxx, dummy,” but I’ll try it in modified form: “it’s the interest groups, mein Freund.”

So there we have a story: “entrenched EU interest groups — including labor and the elderly — hinder easy money.”  Much of the left doesn’t like to stress the former factor and much of the right doesn’t like to stress or even admit the relevance of easier money, and so you have an under-reported story.

The bottom line is this: I am happy to read that there is a “sensible middle” position on both infrastructure and monetary policy.  I am happy to hold some version of that position.  But I am unhappy when that broom is used to sweep some very important underlying issues under the carpet.  The insistence on a sensible middle position, while true, is very often a cloak for partisan reframing of the issue itself and a somewhat Orwellian forgetting of what is really going on.  If we could get the underlying issues right, better policy would have a greater chance of coming to pass.  And we would understand the world better.  It also would be harder to score points in written or televised debate.


If that's true then it's important to compare Germany to outside-the-euro Sweden or Denmark. If it's the wealthy against the poor in those countries, then why are they willing to support tremendous income redistribution through transfers, but not through inflation? What's the difference? Or if it's wealthy Northern Europe vs poor Europe you're talking about, then why is Denmark willing to tolerate what are often called some of freest labor market rules in the world? What is special about inflation that makes it specifically not ok, while transfers and liberal labor markets are ok? Since throughout the entire developed world inflation has vanished over the past 30 years, it seems a much more parsimonious explanation that something global has happened.

Why? There is just as much resistance to increasing direct transfers to the periphery as there is to supporting inflation to help the periphery. I don't see the mystery here- it is nationalism. Rich Swedes, Danes, and Germans are much more willing to help poor Swedes, Danes, and Germans, but not so much poor Greeks, Spaniards, and Portuguese.

Even Bryan caplan lives in some version of "from each according to his ability, to each according to his needs" at home. Or possibly he doesn't, in which case he's weirder than I imagined

Partially right although it is not nationalism but rather righteousness and morality. If Denmark were crashing down we would extend the same kind of anger there. Germans don't like the Greek governance because it is not Nordic but because it is not sound but spendthrift. Something that seems to baffle most commentators who don't understand Germans high savings rate.

mw - exactly, this is how one knows that libertarians are full of it. Inflation as Tyler rightly points out, “to them, means something close to a four to six percent real wage cut. They won’t be able to renegotiate their way back to the previous real wage”, only affects areas/people able to renegotiate their incomes. I think this is why they’re called conservatives, because they advocate conservation of economic rents as opposed to a system where economic profits benefit the deserving.

Maybe they recognize it as a 'let's make ourselves poor so we can all get rich' scheme.

Derek, continue please… I thought that negotiating a higher income (i.e. inflation) by definition would make one richer not poorer

So you were very impressed by 90% of Zimbabweans being quadrillionaires a few years ago, right? Wow, those guys were filthy rich.

What are you talking about? You start by assuming zero seignorage, right? And then it's further assumptions of neutrality from there, right?

Let's say inflation is instant. Renegotiation isn't.

Andrew’ – How do you envision price increases (i.e. inflation) if they are not renegotiated higher. [I understand signorage, but let’s say the government needs to fund itself, signorage is just a few % a year that it doesn’t have to tax]

My feeling would be the people who benefit from inflation would be those who hold the option on whether or not to produce it. And since there is a general consensus of not enough, I'd guess the banks and their man The Fed believe that the banks, perhaps because the are net lenders right now (perhaps because of the peak in borrowing and subsequent deleveraging) there isn't much to be gained from inflation. I don't know if I speak for any other libertarians.

A theory of sticky wages would imply difficulties in renegotiating wages. I'm not sure why we'd assume it is only one-way.

I wonder why Tyler restricts the "anti-inflation-conservation-of-rents" motive to the Eurozone dispute?

Very insightful post by TC, a chess master, who can think how his opponent thinks. I did not recall reading before that northern EU members resistance to inflation is a form of 'rent', but given their collective bargaining and Fortress EU, it makes intuitive sense. Question for the audience: given that logrolling means accepting something you may not agree with in another, in order to get what you want, why should it matter if the other side misunderstands your position? Take for example the 'spend $ for more US bridges' argument--as TC says, infrastructure is always over-budget in the USA (e.g.,"Boston Big Dig" 14.6/6 B = 2.4x over budget)--but if you try and understand why this is, do you risk getting side-tracked over the issue of cost vs. the issue that we need more infrastructure? Or do we even need more infrastructure? The country of Japan is famous for infrastructure for taming nature, bridges to nowhere, inter-city toll roads that are rarely used, etc. And this infrastructure did very little for either stimulus, or, as TC says, for jobs. Perhaps the fact that nobody can agree on every issue is due to there being no tractable solution. PS--just finished Mandelbrot's "The Misbehavior of Markets"--slams modern finance gurus and Nobel Prize winners and even calls the unheralded saint Louis Bachelier an argumentative, flawed man! LOL. Worth reading, though Mandelbrot does not offer a solution to fat tails, just highlights their existence, which is still a public service.

'I did not recall reading before that northern EU members resistance to inflation is a form of ‘rent’'

In the case of Germany, the reason you haven't it read might just have something to do with its accuracy.

And German workers have accepted both reduced wages and a higher retirement age - which is part of the explanation of why Germany seems to be doing so well at the moment (if by moment you mean the last three years or so).

If you look at the Dutch, you will see another model in play in terms of distributing work (also roughly in the same time span, considerably more than a decade ago), so that many people receive a paycheck, even if the amount is not sufficient to live on, with various support services making up the difference.

What (west) German voters don't want is a repeat of the 'Aufbau Ost' taxation - paying for upgrading Eat Germany's terrible shape may have had a certain political logic in terms of German solidarity, but no one has any interest in doing it again, especially for a country like Greece.

And with the recent debate about capping bonuses, you might just see some of the true rentiers threaten to pack their bags and go to greener pastures - it isn't the workers or the elderly or who are the greedily grasping actors in this narrative.

prior_approval, you are conflating inflation with wage concessions, which are slightly different. Inflation affects everybody, while wage concessions affect only wage earners. Or as mw said minutes earler from my post (I wanted to be #1 but he beat me to it): "What is special about inflation that makes it specifically not ok, while transfers and liberal labor markets are ok?". That is the question for this sub-topic.

Well, one pretty significant difference between direct transfers and inflation is that the first is somewhat traceable whereas the second is not. Whether that's a bug or a feature is a matter of taste I suppose, but it stands to reason that funky accounting is a serious component of the financial mess the EU finds itself in. Hence I don't think it's silly to believe the solution should not entail even more of that.

'Inflation affects everybody, while wage concessions affect only wage earners.'

What inflation? Or is inflation simply another term for price increases? (and notice how carefully Prof. Cowen sidesteps that whole issue by saying 'Austrian' thinking should not be included). Though really, it is German ideas (utter terror of, to be honest, at lesat to this non-German) of inflation that dominate ECB perspectives.

And the rising age of German retirement effects everyone (under a certain age - around 45 or so), which was a political decision.

The post is almost tautological in its breadth - this is good, or bad, but only when it is good, or bad, but not vice versa, since bad isn't good, or good isn't bad.

Actually, this mainly seemed to be an attempt to escape some of the current problems this blog has been experiencing - this post has no essentially no facts to be checked, and presents ideas in such a way as to ensure discussion without actually gaining any insight.

Prof. Cowen - for effective infrastructure spending, and not really sure why the eurozone is still around, though now with a new and improved theory of eurogeddon. Call it eurogeddon 2.0, the revenge of the north - 'The real story here is that a “dysfunctional to begin with” set of EU interest groups have now, due to changing circumstances, become much more dysfunctional.'

You don't want more infrastructure spending, you want more infrastructure (even if it requires spending). Others want more infrastructure spending (which may result in more infrastructure).

In reference to your comments on nuclear power:

Nuclear power plants are not being constructed anywhere in a advanced economy such as the United States and Europe. The reason is that these economies are only seeing small increases in electricity demand if at all. A nuclear plant generates enormous amounts of incremental electricity but has high up front costs and low variable. When a regulated utility wants to open a nuclear plant the financial problem they must confront is that demand is only rising slowly so excess capacity will initially exist in the system when the plant is brought on-line. So utilities must increase prices to cover the fixed cost. The increase in prices creates incentives to decrease demand and negate the need for the plant. This is why so many of the plants that were started in the late 70's and early 80's wound up in bankruptcy and terminated.

Nuclear plants only make sense in economies where consumption is increasing rapidly. Generally rapid increases in consumption come from lots of cooling capacity coming on-line- refrigerators, freezers and air conditioning units. Like the U.S. in the 60's or China now.

Nuclear power has served this country very well but more efficient consumption patterns have made it economically unfeasible in the mature Western European and American economies. It will be interesting if Japan, with their declining population, ever replaces the power plants damaged in the tsunami. I don't think it makes economic sense.

The point Tyler was making about nuclear was with regard to global warming. It seems a no-brainier to replace old coal plants with nuclear plants for the sake of reduced carbon emissions. But no one seems to be talking about that kind of infrastructure investment.

The point is that (1) Keynesians need some kind of infrastructure project large enough to move the needle such that even The Fed can't screw it up and (2) Energy will be an economic bottleneck into the foreseeable future with or without global warming and (3) Nuclear is the only energy source of the foreseeable future that does not present significant tradeoffs such as more ethanol = less food, for example.

"Nuclear plants only make sense in economies where consumption is increasing rapidly."

Electric cars are possibly to probably going to be a long-term trend. I'm not sure why any new public transit projects wouldn't use electricity.

Probably most importantly, what we need is the government to do its job on the research and approvals of a standard fail-to-safe design with squared away waste storage and reprocessing. It is not about rolling out immediate production capacity.

Seriously doubt that energy will be an economic bottleneck in the future...

I'm not sure how people are sure it isn't the bottleneck today


Something which consumes under 10% of GDP, yet provides the entire population with sorts of wonder, can hardly be considered a bottleneck.


I'm convinced by Robin Hanson (and perhaps Bryan Caplan), who postulates that the 'largest bottleneck' (not his words!) is human labor. It's about 55% of GDP.


That would be a very salient point if we were talking about a carbon pricing proposal of some sort (which, yes, I know that Tyler supports in some form). But infrastructure? That implies subsidies or even government built plants, which seems both unwise and uncharacteristic for Tyler.

Yucca Mountain, etc. I don't know, but there could be several billions of dollars of government work to be done completely separate from building plants.

Far cheaper to replace all coal fired plants with natural gas fired plants. You would reduce the carbon dixode emissions of those plants by 50% or so.

Natural gas power plants are cheaper to build and operate, and offer much cheaper disasters. They are much more carbon efficient than any other fossil fuel. They contribute some to global warming, but we are going to overshoot on that anyway. "The Holocene extinction, sometimes called the Sixth Extinction, is the mass extinction of species during the present Holocene epoch (since around 10,000 BC)." It continues.

The disasters of nuclear plants result in no small part from the government requirements of how they are built. The government could update their favored plans for a next 50 year model. If you aren't at all concerned about carbon dioxide, I'm all for that, but I'm considering it from the point of view of people who are.

I boggle at your implied counter-factual. In some libertarian dream land, where private companies create nuclear plants, and then self-insure (or not), what is to prevent bankruptcy as an escape from liability? (In both the market democracies and the former communist nations the government covered liability and set standards. You cannot split those without creating moral hazard.)

BTW, you say you are considering C02 limits - in a globally systematic way? CO2 suffers mental accounting.

The disasters of nuclear plants have not come close to the disasters of coal. The public perception is similar to aviation accidents and car accidents. One is far likelier to die in a car, but plane crashes get all the attention.

Nuclear plants of current designs have not had any issues due to design. Japan's recent issues were a combination of blatant human error that directly violated SOP, and failure to upgrade the plant to current design spec.

The possibility of MSR or thorium being a far superior solution is better than 50% IMO.

On one level of course that's true. But the equation is really different when global tons of coal burned create a global burden in toxins. Adding a coal plant in California (if California allowed coal plants) would not add the risk for catastrophic damage, land made unusable, etc. Parents in near-by schools don't have to sign iodine treatment permissions for their kids(*). Of course, as I say, California doesn't allow coal plants and was lucky enough to pick a greener fuel focus in natural gas, which has become unexpectedly economical.

* - my nephew is near San Onofre and part of school sign-up every year is a sheet to say yes, give him the iodine pill if there is a leak.

I don't understand your comment:

"I boggle at your implied counter-factual. In some libertarian dream land, where private companies create nuclear plants, and then self-insure (or not), what is to prevent bankruptcy as an escape from liability? (In both the market democracies and the former communist nations the government covered liability and set standards. You cannot split those without creating moral hazard.)"

I'm accepting, for the sake of argument, that the government's job is to approve designs it deems to be safe. I'm just saying "do your f@#$#@ing job, government." Perversely, so far they have mandated an unsafe design and then the environmentals blame the problems, albeit smaller problems than the alternatives, on nuclear rather than on nuclear as mandated.

Btw, liability and bankruptcy are also government responsibilities. Just do it.

"An EU funded research study known as ExternE, or Externalities of Energy, undertaken over the period of 1995 to 2005 found that the cost of producing electricity from coal or oil would double over its present value, and the cost of electricity production from gas would increase by 30% if external costs such as damage to the environment and to human health, from the particulate matter, nitrogen oxides, chromium VI, river water alkalinity, mercury poisoning and arsenic emissions produced by these sources, were taken into account. It was estimated in the study that these external, downstream, fossil fuel costs amount up to 1%-2% of the EU’s entire Gross Domestic Product (GDP), and this was before the external cost of global warming from these sources was even included."

This is the most insightful post I've read on these issues in a long time, but why do you assert that infrastructure spending is unlikely to provide much help for the long-term unemployed, when the construction industry has a much higher long-term unemployment rate than manufacturing and other industries? (see for example, this recent Fed letter: http://www.frbsf.org/publications/economics/letter/2013/el2013-03.html )

Because it doesn't take forever to build a bridge or tunnel (except in Boston), so they'll be unemployed again after the building part is over. We'd have to keep this higher level of spending up forever to deal with long-term unemployment.

Or, rather, the amount of money needed for construction mainly goes not go to wage earners, but, like buying defense goods, to non-labor costs like cement, steel, glass, etc. If you want stimulus perhaps it's better to toss out money by helicopter to poor people than rely on 'shovel-ready' construction projects, which are far and few between and nowadays is mostly done by bulldozers and machines? Of course long term you run the risk of the 'give a man / teach a man to fish' paradox if you give money away, but short term I think it's what Keynesianism recommends.

A lot of the unemployment in the construction industry is in the building trades, not in the "highway, street, and bridge" sector. The latter is less labor intensive and won't necessarily draw many workers from the building trades. Or I should say a family member supervising road improvements during the stimulus was disappointed that few from the building trades ended up with any jobs.

The big employment bang from infrastructure is from a new road or cloverleaf interchange that enables the building of new gas stations and fast food restaurants or a new residential subdivision. Sprawl.

Well said. When someone offers infrastructure spending as a boon to near-term employment, they're either many many years out of date in their view of heavy construction... or hope that you are. (Seen many pictures lately of thousands of coolies with balanced earth-baskets on their shoulders?)

Or, maybe you are moving to the middle. Maybe austerity isn't so appealing, nor is tight money, no matter how you frame it.

I am definitely a "pick the middle" kind of guy. I was comfortable with the ARRA because it was neither the Tea's "nothing" nor a "full Krugman." Nonetheless, I sometimes wish there were better proven answers, than to pick the middle, and hope you are not far wrong.

In politics, the middle is usually the worst of both worlds.

Example: Fascism was seen as an attempt to compromise socialism with nationalism. It ended up worse than either.

Oh yeah, how 'bout nuclear power instead of the brain boondoggle. I got tricked into only considering other biomedical efforts that are far more practical and affordable than the brain boondoggle.

1. Nuclear is the only significant non-solar energy source.
2. The nuclear industry should be larger than it is.
3. The bottleneck is likely the government, especially if you assume a requirement of a standardized reactor specification.
4. Once 3 is taken care of, it can be relatively 'shovel-ready'.
5. Coal is an actual negative externality.
6. The cost of energy is a fundamental drag on the economy and employment.
7. I am no expert, so etc.

The bottleneck is the goverment only in the sense that private industry can't insure themselves and still make a profit without government assistance.

I kind of doubt this. Partly I doubt it because coal-fired plants don't have their externalities internalized. Otherwise, they would face the same problem. It is just that people don't always get compensated for dying early from mercury or emphysema. Government controls the liability and bankruptcy laws. They only have to give special consideration for nuclear plants because the alternatives are more difficult to internalize. The sheer size of the project has real-world effects, but I'm not sure they would matter if they were treated in an evenhanded way. Nuclear is known to be safer on net.

Professor Cowen,

“The point,” in my view, is to improve the quality of our decision-making and our processes of implementation.

You always like sentences and this is a great one. I keep telling my fellow Democrats that faculty members don't know to either make decisions or implement.

Since LBJ, our governance has been horrible. Personally, I believe it is because the Party did not reach out for Republican moderates after Goldwater. You have read Romney's letter (in the NYTimes) to Goldwater. That man would have made a great Democratic President.

Look even at Mitt. Instead of flip flopping on abortion, he should have become a Democrat. One of the great ironies of history is that, had he done so, he would now be in his second term as President.

Try though it might, monetary policy cannot just dance all alone. Thanks for an excellent post.

I don't get how your second point would add anything to the discussion to be honest.
Instead of starting with the status quo and calling inflation the equivalent of a tax, you simply start with your desired outcome and call the difference between that and the status quo a rent. It's certainly a reframe and I can see how it could score points in a debate, but how this would help to "understand the world better" I have no idea.

The point of calling it a "rent" is to show how avoiding the inflation tax differentially affects certain groups -- especially govt workers or those in highly regulated industries which are sheltered from normal market forces. Avoiding that inflation tax leads to a relatively much bigger gain for some sectors over others.

Yes, I know what the effect of calling something a "rent" is. My point is that, unless you think there is some objective principle on which to decide what the correct income for these "govt workers (...) sheltered from normal market forces" is, Tyler's reframe is simply a rhetorical device that turns the more common framing on its head. It's not necessarily worse, but it also does not add anything new. At the end of the day, it hinges just as much on Tyler's personal judgement of the correct income of other people as the former version on the personal judgement of anybody else.

These questions are like asking why the mafia doesn't settle down and play nice...

The government exists precisely in order to do the things you decry, the rent seeking and cronyism. The good stuff you like about government is what officials have to do in order to gat away with the other stuff.

TC starts the post with [wants good policy] but is discomforted by [disagrees with supporters of good policy] because the supporters are right for the wrong reasons. Might I venture an alternate diagnosis of mood affiliation? TC really wants [disagree with political/ideological opponents] but is discomforted by [own analytical acumen prefers to be right rather than wrong].

It's not being "discomforted," it's about realizing that the people who agree with you refuse to engage the world as it actually is.

Such is a rather frustrating spectacle to observe.

JLK's first sentence adds clarity.

One assembles "yea" votes to win the political arena. Professor Cowen wishes the "yeas" to all agree on their reasons. But effective political operators collect "yeas" by whatever means necessary; a Baptist preaching to a Bootlegger, or Code Pink to Rand Paul, wastes time and probably antagonizes a natural co-voter.

I dunno. This frame feels like the frame that produces opinions like "cutting the deficit from $1 trillion to $600 billion is austerity."

With interest rates at all-time lows, it doesn't take a lot of inflation to produce the 'confiscatory benefits' y'all are aiming for. The 2% inflation over the past four years, combined with microscopic interest rates, has been quietly doing its work all along.

So fine. Notch it up to 3%, 3.5%. (MY preferred frame is generational, so I'm getting increasingly comfortable dinging the 'wealth owners' who gave us the current situation, aka Boomers.) Do the Sumner NGDP thing even. Maybe it'll help get the West through. this. Not a magic bullet though.

"Four to six percent inflation, to them, means something close to a four to six percent real wage cut"

Indeed, the real world effect is about the same. A huge cut in buying power and standard of living. So no suprise they don't fancy the idea of high (more than 2%) inflation.
What do you expect, should they say "hey, maybe you are right from some pundit macro point of view, so we gladly sacrifice our very personal petty truth which is: high inflation is bad for us"?
Besides, thanks to very creative accounting, the official inflation rates don't reflect at al the real inflation the vast majority of people have to deal with.

"[infrastructure spending] doesn’t seem very well allocated"
I don't think it ever will be efficiently allocated until the US gets rid of its Senate, which magnifies the power of very small populations far beyond their size. The NYC airport problems which you mentioned are not so surprising when the people of Alaska get as much power over setting infrastructure spending as the people of New York State.

New York is one of the wealthiest states in the U.S., third by GDP. In the early 19th century, New York self-financed its internal improvements and then voted for the small government party at the national level to prevent having to fund other states' internal improvements.. The situation has entirely reversed.

NYC is, among other things, a chokepoint along the Eastern Seaboard. We're not talking about the Erie canal, we are talking about interstate road and rail, and international shipping. Lack of NY internal improvements raises costs on the (~40%?, with >50% of GDP?) of Americans that live within 300 miles of NYC.

I don't question that there are valuable improvements to be made in the NYC area. But New York (as well as New Jersey and Connecticut) consistently send politicians to Congress that advocate higher taxes on themselves and nationalization of budget decisions, making them some of the largest doners to poor states. That's not a necessary outcome of the political system, as New York previously fought to keep more of its wealth to itself.

"Lack of NY internal improvements raises costs on the (~40%?, with >50% of GDP?) of Americans that live within 300 miles of NYC."

You think that 40% of Americans (with "50% of the GDP") live within 300 miles of NYC? More like 20% of population and 25-30% of GDP. Either you are bad at geography or you have a very northeast-centric view of the US.

I'm not going to do research; this is a blog comment. I am perhaps too impressionable from a info graphic I looked at recently. But the point stands: an interstate problem ("chokepoint") that affects 60+MM people and $4TT GDP. Get off the mark!

Has there been any situation where either infrastructure spending or inflation has gotten an economy out of a recession or depression? Or are they things that result from vigorous economic growth, so policy makers figure they can create prosperity by faking the results of prosperity?

IN 1953 the 64% increase of government investment in the Netherlands, after the big flood in february, kicked the Netherlands out of the spending doldrums of the preceding years. It did not crowd out private investments - but these started to increase again, after two years of decline. A comparable story for consumption. And exports kept increasing at the same 10% rate as before. This was of course the era of 'high growth'. But growth had been dismal, in 1951 and 1952, due to the ínternal deflation policies of the government and reached 8,4% in 1953 and continued to be high in the sbusequent years.

Forgot to state: government debt decreased.

How about CETA? In January of 1977, when Carter took office, unemployment was 7.5%.

"Immediately upon taking office, he declared that his primary domestic goal was to create jobs for the unemployed. At his request, Congress passed an Economic Stimulus Appropriations Act to create jobs and help the economy."


Carter succeeded, by May of 1979, in pushing the unemployment rate down to 5.6%. And with all the knock-on effects and crazy multiplier unleashings, the American people never had to suffer again. Yay! Score another one for the unbeatable Keynesians!

The end.

"Carter succeeded, by May of 1979, in pushing the unemployment rate down to 5.6%. And with all the knock-on effects and crazy multiplier unleashings, the American people never had to suffer again. Yay! Score another one for the unbeatable Keynesians!"

My dad ran a gas station during the 1970's (he picked the wrong business).
I can tell you that there's a leeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeetle factor you're leaving out.

In addition to that ahistoricity, there's also how much was gained. 7.6-6.5 = 1.9. How many people did that represent at the time?

tl;dr A change in the unemployment rate from 7.5 to 5.6 is nothing to sneeze at.

Cmon, homey, "discomfitted" has been coopted by the stupes, but stay ol school and use disconcerted like a man would.

Thanks, Dr. Cowen. I really appreciate your careful articulation of a difficult-to-convey issue. How we discuss an issue is at least as important as whether we agree - if not more so! If you can't even frame the debate in a mutually agreeable way, there will never be a moment after the dust settles that we can reflect on the merit of the decision ... if any.

"High-speed rail doesn’t seem like a good investment in the places where it is going through."

This, in a nut shell, is the fundamental problem. It is trivial to say "I would be for spending X for Y but not for Z." The trick is to allow the process to move forward by saying "I am willing to spend X." The determination about what to spend X for should be made by technocrats in the executive branch. As pointed out in previous comments infrastructure spending flows throughout the economy providing jobs and wages at first for contractors and construction workers, but also for suppliers, and then shop keepers and restaurant workers and finally the local and state government through taxation on the money flow.

This is so simple it is hard to understand the opposition other than recognizing it as political opposition. I, as a Californian, am better off if the federal government spent the necessary dollars to restore our infrastructure to 1970 standards and did not spend a dime in California. Resistance to this proposal is strictly cutting your nose off to spite your face.


I actually think high speed rail will improve efficiency and intermodal competition. I don't know why Tyler begins with the presumption that high speed rail is a bad investment when you consider externalities.

Much better to start with the presumption of the externalities?

Or, the presumption that there aren't any or that you ignore them if there are?

If you think high speed rail will improve efficiency and intermodal competition, I strongly encourage you to form a private high speed rail company. You could name it "Solyndra."

Just think of the billions of dollars the private sector is leaving on the table for you and everyone else who dares dream the impossible dream. Seize the moment! Just please don't seize my tax dollars.

“entrenched EU interest groups — including labor and the elderly — hinder easy money.”

Labor plus the elderly equals almost the entire population.

(What's left are basically only children, students or housewifes who depend on other people's salaries. Plus people on welfare, who are also hit by higher inflation. And business owners - who also tend to be negatively affected by higher inflation as elasticitiy of demand prevents them from passing on 100% of cost increases to consumers).

So, to summarize:
ALL parts of society in Germany, Austria, Finland, etc. are negatively affected by higher inflation.
(Which seems logical anyway, as they are net lenders to the perifphery and a lender is always negatively affected by inflation).

I find it highly artificial to label this extremely broad subset of the population as "special interest groups".

One of the best posts I've ever seen in the economics blogosphere. Thank you.

It makes me wonder how an analogous argument about health care and wellness spending in the US and its effect on the "long term health problem" might look.

I bet no one would be complaining about the percentage of GDP spent on healthcare in the US if the system actually, reliably cured cancer/diabetes/Alzheimers/Parkinsons, truly rehabilitated stroke victims, and prevented 99% of heart attacks.

There is a pretty good case to be made for infrastructure investments in the internet. With America producing huge amounts of value in the space of intellectual property, software, and various forms of entertainment content it seems like a prudent way to amplify our lead in some of these spaces. There are some geographical challenges but they are much less expensive to overcome in this space than others like transportation. There also is a possibility that any investment we make will be made obsolete by future technology.

But I believe we would see a lot of innovation in many areas that would be a huge positive for the US economy if something like Google's fiber project were undertaken on a large scale. It certainly seems like a less risky bet per dollar than high speed rail which is being pursued in various geographically spread out regions of the US.

Infrastructure can be built quickly when building quickly is the priority and all other consideration can be ignored.

For example, the (Boston) Big Dig could have been done quickly and at much lower costs if major parts of historic Boston were leveled and rebuild with (Soviet style) prefab office, housing, and retail. The cost of unique architecture is just way too high, and preserving the architecture of the past four centuries just carries too high a cost in time and money for someone like Tyler.

On the other hand, the I-35W bridge in Minneapolis was removed and replaced in 16 months and the cost was significantly less than expected or planned and the bridge is better than anyone would have been willing to pay for if they had the luxury of fighting for a few years to block the capacity on the bridge for light commuter rail. But not many people are willing to have the bridges they use blown up while in use to create the conditions for quick action, and decision making that agrees to spending an extra $25 million to save three months which costs the local economy $100 million.

LaGuardia could be quickly and inexpensively upgraded by shutting it down for a year so the work can be done without the interference of passengers who think getting to the gates to fly out is more important than speeding up and cutting the remodeling costs.

Of course, it would be even cheaper and faster to rebuild LaGuardia in Nevada on some free Federal land. Or it could be rebuilt nearby but more rationally if the ideal neighboring land were just expropriated by the government and the occupants booted out - like back in the 19th century when the Federal government booted the Indians and gave their land to the railroads or corporations or land grant colleges.

Democracy is slow; dictatorship could be faster and in some cases better, but I doubt Tyler is willing to turn total power over to even his hand-picked dictator.

Well, onna one hand we havva theese. And onna other hand we havva theese. Howwa can you arugua that I am notta reasonable guya?


"Right for the wrong reasons "

"Mr Cowen is right that infrastructure in America takes far too long to build and costs much too much."

(quote from Mr. Cowen snipped)

"On the question of quality v quantity, however, the counter-argument is that the poor quality of decision-making is often driven precisely by ideological conflict over whether the government is spending too much money. For example, it is simply bizarre that America is allowing existing road and port infrastructure in heavily populated areas to fall into disrepair at a time of negative real bond yields. It is absurd to argue that America lacks the capacity to maintain the road network in western Massachusetts to the standards of 1993; the only possible reason why those roads are deteriorating is ideological conflict over the appropriate total level of government spending. As for large-scale new projects, possibly the single greatest recent infrastructure-planning disaster in America was the 2010 decision by Chris Christie, the Republican governor of New Jersey, to cancel a long-planned rail tunnel project under New York's harbour in order to use the funds to avoid raising New Jersey's gas tax. Planning these kinds of projects between multiple authorities takes decades; blowing them up for short-term political gain is inexcusable."

They then go on to point out that Mr. Cowen's argument on loose/tight money vs. politics in Europe has a correlation with reality of ~ -1.

I was open to the idea he might have a point about ports and roads until I read the part about needing high-speed rail, which makes absolutely no economic sense.

And who wants to bet we're not spending more on maintaining ports and roads than we did in 1993?

I'm with Scott on this -- yes, there are people who benefit from tight money. But he's right, there is just very little evidence the Europeans understand what's going on.

The Japanese, otoh, are starting to catch on. It took a couple decades, but here we are.

As Scott points out now and then, the stock markets don't normally correlate to monetary policy this way. They seem to be saying they see tight money too, and that they see growth under looser policy. When stocks become decoupled from monetary policy again, we'll know policy is getting closer to right.

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