Tags: Rogoff | economy | secular | growth

Harvard's Rogoff: Spending on Infrastructure Would Help Economy

By    |   Thursday, 05 December 2013 07:52 AM

Many economists worry that the economy is stuck in a long-term secular decline.

Some, such as former Treasury Secretary Larry Summers, trace anemic growth to causes that predate the financial crisis. Saying the economic malaise runs even deeper, others say the technology engine that's driven economic growth the last 200 years is running out of gas. For example, the Internet doesn't have the same impact as the introduction of electrification or the internal combustion engine.

Whatever the cause, the best solution is more spending on infrastructure, argues Harvard economics professor Kenneth Rogoff in an article for Project Syndicate. Fixing roads and bridges, updating electrical grids and improving mass transit systems would help recharge the economy.

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We shouldn't forget about government debt, says Rogoff, a former chief economist for the International Monetary Fund.

"But productive infrastructure investment that generates long-term growth pays for itself, so there need not be any conflict between short-term stabilization and risks to long-term debt sustainability."

Super-low interest rates and high unemployment help make projects cheap.

But projects don't necessarily have to be government financed, as large amounts of private funds are waiting on the sidelines. President Obama has proposed creating an infrastructure bank to promote public-private partnerships, Rogoff notes.

"It is still a good idea, particularly if the bank maintained a professional staff to help guide public choice on costs and benefits."

However, if low birth rates in advanced countries are the root cause of the secular decline, as some economists suspect, infrastructure projects would have less impact, he concedes.

"The important point is that the case for expanding productive infrastructure investment does not rest on one narrow ideological viewpoint or economic theory."

Anemic growth is typical for the aftermath of a deep systemic financial crisis. Ultimately, it doesn't matter if we're suffering from secular stagnation or just recovering from a severe crisis. Either way, he says, it is "time to break the political gridlock and restore growth."

Former Treasury Secretary Larry Summers, warning of secular stagnation, has also urged the government to spend more on infrastructure projects and focus less of reducing the deficit.

"Growth should be a priority. We are starving our potential," Summers tells Politico

"We have demonstrated that we have a very limited capacity to do many things at once in Washington, and that makes it important that we focus on what is most important," he says.

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Fixing roads and bridges, updating electrical grids and improving mass transit systems would help recharge the economy, Harvard economics professor Kenneth Rogoff in an article for Project Syndicate.
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2013-52-05
Thursday, 05 December 2013 07:52 AM
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