[NOTE: This is part 5 of a multi-part post. Click here to go to part 1, click here to go to part 2, click here to go to part 3, click here to go to part 4.]
The last 25% of Peck's article talks about things which could be done to assist the economy. Sadly, there are no "magic bullets" included in the article.
There are, however, at least two items which should be obvious to us all.
The first involves our infrastructure. We all know it's in sad shape. 100-year-old pipes under city streets fail on a regular basis, and looking up as you pass under a bridge is often a terrifying experience.
Recall that construction work has been the "sponge" that soaked up many of the men who a generation earlier would have held manufacturing jobs. The housing bubble has burst, and they're out of work. They'd be happy for work, and we'd be happy for them to begin paying taxes again.
But you can already hear the voices from Washington saying, "Where will the money come from?" President Obama has said that we'll find "offsets" in the budget to pay for infrastructure rebuilding. If that doesn't work out, we should borrow it, and let me explain why.
A few day ago, Ezra Klein of the Washington Post pointed out that "The real yield on Treasury debt has, in recent months, turned negative." In simple terms: "The “yield” on Treasury debt is how much the government pays to borrow money. The “real yield” is how much it pays to borrow money after accounting for inflation. When the “real yield” turns negative, it means the government isn’t paying to borrow money anymore. Rather, the situation has flipped, and the government is getting paid to keep money safe. It also means that America is facing perhaps the single greatest investment opportunity in decades." [Emphasis mine.]
Klein continues: "Usually, the U.S. government has to pay quite a bit to borrow money. In January 2003, for instance, the interest rate on a seven-year Treasury was about 3.6 percent, which gave investors a yield of more than two percent after accounting for inflation. Right now, the interest rate is 1.52 percent, or minus-0.34 percent after accounting for inflation."
"Here’s what this means: If we can think of any investments we can make over the next seven years that have a return of zero percent — yes, you read that right — or more, it would be foolish not to borrow this money and make them."
"The case is even stronger with investments we know we will need to make over the next decade. The economy will get better, and as it gets better, the cost of borrowing will rise. The longer we wait, in other words, the more expensive those investments will become."
"Our infrastructure is crumbling, and we know we’ll have to rebuild it in the coming years. Why do it later, when it will cost us more and we very likely won’t have massive unemployment in the construction sector, as opposed to now, when the market will pay us to invest in our infrastructure and we have an unemployment crisis to address?"
"Everyone knows we have worthwhile investments to make. The real reason we won’t take advantage of this remarkable opportunity is ideology: Republicans argue that deficits are the only thing that matters for our recovery — unless anyone attempts to close them through tax increases, and then tax rates are the only thing that matters for our recovery. And Democrats have stopped even attempting to challenge them."
"As an economic theory, that’s just dead wrong. Deficits matter, but in the long and medium term. What matters now is getting the unemployment rate down."
Next: Three generations and you're out!
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