You often find people talking about our economic difficulties as if they were complicated and mysterious, with no obvious solution. As the economist Dean Baker recently pointed out, nothing could be further from the truth. The basic story of what went wrong is, in fact, almost absurdly simple: We had an immense housing bubble, and, when the bubble burst, it left a huge hole in spending. Everything else is footnotes.
And the appropriate policy response was simple, too: Fill that hole in demand. In particular, the aftermath of the bursting bubble was (and still is) a very good time to invest in infrastructure. In prosperous times, public spending on roads, bridges and so on competes with the private sector for resources. Since 2008, however, our economy has been awash in unemployed workers (especially construction workers) and capital with no place to go (which is why government borrowing costs are at historic lows). Putting those idle resources to work building useful stuff should have been a no-brainer.
But what actually happened was exactly the opposite: an unprecedented plunge in infrastructure spending. Adjusted for inflation and population growth, public expenditures on construction have fallen more than 20 percent since early 2008. In policy terms, this represents an almost surreally awful wrong turn; we’ve managed to weaken the economy in the short run even as we undermine its prospects for the long run. Well played!
And it’s about to get even worse. The federal highway trust fund, which pays for a large part of American road construction and maintenance, is almost exhausted. Unless Congress agrees to top up the fund somehow, road work all across the country will have to be scaled back just a few weeks from now. If this were to happen, it would quickly cost us hundreds of thousands of jobs, which might derail the employment recovery that finally seems to be gaining steam. And it would also reduce long-run economic potential.
The Republican strategy is to divert funds from public projects, which everyone uses one way or another and some more than others, to corporate bank accounts. They don’t care whether those funds are paid out to their sponsors in cold hard cash, very steep tax discounts (some 100%), subsidies (hello Big oil!), selling off assets at pennies on the dollar to promote “business,” or if it’s by starving the states of much needed funds and then watching them sell off highways to install private tolls.
The strategy works for labor, too. We have millions of new partially-employed low-wage workers who can afford to eat again and not much more. We have college grads entering a work force that isn’t going to pay them well-enough to move out of mom and dad’s house just yet.
The Atlantic’s CityLab did a piece on the looming rental crisis. Looming? Well, yeah. There aren’t enough rental units to compensate for the lack of home buyers. We have the opposite of what made the housing bubble a bubble. [ … ]
To read the rest of this op-ed and my comments in their entirety, click here
Curated from www.nytimes.com