Three Questions on Deficit Spending

Editor’s Note: Following is part of an interview with Michael Greenstone by MIT News. The complete interview is here »

MIT News: Due to low borrowing costs, you’ve likened infrastructure or research investments to finding “a 20-dollar bill laying on the ground,” yet the political tide has turned against such spending. Addressing the current opponents of deficit spending, what would you say is the best case for these kinds of investments?

Greenstone: The concern about the long-run fiscal situation is encouraging, especially because the political system has seemed unconcerned about this issue for most of the last decade. However, we need to make sure that we don’t get so drunk on fiscal rectitude that we imperil our future by failing to make investments in our future. Infrastructure and federal support for basic research are two key areas where government spending can lay the foundation for a more prosperous future. For example, infrastructure can reduce the costs of moving goods and ideas and basic research can lead to innovations that become the basis for new industries.

However, government support for infrastructure and basic research share a common Achilles’ heel. If the spending decisions are done to serve political goals, rather than economic ones, they will not fulfill their potential and could even be bad investments.

Read the full interview at MIT News »