WASHINGTON ― The U.S. economy is bad ― not as bad as it was in 2009, but still pretty bad. Real incomes for the bottom 99 percent of American households have actually fallen since the economy technically climbed out of recession.
The recovery has been weak because people who live in the United States do not have enough money to buy the things they need. When consumers fail to spend money, shopkeepers cannot employ the workers needed to sell them goods and producers cannot employ people to make stuff. This means fewer people are working, which in turn means that families have less money to spend on necessities, and the cycle continues.
The solution is for somebody to spend money to put people to work for good pay. Since the private sector is failing to do that, the government has good reason to step in. That spending can be paid for by increasing taxes, by cutting other spending, by issuing new debt or some combination of the three.
Which brings us to Donald Trump and Hillary Clinton, who are both running for president and talking about the economy. Trump is running a fascist campaign which, in addition to attacking American veterans, women and immigrants, has proposed a massive tax cut. Even under a generous analysis from a conservative think tank, Trump’s tax plan would balloon the total federal debt by about 75 percent, with the overwhelming majority of the benefits flowing to the super rich. None of this would directly address the core economic problem behind the sluggish recovery ― ordinary Americans not having enough money to buy things.
In other words, Trump’s tax plan is a complete joke. But even a stopped clock is right twice a day. Appearing on Fox Business on Tuesday, Trump vowed to “at least double” the size of Clinton’s proposal to spend $275 billion rebuilding American infrastructure. This would be, effectively, a massive government spending program aimed at putting people back to work, addressing the actual economic problem of the day. When Fox asked how Trump would pay for his $550 billion-plus program, which would rival the amount of infrastructure spending in President Barack Obama’s 2009 stimulus package, Trump made vague gestures to a “fund.”
“People, investors,” Trump told Fox Business. “People would put money into the fund, citizens would put money into the fund and we will rebuild our infrastructure with that fund and it will be a great investment and it’s going to put a lot of people to work.”
This is an awkward description of a very common process otherwise known as “borrowing money.” It drew immediate scorn from “how are you going to pay for that?” circles. But here’s the thing: Selling bonds to pay for spending isn’t just a reasonable idea. It’s the obvious smart thing to do.
Right now, it is actually profitable for the U.S. government to borrow money ― even if you don’t take into account economic growth, future tax revenues or any of the other effects that increased government spending might have.
The global economy is so screwed up that investors are offering the U.S. government negative real interest rates. Taking inflation into account, investors will pay the government to park their money with us. We can quite literally profit from borrowing.
In late June, Ezra Klein directly asked Clinton whether she would take advantage of these conditions to boost government spending. She rejected the idea, arguing that the government should tax the rich to pay for new investments. That’s all well and good, but there’s no reason Clinton couldn’t do both. She didn’t explain why her administration would be incapable of both taxing the rich and capitalizing on a debt market that quite literally allows the government to reduce the deficit by borrowing money.
Trump’s infrastructure plan, if you can call it that, is vague and poorly defined. But so is Clinton’s. Her initiative involves private capital, public investment and a new institution known as an “infrastructure bank” which may or may not be a truly great idea, depending on the as-yet-unreleased details.
And it’s OK to be vague about the details of these proposals months before taking office, when you don’t know exactly what Congress or the global economy will look like. But the idea of borrowing money to pay for a major investment in the U.S. economy is perfectly sound. Only very hard-line conservatives would reject it. And in the process of attacking Trump’s tax plan, the Clinton team has at times relied on conservative arguments. During a speech in late June, Clinton attacked the idea of printing money to pay for new debt.
“We know what happens to countries that tried that in the past, like Germany in the ‘20s or Zimbabwe in the ‘90s,” Clinton said.
The United States in 2016 is not Germany in the ‘20s or Zimbabwe in the ‘90s. It has a functional economy and a stable, legitimate democratic government with a debt burden nowhere near what the Weimar Republic faced after World War I. Even if investors weren’t offering to pay us money to borrow from us, we would not be risking hyperinflation by financing modest new borrowing with money-printing.
That isn’t a radical idea. It’s Keynesian economics, something Democrats typically approve of. Clinton’s attacks (which have been echoed by allies on Twitter and in a Democratic National Convention video) smack of fear-mongering, not measured analysis.
To be clear, under the tax plan Trump put forward in September, the federal government would effectively borrow $10 trillion, hand almost all of it to rich people and then see what happens. If things get ugly, Trump has said he would print money to deal with it. That’s a dumb plan. But it’s not dumb because it involves borrowing or printing money. It’s dumb because it would give tons of borrowed money to rich people for no reason.
The infrastructure plan Trump floated on Tuesday wouldn’t do that. It involves borrowing money (at a profit) and spending it on projects that put people to work tackling real economic needs. That’s a good idea, if Trump actually understands it.
