Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The US Needs a Robust Infrastructure Spending Program

Stock-Markets / Infrastructure Oct 11, 2016 - 02:59 PM GMT

By: John_Mauldin

Stock-Markets

I’ve been quite hard on central bank leaders lately, and rightly so. But once in a while, a central banker says something that makes sense. When it happens, I want to be fair and highlight it.

Bank of Canada Governor Stephen Poloz gave an unusually coherent Sept. 20 speech called Living for Lower with Longer. The “lower” refers to lower interest rates. He discussed some of the broader factors contributing to the extended low-rate environment.


Poloz thinks (and I agree) that the aging Baby Boomer population is slowing down economic growth. He is less persuasive about the benefits of low interest rates for workers and savers, but his entire speech is worth reading.

Poloz gives several economic policy prescriptions. One is infrastructure spending.

One important impediment to business growth that is widely shared globally is weak infrastructure. We know that infrastructure projects spur growth in the short term by boosting demand. More importantly, infrastructure projects can support long-term growth by raising an economy’s potential output.

Among economists, there has been some debate over the size of the impact on potential output that infrastructure projects can deliver. Deputy Governor Sylvain Leduc did some research during his time at the Federal Reserve Bank of San Francisco. The research showed that, within six to eight years, US government spending on highway projects delivered at least one dollar, possibly two to three dollars, in increased output for every dollar spent. It would be helpful to have more research on the fiscal multipliers of infrastructure spending in Canada. But it seems likely to me that well-targeted infrastructure investments will yield more economic growth than just the first infusion of cash because they enable more growth to occur in the future.

I know it’s very Keynesian to say that government spending can create growth. Of course, the other side of the equation matters, too. What kind of economic activity won’t happen because the government diverted capital to its own politically decided priorities?

It’s a fair question. I’ll gladly debate it with you while we sit in a traffic jam on our way to a dilapidated airport where our planes take off late because a vacuum tube burned out in the air traffic control system.

Does any of this enhance GDP? I think not. We can accept that the way we handle this problem is not ideal, but continuing to ignore it is not a good option, either. If we do it with capital that would otherwise sit idle, then the opportunity cost should be minimal.

Poloz adds that targeted infrastructure spending could “add another tenth or two of a percentage point to potential output over the medium term.”

That’s not much, but it’s not nothing, either. Given that nations are struggling to show even 2% GDP growth, every bit helps. It might harm the companies who make high blood pressure medicines—but it was government failure that gave them all of those customers in the first place. We need to move back toward balance.

We desperately need to repair and replace a vast part of our national infrastructure. We have legions of former manufacturing workers and young people who need work. And we need to remove as many obstacles to economic growth as possible. We can do all three with an aggressive, Federal Reserve-funded infrastructure program.

Get a Bird’s-Eye View of the Economy with John Mauldin’s Thoughts from the Frontline

This wildly popular newsletter by celebrated economic commentator, John Mauldin, is a must-read for informed investors who want to go beyond the mainstream media hype and find out about the trends and traps to watch out for. Join hundreds of thousands of fans worldwide, as John uncovers macroeconomic truths in Thoughts from the Frontline. Get it free in your inbox every Monday.

John Mauldin Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in