I’ll tell you about the revival of public spending in the US. Signed: Krugman

A few years ago I attended a meeting where President Barack Obama asked a group of economists for unconventional political ideas. I distinctly remember that he said, “Don't tell me I should spend a trillion dollars on infrastructure. I know, but I can't do it ”.

Things Now: Leading Democrats have agreed on a proposal to spend $ 3.5 trillion on public investment of various kinds, to be passed through reconciliation over a $ 600 billion bipartisan plan for physical infrastructure spending. And some news reports are treating this deal as a defeat for the left, because Bernie Sanders has proposed spending even more.

Of course, the deal reported is just a proposal, and turning it into real legislation will require the agreement of every single Democratic senator.

Still, there has clearly been an incredible shift – a sharp shift to the left – in what is considered politically realistic, writes Paul Krugman in the NYT .

So how did the big expense find its groove? Let me offer five explanations.

First, Covid-19, and the extraordinary political measures America has taken to limit economic hardship during the economy's induced coma, have had a lasting impact on economic ideology. Large-scale disaster relief was obviously needed; even the Republicans voted in favor. But the positive role the government played during the pandemic helped legitimize an active role for the government in general.

Second, the Reaganomics legend has become unsustainable. It was once common for conservatives to claim that Reagan's tax cuts and deregulation ushered in an era of unprecedented economic success; in fact, sometimes I still feel it.

But these days the answer to those claims is, “Are you FRED, brother? I mean, have you at least looked at the numbers available in places like the Federal Reserve's wonderfully usable economic data site? Overall economic growth has been slower since 1980 than in previous decades; thanks to growing inequality, growth for the typical family has been much slower. Real wages for most workers have stagnated.

And while most voters don't have FRED, they have a sense of the underlying reality. Donald Trump's actual policies were a replay of failed Republican orthodoxy, but his election slogan reflected public awareness that the post-Reagan era was, in fact, not that great for workers.

Third, debt alarmists have lost most of their credibility. The fiscal crises they continued to foresee still did not occur. Leading economists have pointed out that even though the debt numbers look large, the low interest rates mean that the cost of servicing the public debt seems easily manageable. The Biden administration's budget proposals note that real interest payments – that is, inflation-adjusted payments – are actually negative.

Furthermore, many of the people who pestered the Obama administration over debt seem to reveal a lot about their true motives by going silent during the Trump years.

Now, it is true that the big spending plans in the pipeline include "pay-fors" – that is, they include compensatory savings and revenue increases, so they will not explicitly involve simply borrowing to pay for public investment. But the dissipation of debt panic means that Democrats won't care too much about how compelling these pay-fors will look.

Fourth, the field of economics has become much more evidence-based than it used to be – and economists have collected a wealth of data indicating the benefits of public spending, especially aid to families with children. Conservatives will still insist that all government spending is wasted, because that's what they do, but the fact is that there is now strong evidence of great benefits for the kind of spending the Democrats are proposing.

An engraved. To the extent that any spending receives bipartisan support, it will be on "tough" infrastructure like roads and bridges, which actually need a lot of work. But for what it's worth, there is an even stronger case for very high returns on “soft” people spending, which makes up the bulk of the Democratic proposal.

The big spending plans now on the table may still not go through. Democrats have a razor-thin majority in Congress, and bankruptcy remains an option. But right now, it looks like the big expense is making a comeback – and it's doing it for all the right reasons.

(Extract from the Epr press review)