It may be the most compelling part of his economic agenda.
That's because the case for infrastructure spending is still pretty overwhelming, even if we're not still living in the shadow of a severe recession. The short reason why is that infrastructure spending is something we're going to have to do eventually — roads need to be repaved and bridges rebuilt —s o we might as well do it when borrowing costs are at rock-bottom levels like they are now. Indeed, the yield on the 10-year Treasury bond is barely above its all-time low at just 1.5 percent, or 0.1 percent after inflation. Why wait until that's 3 or 4 or 5 percent to do what we could be doing now? Spending money today really might be the best way to save money tomorrow.
The slightly longer version is that this might save so much that it actually would cover its own interest payments right now. This part, though, is more speculative. The idea is that infrastructure spending might put so many people back to work in the short run, lead to pay raises for people already working due to more competition for their services, and make the economy so much more productive in the long run that workers would have more money to pay in taxes and need less money in safety-net spending. Whether those savings are bigger than the interest we'd pay on this additional debt depends, as economists Larry Summers and Brad DeLong point out, on three things: how much government spending helps the economy in the present, or what's known as the fiscal multiplier; how much unemployment will continue to hurt the economy in the future, or what's known as hysteresis; and how high (or low) our borrowing costs really are.
This was as easy as calls get a few years ago. The multiplier couldn't have been higher than it was when the Federal Reserve had not only cut interest rates to zero, but also said it wouldn't raise them to negate more government spending. And hysteresis couldn't have been worse than it was when almost every other unemployed person had been so for six months or more. The worry was that the long-term unemployed would become unemployable if they lost skills, lost contacts, and were outright discriminated against—which would leave us with a smaller workforce, and, as a result, a smaller economy. Interest rates would have had to have been 10 to 20 to maybe even 40 percent for infrastructure spending not to have made sense back then. They were less than 2 percent.
Things are better now, but not all the way. While it's true that the Fed has raised rates once and hopes to keep doing so, it's also true that it's making a point of proceeding at a very, very gradual pace. Which means that the benefit of government spending now -- the multiplier -- might not be as high as it once was, but probably is still meaningful above zero. It's the same story with unemployment. On the one hand, it's back to a relatively normal 4.9 percent, but on the other, the share of unemployed people who have been out of work six months or longer is still worse than it was at the depths of any other recession. Not to mention that there are still a lot of "missing workers" who, for the most part, should be too old to be in school but too young to be retired who nonetheless don't have jobs and aren't even looking for them. So, again, hysteresis isn't as much of a concern as it used to be, but it still is one.
That's more than enough, though, to make infrastructure spending worth it. Even with fairly conservative estimates of the multiplier and hysteresis, interest rates would have to be something like 5 to 7 percent for an infrastructure blitz not to cover its own borrowing costs. Again, they're 1.5 percent right now—and if Japan is any guide, it's not crazy to think that they could stay there another 10 years.
That's something everyone -- apparently other than House Republicans -- can agree on.