March 31, 2020
According to the Washington Post, Donald Trump is calling for a fourth stimulus package, which he wants to be “very big and bold,” and to focus on infrastructure. He argued that this is a good time to do this, since interest rates are very low.
It’s good to see that Donald Trump has discovered infrastructure once again, but there are a few points worth making. First, the prior spending packages are better thought of as disaster relief or economic survival packages. We are trying to cope with a horrible pandemic and to keep people and businesses whole through a period in which much of the economy is shut down.
We really don’t want people to go out and spend money, as would be the case with an ordinary stimulus package. We want people to stay at home, but to be able to pay for their food, rent, and other necessities without the income they would normally get from working.
But it is good idea to think about economic priorities for when the period of shutdown is over, which will hopefully not be too many months in the future. It is not clear that we will need a boost to the economy at that point.
If the effort to contain the coronavirus is largely successful, then we could emerge from the period of shutdown with tens of millions of people having money in their pockets (from the rescue package) and anxious to do the things they have not been able to do for the prior two or three months. This means going out to restaurants, movies, traveling and all sorts of other things. In that context, especially with businesses struggling to rebuild their workforce and get other arrangements in order, we may have too much demand in the economy.
Nonetheless, the focus on infrastructure may still not be a bad plan. Since it takes a long time to get plans in place and projects underway, even if Congress passed a bill next month, almost nothing would be spent in 2020. This is money that would be spent in later years. At that point, even though we perhaps can borrow cheaply today, the infrastructure spending may still lead to higher interest rates in the economy. (This depends on the extent to which we are close to an inflation constraint and the Fed raises rates in response.)
In any case, infrastructure is a good idea, and given the immense problem of global warming, it should be focused on clean energy and conservation. Unfortunately, Donald Trump doesn’t seem to believe in global warming in the same way that he didn’t use to believe in pandemics. But maybe he will be able to learn a little bit in this area also.