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The Infrastructure Spending Challenge

Summary:
Macroeconomists broadly agree that productive infrastructure spending is welcome after a deep recession, especially when interest rates are at record lows. But in advanced economies, any new project typically requires navigating difficult right-of-way issues, environmental concerns, and objections from apprehensive citizens. CAMBRIDGE – Encouraging news about more effective anti-viral treatments and promising vaccines is fueling cautious optimism that rich countries, at least, could tame the COVID-19 pandemic by the end of 2021. For now, though, as a brutal second wave cascades around the world, broad and robust relief remains essential. Governments should allow public debt to rise further to mitigate the catastrophe, even if

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Macroeconomists broadly agree that productive infrastructure spending is welcome after a deep recession, especially when interest rates are at record lows. But in advanced economies, any new project typically requires navigating difficult right-of-way issues, environmental concerns, and objections from apprehensive citizens.

CAMBRIDGE – Encouraging news about more effective anti-viral treatments and promising vaccines is fueling cautious optimism that rich countries, at least, could tame the COVID-19 pandemic by the end of 2021. For now, though, as a brutal second wave cascades around the world, broad and robust relief remains essential. Governments should allow public debt to rise further to mitigate the catastrophe, even if there are longer-term costs. But where will new growth, already tepid in advanced economies before the pandemic, come from?

Macroeconomists of all stripes broadly agree that productive infrastructure spending is welcome after a deep recession. I have long shared that view, at least for genuinely productive projects. Yet, infrastructure spending in advanced economies has been declining intermittently for decades. (China, which is at a very different stage of development, is of course another story entirely.) The United States, for example, spent only 2.3% of GDP ($441 billion) on transportation and water infrastructure in 2017, a lower share than at any time since the mid-1950s.

Perhaps this reluctance to embrace infrastructure investment is about to fade. US President-elect Joe Biden...

Kenneth Rogoff
Thomas D Cabot Professor of Public Policy, Harvard University, former chief economist IMF, International Grandmaster of Chess, Latest book: The Curse of Cash

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