Paying It Forward: Targeted Borrowing

When the economy is in the doldrums, the government has a few options in its tool box. One strategy is “priming the pump” by injecting the economy with government stimulus, paid for with borrowed money.

Deficit spending can give a boost to the economy, replacing lost demand whenever consumers and businesses are afraid to spend. Depending on how the money is spent, however, the stimulus may just have a fleeting impact on an economy.

On the other hand, if borrowed money is targeted at much-needed public investments, the spending could eventually pay for itself in improved productivity. Alleviating traffic bottlenecks, ensuring the safety of drinking water, or modernizing air traffic control improves people’s lives and promotes future growth.

For some, additional deficit spending is merited even now at a time of relatively low unemployment, since the needs are urgent and the benefits of key investments could outweigh the costs.

Economist Paul Krugman recently argued in his New York Times column that there are a lot of unmet needs right now, citing the aging Metro system in Washington D.C. as one example. He wrote that “there is an overwhelming case for more government borrowing” – given that interest rates are low, and spending would translate into a larger economy and more tax revenue in the future.

In a Washington Post op-ed, former Treasury Secretary Lawrence Summers made the case for infrastructure investments, saying the return on projects would exceed the cost of borrowing.

The key challenge is how to choose projects. With sound economic impact analysis, policy makers can see which projects will likely result in the greatest gains in productivity, employment, and output, and use this information to prioritize spending.

Tackling U.S. Infrastructure Challenges

When it comes to infrastructure, Americans have a daunting “to-do” list.

The U.S. must spend an estimated $3.6 trillion by 2020 to ensure our highways, water mains, electrical grids, and other critical infrastructure continue to meet our needs, according to a report by the American Society for Civil Engineers.

Insufficient infrastructure spending can hurt the economy, as aging highways and bridges, crowded airports, and overburdened public transit slows the flow of goods, services, and people.

But our policy makers have a finite amount of money to spend on transportation. We want to invest limited resources wisely, to make sure we’re prioritizing construction projects that offer the greatest economic benefits.

That’s where economic policy modeling makes a difference. By simulating the future impacts on jobs, productivity and output, we can better evaluate the potential benefits from transportation proposals.

REMI Vice President Billy Leung gave a webinar presentation this topic, reviewing how to rank the viability of investment strategies using dynamic economic modeling. You can find a recording of the presentation here.

Manufacturing Renaissance?

Often you hear the lament that Americans no longer make anything, and jobs that once paid well have moved overseas. We yearn for the past glory of U.S. industry, and look to politicians who promise to “bring back” those jobs.

But what is the real state of manufacturing in the U.S. It is true that the sector employs fewer people than in the past. Its share of the workforce fell from nearly 25 percent in 1960 to less than 10 percent in recent years.

At the same time, we are still a manufacturing powerhouse in terms of the total value of our products. The sector accounts for approximately 12 percent of our gross domestic product, or nearly $2.2 trillion. Since the economy began to recover from the Great Recession, there was even some optimism that manufacturing would enjoy a renaissance.

Nevertheless, manufacturing has only added 800,000 jobs since the depths of the recession, for a total of 12.3 million. Was the manufacturing renaissance overblown? Are we ever going to bring back manufacturing jobs? Or is this just part of the reality of the 21st century? We’re capable of making more with fewer people thanks to technological innovations.

Scott Nystrom, a senior consultant from FTI Consulting, gave a guest webinar presentation on the economic impacts of a manufacturing renaissance. Please check out a recording of the webinar.

Presidential Politics and the Middle Class

Many middle class voters fear they’re falling behind in today’s economy, and both Donald Trump and Hillary Clinton are trying to make the case they have the right answers to these concerns.

Trump described his economic plans in a speech before the Detroit Economic Club. Clinton countered with her own economic speech later in the week.

Politicians on both sides of the aisle always profess concern about middle class economic anxieties, especially now with heightened public concern about rising income inequality.

However, Republicans and Democrats offer starkly different alternatives for addressing these issues, with the former emphasizing less taxation and regulation, and the latter offering new programs paid for by taxing the wealthy.

Analysts can cut through the political chatter by using smart economic modeling to weigh the pros and cons of competing policy solutions.

Before the presidential campaign began, Fred Treyz, Ph.D., REMI’s CEO and Chief Economist, discussed in a webinar presentation the sources of middle class anxiety, different approaches to tackling the issue, and how modeling is vital in objective evaluation of policy options. You can view the slides from his presentation by clicking here.