Date posted: February 13, 2013
There’s been much attention on the national debt and ways to reduce the government borrowing fueling that debt. But some prominent economists are actually recommending the opposite – more federal borrowing. What is their reasoning? N.C. State University economist Mike Walden answers.
“Well, here’s their logic: … Although the national debt in terms of the amount of money the federal government owns has gone up dramatically, around $16 trillion now because of the tremendous drop in interest rates, the cost of financing that debt is actually very, very low. It’s almost at a 30-year low compared to it as a percent of the overall size of the economy. And this is a sign, obviously, of cheap credit. So what these economists are recommending – and I will say that they are not a majority of economists … — and sort of saying, ‘Hey, we need economic growth, but the federal government can stimulate economic growth by spending money on things like roads, bridges, infrastructure, power grid, et cetera.’ It’s very cheap to borrow money now. There’s not a lot of demand. There’s a lot of money out there to borrow. There’s no sign interest rates are going up. So their argument is, ‘Hey, let’s have the federal government actually, rather than pulling back on borrowing, have them actually increase borrowing, spend that money on all these things that’s going to stimulate economic growth. There are things we need like roads, bridges, et cetera. And we won’t really be paying that much more because interest rates are so very, very low.’
“Clearly this is a highly debated position. But it is one that is out there.”
Category: Economic Perspective