Friday, June 24, 2011

Keynesian Macro Logic

Brad DeLong has this plea today:

the U.S. Treasury has not taken the $50 billion of TARP money it is not using for housing--and another $100 billion or so of TARP money--and said: "Here is the equity tranche for a U.S. government-backed infrastructure bank. Go out and build stuff!"?

Build stuff? What percent of government expenditures at the margin, become 'stuff'? With a deficit of $1.4 Trillion, spending approved but not yet spent is not like some untapped reserve.

Spending other people's money on other people has a really bad ROE, highlighted by the total indifference to important issues like how money is invested. I would love to be this guy's broker! Consider how hard it is to manage an infrastructure project of say, $10MM. To think that one can, top down, spend $50B and create value anywhere near $50B highlights a total indifference to incentives and a reliance on macro aggregates (C, I, G, M, v etc) that have proven as useful as Marxist conceptions of capital and labor: fun to talk about, but ultimately meaningless.


AHWest said...

What is interesting is that investors seem to have full confidence in the Chinese government when it told its state run banks to finance the building hundreds of billions of "stuff". Now they're already preparing to socialize the ensuing losses. DeLong is jealous of Beijing.

Anonymous said...

DeLong is a self-described neo-liberal, which means he likes highly indirect, market-based "solutions" like lending money. Keynes would not approve.

zarkov01 said...

Is DeLong thinking macro or micro? I'm not sure. He often makes these terse comments that are hard to figure out. If he's thinking macro, then he believes that through the Keynesian multiplier it will boost the economy even if the specific spending has a negative net present value. In other words, building a bridge to nowhere is fine because it will boost the economy. If he's thinking micro then he believes the government will invest the money wisely producing something with a positive net present value. He will say it makes sense to do this because the private sector is too scared to invest, so let Washington do it. Of course when spending other people's money to with no consequence to yourself, it's easy to be brave.

Anonymous said...

Is DeLong thinking macro or micro? I'm not sure.

I'd ask instead,

Is DeLong thinking? I'm not sure.