Keynesian extraordinaire Larry Summers is encouraging President Barack Obama to borrow more money on behalf of the United States in an attempt to jump start the global economy.
With economic growth slowing worldwide, the former Obama and Clinton administration official said that borrowing money at currently low interest rates would help stimulate growth and save money. It's the duty of governments of strong economies to take action, Summers said in an opinion column in the Financial Times. As Friday's disappointing jobs report and other data have recently shown, "the proposition that the global economy is returning to a path of healthy growth looks highly implausible," he wrote.
So, what is to be done? Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more, not less, and investing in improving their future fiscal position even assuming no positive demand stimulus effects of a kind likely to materialize with negative real rates. They should accelerate any necessary maintenance project-issuing debt leaves the state richer not poorer, assuming that maintenance costs rise at or above the general inflation rate.
As my colleague Martin Feldstein has pointed out, this is a principle that applies to accelerating replacement cycles for military supplies. Similarly, government decisions to issue debt, and then buy space that is currently being leased, will improve the government’s financial position as long as the interest rate on debt is less than the ratio of rents to building values – a condition almost certain to be met in a world of sub-2% government borrowing rates.
H/T Business Insider which adds, "Credit to Larry Summers, for putting Keynesian notions of fiscal policy in the most trollworthy manner possible."