Even IMF believes in debt financed public infrastructure: at current low interest rates multiplier may be 3

According to a commentary by Larry Summers in today’s Financial Times the IMF has pronounced itself finally in favour of major public infrastructure investment financed not by tax increases but by medium and long term borrowing. The current low interests that prevail make it possible for investments in public infrastructure to be financed by the issuance of public debt and more than pay for themselves. In fact, the IMF is arguing that for a given dollar of public investment financed in this way there will be close to a threefold increase in output. That is a multiplier of nearly 3 ! This comes as no surprise to Keynesians like myself who have been arguing precisely this point for decades. But it may well come as a shock to the neo-cons and fiscal conservatives who fill the front ranks of finance ministries the world over including here in Québec. Austerity is quite simply the wrong approach to solving our current economic problem. I have stated it many times.Other Keynesians and post Keynesians have argued it for years. Paul Krugman and Joseph Stiglitz originally cautious about deficits have written about it. Larry Summers has come on board.President Obama supported the position and the U.S. economy benefitted. And lo and behold the anti deficit IMF now argues the same point. Its about time the political establishment embraced this.

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About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
This entry was posted in anti austerity, deficit hysteria, Keynesian policy, public infrastructure investment. Bookmark the permalink.

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