Well, all economists at least. Can we all agree that public spending on maintaining and modernising public infrastructure should be increased rather than reduced in a severe recession, whatever the concerns about debt? The spending I have in mind are repairing and refurbishing state owned schools, hospitals, roads - that kind of thing.
Now all those who believe in countercyclical fiscal policy at the Zero Lower Bound will of course agree. But I think those economists who remain worried about the level of government debt should also be able to agree. The reason is that concerns over debt are almost always concerns about long run sustainability. Yet by not fixing holes in the road, or leaks in the school roof, you do nothing to improve the long run sustainability of debt. Almost certainly you are just postponing something that will have to be done sometime, and the act of postponing probably makes the eventual expenditure higher. So postponing public infrastructure investment justs shifts around the timing of public spending, and could well increase its eventually size. It does nothing to tackle issues of debt sustainability.
To see the logic of this more formally, you just have to slightly adapt the analysis in DeLong and Summers (pdf). Their model focuses on hysteresis effects from lower GDP today in reducing output tomorrow, which reduces tax receipts tomorrow etc. But public investment today, in the form of improving existing public capital, will increase output tomorrow just because public capital enhances private output. This idea is pretty standard. For example, in the European Commission’s QUEST DSGE model that I highlighted recently, whereas the long run GDP impact of permanent fiscal consolidation is generally positive for most instruments (because permanently lower government consumption eventually reduces debt and distortionary taxes), the long run multiplier from reducing public investment increases over time, as Annex 1 shows. (By the way, if you read this post, do read Jan i’nt Veld’s response in comments here.)
There are two other reasons why shifting government spending from the future to the present is clearly a good idea in a recession. First, undertaking public investment is likely to be cheaper in a recession. Firms that will do the repairs want jobs and labour is relatively cheap. Second, to the extent that aggregate demand is a problem, shifting the pattern of public spending this way (what I call ‘pure’ countercyclical fiscal policy) is obviously a good idea. This, after all, is essentially what monetary policy is trying to do for private spending.
I am encouraged to think that nearly all macroeconomists could sign up to this by Ken Rogoff, who while clearly being sympathetic to the attempts by some governments to go in for overall fiscal consolidation, does agree that public investment should not have been cut. Why do I think this is an important point to make? Because it just might stop governments doing the opposite. I have discussed UK public investment before (or the strange attempts to get the private sector to fund public investment), and yesterday Cardiff Garcia pointed out how much US non-defense spending on structures has fallen in the last few years.
This reflects a natural tendency of politicians to do the opposite of what is sensible when they feel they have to cut back on spending. Reducing consumption spending is nearly always politically painful, but it is easier to get away with delaying repairs to (or modernisation of) schools, hospitals or highways. It was partly for this reason that Gordon Brown exempted investment spending from his first fiscal rule in 1998, even though the macroeconomic justification for doing so was debatable (see my discussion here). If all economists could sign up to saying that cutting public investment in a recession is a bad idea, whatever the concerns about debt, then just maybe politicians might think twice about doing this.