Tuesday, July 24, 2012

Free Lunch Money

Paul Krugman explains why it's insane for the US not to prioritize infrastructure investments right now:
Take a look at the latest Treasury real yield curve data — the interest rate the U.S. government pays on bonds that are indexed to inflation:


That’s right: for every maturity of bonds under 20 years, investors are paying the feds to take their money — and in the case of maturities of 10 years and under, paying a lot.
What’s going on? Investor pessimism about prospects for the real economy, which makes the perceived safe haven of US debt attractive even at very low yields. And pretty obviously investors do consider US debt safe — there is no hint here of worries about the level of debt and deficits.
Now, you might think that there would be a consensus that, even leaving Keynesian things aside, this is a really good time for the government to invest in infrastructure and stuff: money is free, the workers would otherwise be unemployed.
But no: the Very Serious People have decided that the big problem is that Washington is borrowing too much, and that addressing this problem is the key to … something.