One of my interests is how right-wing economic dogma from American conservatives might be the actual cause of worldwide secular stagnation.
So today I've been looking for articles on public infrastructure spending: the idea is that the Cobb-Douglas production function incorporates government-owned infrastructure, either as a separate term, or as a modifier of the TFP coefficient.
So when you have a government that spends on infrastructure, it increases TFP. Of course, this only happens if the infrastructure spending has a positive return - it's better to build a new highway through LA than through the middle of Alaska - and if all subsequent maintenance (versus the very real yearly depreciation of physical structures) can be funded from the increased tax revenue generated by the productivity improvement brought by the new infrastructure.
This is all pretty fucking obvious to me, because I've worked in highways for 15 years, but apparently economists don't really get it. In fact, in undergrad we're all taught the classical/neoclassical propaganda that all government spending is evil and must be eliminated.
Anyway, Aschauer's 1989 JPE article seems to be the central paper starting the whole area of research into the TFP-growing role in public infrastructure spending, and guess what? The Chinese like his paper:
Aschauer 1989, via irdc.znufe.edu.cn (pdf)
And guess what?
The results of this paper suggest the importance of considering public capital expenditures in attempting to explain the productivity decline. Table 7 presents average annual growth rates of total factor productivity and the nonmilitary public capital stock. The growth rate of the net stock of government capital fell from 4.1% during the period 1950-70 to 1.6% during the later period 1971-85. Fig. 1 is instructive, picturing the normalized relationship between total factor productivity (after accounting for the effects of time, the private factors of production and the capacity utilization rate) and the public capital stock (detrended). Dramatically, the fall-off in productivity growth is matched, or slightly preceded, by a precipitous decline in addtions to the net stock of public nonmilitary structures and equipment.
Really? The post-70s collapse in US TFP growth is the result of right-wing neocon policies that have constrained US public infrastructure investment?
I know Aschauer didn't explicitly say this, but that's definitely the explanation I get from it.
If only some proper economist like Krugman read my blog! Maybe we'd get some sort of discussion on this!
Secular stagnation my ass, Summers. You refereed Aschauer's article, you dumbass: quit blaming everything on excess savings. The world is screwed because of insufficient government investment.
And if public infrastructure investment can increase the rate of return to private capital, then bam! all of a sudden you have generated an incentive for increased private investment, all those excess savings get mopped up, and the world economy goes back to gangbusters for another few decades.
All we have to do is quit with the idiotic neocon fiscal policies that chronically underfund public infrastructure.