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Sorry Senator Schatz, You Should Pay for Infrastructure

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Senator Brian Schatz (D-HI) on Capitol Hill in Washington, D.C., January 26, 2021. (Tom Williams/Pool via Reuters) The Hawaii senator reveals an unfortunate misunderstanding of debt, deficits, and interest rates.

For lawmakers, nothing is easier than spending money without paying for it. Deficit spending buys support among its recipients and allows lawmakers to appear compassionate, all while dumping the cost on the unborn or those too young to vote.

Despite having built a $22 trillion national debt with this formula, budget deficits still leave many voters feeling guilty about robbing from their kids. Ambitious politicians, therefore, seek to invent justifications to make such spending appear responsible. Many embrace the Keynesian notion that government spending is a perpetual-motion machine that creates substantial new economic activity out of thin air. More recently, advocates of the “Modern Monetary Theory” have contended that the government printing press can finance a nearly unlimited spending spree — a crank concept with little peer-reviewed research and almost zero support among academic economists. This approach has been embraced by big spenders seeking to slap an academic veneer on the same old borrow-and-spend pandering. And then there is the classic justification that “investment” spending need not be paid for because the attendant economic growth will pay for its cost, or at least make the borrowing more affordable.

Senator Brian Schatz (D., Hawaii) recently embraced this case, tweeting: “We should deficit finance infrastructure. Money is cheap, and the things being built last for 30 or 50 or 100 years, so it should be amortized over that period This ‘pay for’ thing is nuts. You just shouldn’t pay cash for infrastructure in a low interest rate environment.”

Where to even begin?

How about his contention that “money is cheap” so Washington should take advantage of this “low interest rate environment”? This argument would be more persuasive if Washington were actually locking in today’s lower interest rates with long-term bonds. Instead, the average maturity of the federal debt is just 62 months and declining. This means that if interest rates rise at any point in the future, nearly

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