‘Blessed are the young, for they shall inherit the national debt’ Herbert Hoover
We often find that ex-politicians and retired economists are able to give an objective and wiser perspective once free of the spin required to protect the vested interests of their main job. I like two such economists in particular, both with very different perspectives and points of view.
Joseph Stiglitz, Noble Prize winner and retired economist from the World Bank, is passionate about finding the solution for ever growing inequality, made worse by Covid. Politicians and economists alike have found this a really tough nut to crack. They have let us down. Joseph is well known for his de-bunking of trickle-down economics. His latest book PEOPLE, POWER, AND PROFITS, Progressive Capitalism for an Age of Discontent is yet another attempt to change our thinking.
The second ‘worthy’ is Larry Summers, the former director of the National Economic Council for President Obama. He created a controversy last month by suggesting Biden’s $2 trillion recovery programme is a bit much. The advice I like is his strong view that the USA (and I believe this is true for the UK, including Scotland) is not spending enough to repair their tired infrastructure. He fears a stimulus of consumer spending only, which suits the voting public and therefore the politicians.
Quote: “I think there is a strong case for a substantially more ambitious national infrastructure investment program, perhaps on the order of one percent of GDP each year going forward.”
He has seen, as have others, that the level of US Government spending on infrastructure has collapsed. After a peak of 3 percent in the mid-1960s, it scraped in at just over 1 percent from 1980 to the mid-2000s and is now a feeble 0.7 percent. Yet it was during the 1960s that Silicon Valley was created with space programmes and the like, thus Tech benefitting 40 years later.
The cost of U.S. Treasury borrowing is currently about 1%. With the Bank aiming for an average inflation rate of 2%, this means the real cost of borrowing is about -1%. There will be thousands of public projects, physical and human, that meet this extremely low threshold. No different for the UK. But keep an eye out for the vote winning alternative of simply boosting consumerism instead.
‘There were two economists who were shipwrecked on a desert island. They had no money but over the next three years, they made millions of dollars selling their hats to each other.’
Our suggestion for infrastructure in Scotland’s case includes: a massive reforestation of Scotland and the creation of a wood-based economy; an accelerated rail and broadband programme; an investment to prepare for the economic boom and new trading route in the Arctic; and a programme to invest in youth, especially in poor areas. That would be a good start on a 50-year recovery journey, post Covid.