The UK, US and EU plan to spend to create growth – but they must be realistic about costs
Encouraging news about more effective antiviral treatments and promising vaccines is fuelling cautious optimism that rich countries, at least, could tame the Covid-19 pandemic by the end of 2021. For now, though, as a brutal second wave cascades around the world, broad and robust relief remains essential. Governments should allow public debt to rise further to mitigate the catastrophe, even if there are longer-term costs. But where will new growth, already tepid in advanced economies before the pandemic, come from?
Macroeconomists of all stripes broadly agree that productive infrastructure spending is welcome after a deep recession. I have long shared that view, at least for genuinely productive projects. Yet, infrastructure spending in advanced economies has been declining intermittently for decades. (China, which is at a very different stage of development, is of course another story entirely.) The US, for example, spent only 2.3% of GDP ($441bn, or £331bn)) on transportation and water infrastructure in 2017, a lower share than at any time since the mid-1950s.