Internal Contradictions In Progressivism

In fact, all the recent energy among progressives has been in exactly the opposite direction, that we should borrow more to finance current consumption.  In the very short run, those policies might boost real output.  But over any meaningful period of time an expansionary fiscal policy will boost consumption at the expense of investment, or else create a larger trade deficit.  And that’s what pundits are currently predicting:

The US macroeconomic policy stance is more aggressive than elsewhere. The Organization for Economic Co-operation and Development estimates that President Joe Biden’s $1.9tn American Rescue Plan could raise US output by around 3% to 4% on average in the package’s first full year. Many forecasters project US growth of 6% to 8% in 2021. . . .

The US was running current account deficits of around 3.3% of gross domestic product in the second and third quarters of 2020. Its merchandise goods deficit was nearly two percentage points of GDP higher.

The OECD has estimated Biden’s fiscal package could raise the US current account deficit by three-quarters of a percentage point through the first quarter of 2022. That could mean a US current account deficit around 4% of GDP in 2021.

Suddenly all this hand ringing about free trade costing jobs in manufacturing seems to have gone by the wayside.  Progressives have a bad habit of focusing on an outcome that seems “nice” in isolation, without considering the opportunity cost of various public policies.  That’s one reason I liked the Yglesias post; he discusses how the Silver Line expansion hurt commuters on competing lines.  But I wonder if Yglesias fully understands the opportunity cost of focusing public policy on boosting current consumption.  I don’t doubt that more consumption makes us happier in the short run, but what about the long run opportunity costs?  And why have progressives stopped talking about deindustrialization?  Is the trade deficit no longer a problem?

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