The upcoming election will match low-tax, high-spending Donald Trump against high-tax, higher-spending Hillary Clinton. By all responsible reckonings, the next president will preside over rising deficits, funded by increased borrowing. That, of course, is what latter-day Keynesians such as Harvard’s Larry Summers are calling for. With monetary policy seemingly having done all it can to boost growth, and the economy moribund—mired in secular stagnation is Summers & Co. would put it— he argues not unreasonably that it makes sense to borrow to invest in projects that produce jobs and have a social return in excess of the nil-to-low borrowing cost. Call it infrastructure. What if the rating agencies are unhappy? No matter. When the agencies downgraded US bonds from triple-A to double-A there was hardly a ripple in money markets, and borrowing by the government remained cheap by historic standards.
In the household sector, the logic is similar.
