The Breakdown

Explaining Southern California's economy

Infrastructure Beat: As borrowing costs fall, investment opportunities rise

The President called for increased infrastructure spending in his speech last night, pointing to the many construction workers who are currently unemployed and, among other things, the need for upgraded schools. It's unclear how much of his $447-billion jobs bill would go toward this objective. But the argument for investing in infrastructure and investing now is strong. Here's the Washington Post's Ezra Klein:

Because of the recession, construction materials are cheap. So, too, is the labor. And your borrowing costs? They've never been lower. That means a dollar of investment today will go much further than it would have five years ago -- or is likely to go five years from now. So what do you do?

Invest! I should reveal that Ezra made this recommendation almost a year ago, when the yield on the 10-year Treasury note was a 2.7 percent — quite a bit higher than today, when the yield fell to a record 1.89 percent before edging up to 1.93 percent.

These ultra-low T-note yields aren't really a good thing, on balance. We've been hanging around 2 percent since the S&P U.S. soverign debt downgrade, which doesn't suggest a whole of confidence in economic growth — in the U.S., Europe, or Southern California, with its housing-battered downturn. However, it's literally never been cheaper for the federal government to borrow. And with infrastructure-targeted spending, it can covert that nearly free money into long-term investments that should pay significant dividends. 

blog comments powered by Disqus

Enjoy reading The Breakdown? You might like KPCC’s other blogs.

What's popular now on KPCC