If you want to know why something is said or done, ’follow the dollar’ – in other words, find out who stands to benefit. Earlier this week an article in the Brisbane Times argued that future generations would ‘rue the day’ that the Government failed to take advantage of current low interest rates to invest more in infrastructure. The arguments were being put forward by a multinational company that constructs infrastructure! It is clearly in their interests, but is it in ours? The writer of the report wrote “Borrowing money to build the infrastructure for a future economy is not only the right thing to do, it is absolutely essential to our future economic prosperity.” But is it?
With low interest rates why isn’t the private sector investing if it is such a good idea? May be they cannot see the demand necessary to justify the extra capacity they would be creating? Also they are aware that the economy is in a state of flux and are probably, and sensibly, seeking more clarity on the future before they consider committing shareholder funds. Do we really want our governments to be any the less wise with our funds?
Economists, looking only at the cost of borrowing, often argue that we should borrow to spend at times when interest rates are low. In a recent ABC news item, Glenn Withers, economist at the ANU, argued that current low interest rates meant this was a good time to invest in infrastructure but Gary Bowditch, Head of the Better Infrastructure Initiative at Sydney University said the price of money and historically low interest rates were “completely meaningless in the current context, first we needed to be choosing the right projects”.
Question: Who do you agree with, and why?
There is an interesting article by Tim Worstall in Forbes Opinion: Low Interest Rates Do Not Mean We Should Borrow More
Worstall argues that the need for investment may not exist, that the borrowings would not be well spent, and that the interest rates themselves are artificial.
I like his analogy “(like) asking your barber whether you need a haircut”.