Fallout: The Financial Crisis

Infrastructure is a constructive idea

Marketplace Staff Oct 24, 2008
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Fallout: The Financial Crisis

Infrastructure is a constructive idea

Marketplace Staff Oct 24, 2008
HTML EMBED:
COPY

TEXT OF INTERVIEW

Bill Radke: We’ve been telling you for weeks how the global economy is sliding, but what to do about it? Today, we launch an occasional series that looks at solutions. It’s called “What’s the Fix?” I asked economist James Galbraith for his fix. He told me the U.S. federal government should be spreading money out to the states.

James Galbraith: We need steps that will stabilize the underlying economy. It’s going to be necessary to support state and local governments, whose revenue bases are deteriorating very rapidly because of the fall in property tax revenues particularly, and then also the decline in economic activity. To help them maintain services, maintain employment, would be a very important way to stabilize the overall economy.

Radke: FDIC chair Sheila Bair has proposed that the government back some mortgage loans to prevent foreclosures. What do you think of that?

Galbraith: I think it’s a very constructive idea. It sets up an incentive for loan servicers to renegotiate the terms of a loan, to turn these unsustainble, toxic loans that should never have been made into something which has a better chance of keeping the homeowner in the home and keeping the home, you know, in reasonable repair.

Radke: So it’s worth helping lenders and consumers who made bad decisions, bad loans?

Galbraith: In a situation like this, you have to help consumers first and foremost. If you have to help lenders to some degree to get the result you want, I’m not opposed to that.

Radke: You have proposed that the federal government help states invest in infrastructure. What are you imagining?

Galbraith: As credit markets have frozen up, states and localities have much greater difficulty financing public capital expenditure — just at a time when the resources in construction are available because the housing sector is in a slump. So we ought to be taking advantage of the borrowing power of the federal government to pass funds to states and localities to rebuild an infrastructure that has been neglected for over 30 years.

Radke: What would all of this deficit spending do to our long-term health?

Galbraith: It would improve our long-term health. When the private sector is not able to take out loans and to have an expanding credit-based private economy, then the public sector must. If neither does, then you have a great depression. That’s the disaster you want to avoid.

Radke: James Galbraith is a professor at the LBJ School of Public Affairs at the University of Texas at Austin. Professor, thank you.

Galbraith: Thank you.

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