What should the Republican's do now?

There is a parallel in domestic finances. If you borrow money to build an in ground swimming pool or to buy a big SUV, this is a "dead money" loan. If you borrow money to set up a small business, or to reduce your energy costs by insulation/solar power this is a live investment loan
One brings in money or reduces your expenses, while the other is an ongoing drain on your finances.

If a government raises money by bonds or international loans and builds big impressive office buildings it is dead money; if the money goes to productive infrastructure like roads, schools or ports then it will return dividends over time.

Many respected economists believe that he current low or no interest environment should be taken advantage of by governments. By the time interest rates rise the investments will be paying off and it will be a win/win. You get lower welfare bills and higher income tax returns from those employed, and the infrastructure is still there for generations to come.

This works in theory but not in reality. The problem in reality are two-fold.

1. When times were good and the economy was healthy, governments were borrowing to pay current expenses aka dead money. When times got bad that left them little wiggle room to borrow further. Basically the domestic equivalent would be someone who maxed out their credit cards on day to day expenses losing their job.

2. There is a huge trust deficit with the voters. Taking advantage of the low interest rates to borrow money for infrastructure, requires the voters to actually trust that the government will spend the money as they promised.

In the case of the USA, the government borrowed 2 trillion dollars for economic stimulus and wasted almost all of it. Two trillion properly spend on infrastructure could have been a true stimulus and perhaps if they had spent it properly we wouldn't be stuck in this jobless recovery. And perhaps the voters would trust the government enough to approve of further stimulus spending. But unfortunately the politicians wasted the money and the voters justifiably don't trust them with more $$$.

biochem wrote:

There is a parallel in domestic finances. If you borrow money to build an in ground swimming pool or to buy a big SUV, this is a "dead money" loan. If you borrow money to set up a small business, or to reduce your energy costs by insulation/solar power this is a live investment loan
One brings in money or reduces your expenses, while the other is an ongoing drain on your finances.

If a government raises money by bonds or international loans and builds big impressive office buildings it is dead money; if the money goes to productive infrastructure like roads, schools or ports then it will return dividends over time.

Many respected economists believe that he current low or no interest environment should be taken advantage of by governments. By the time interest rates rise the investments will be paying off and it will be a win/win. You get lower welfare bills and higher income tax returns from those employed, and the infrastructure is still there for generations to come.

This works in theory but not in reality. The problem in reality are two-fold.

1. When times were good and the economy was healthy, governments were borrowing to pay current expenses aka dead money. When times got bad that left them little wiggle room to borrow further. Basically the domestic equivalent would be someone who maxed out their credit cards on day to day expenses losing their job.

2. There is a huge trust deficit with the voters. Taking advantage of the low interest rates to borrow money for infrastructure, requires the voters to actually trust that the government will spend the money as they promised.

In the case of the USA, the government borrowed 2 trillion dollars for economic stimulus and wasted almost all of it. Two trillion properly spend on infrastructure could have been a true stimulus and perhaps if they had spent it properly we wouldn't be stuck in this jobless recovery. And perhaps the voters would trust the government enough to approve of further stimulus spending. But unfortunately the politicians wasted the money and the voters justifiably don't trust them with more $$$.

The economic assumptions of centralized policy tend not to work because of scale and scope. Hoover Dam and the Eisenhower Interstate highway system worked to increase productivity in huge ways.

The Obama/Bush Porkulus package did bupkis but waste money. The GM bailout saved nothing but GM's inefficiency. GM could have gone bankrupt and still kept people employed because the cars were needed and consumers would have purchased those cars. Investments in Solindra and other green crony capitalist "investments" simply took money our of productive sectors of the private economy and put it in a pool of investments that are not sustainable without market warping regulations.

Both the green investment and GM show that public investments are shaped by other motives than the efficient use of capital. Because that is so, public investment for the most part produce less benefit for each dollar spent than private investment. The problem exacerbates when truly large sums of money are made available. The temptation to syphon money for personal and political gain becomes irresistible.