From the New Yorker, an interesting link between the housing bubble and investment goals during the last 10 years:

Arguably, the failure to consider investment-led approaches to economic growth at this time contributed to the housing bubble, too. As Asia boomed, a glut of global savings emerged—in China, in other exporting countries, and later in oil exporting states. Because there was a dearth of government-backed, dollar-dominated investment vehicles, global savings poured into the dubious schemes of U.S. mortgage bundlers—prime, subprime, and otherwise. What if there had been a federally-chartered U.S. infrastructure bank or similar vehicle offering relatively safe investments with returns at least a little better than Treasuries, and what if the capital raised from such a bank had been invested into roads, broadband, and a renewable-energy-supporting-electricity grid? We might now be further down the road Obama now apparently wants to travel.

The argument goes on, signaling the need to redirect foreign investments into the national infrastructure rebuilding “by creating financing vehicles–a national infrastructure bank, for example—that could reward both Chinese investors and American productivity”.

Call me Neo-Keynesian, but investing in infrastructure seems to me a reasonable, win-win approach to boost the economy with lasting results. It directly creates high- and low-skilled jobs, creates a plethora of indirect jobs, and the final result, well, is something you will use for decades.

But a Washington Post editorial looks at Japan of the 1990’s for a word of caution:

Between 1992 and 2000, the Japanese launched 10 stimulus packages that included public works. The Land of the Rising Sun became the Construction State. […] The spending yielded painfully little for the rest of the economy. The Nikkei stayed down. The country’s standard of living failed to keep pace with the rest of the world’s.

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