Weak growth means that the plan is necessary to CREATE private investment --- the plan is a “Crowd-In” investment strategy

(Ph.D., Economics, New School for Social Research B.A., Economics, University of Maryland at College Park, “Budgeting For Recovery,” pg online @ https://files.epi.org/page/-/bp253/bp253.pdf //um-ef)

The size of a nation’s capital stock is a key driver of productivity growth, and productivity growth defines how fast living standards can rise. The crowding out of private-sector investment that occurs when governments increase budget deficits in a healthy economy is the prime argument for a hawkish view against rising budget deficits when the economy is healthy. Budget deficits in a weak economy: shock absorbers that ‘crowd in’ investment However, this deficit hawkishness is profoundly destructive if practiced when an economy is sick. When employment and capacity utilization rates are low and falling even as the interest rates controlled by the Federal Reserve are at or near zero, there is no reason to fear that rising deficits will crowd out private investment. So long as there are idle resources in the economy, deficits will tend to increase both savings and investment in roughly equal measure, leading to no sustained upward pressure on rates. The current recession became a catastrophe because American consumers rapidly pulled back on their consumption spending in the wake of the bursting housing bubble. The personal savings rate has jumped from essentially zero at the beginning of the recession to almost 7% today, representing an extraordinary pullback in consumer spending. Hatzius (2009) estimates that this spending pullback was even larger than the one that precipitated the Great Depression. In the simple loanable funds scenario, the rise in savings enabled by this pullback in private spending by households should have led to a sharp decline in interest rates and a rise in investment by businesses, and this swap of increased business investment for reduced consumer spending should have kept the economy from entering a prolonged recession. However, instead the recession has led private businesses to sharply decrease their own investment spending even as interest rates have fallen. After all, when a large portion of existing plant and equipment is standing idle, building more does not make a lot of sense, even if the cost of financing is low. This highlights a key problem with the naïve version of the loanable funds theory of investment—both savings and investment depend on overall national income. In a healthy economy with high and stable employment rates, national income is generally stable and the loanable funds model works relatively well at predicting what will happen to interest rates. However, when overall national income is changing rapidly (say because of a steep recession), the model becomes an unsuitable guide for predicting interest rate changes.