A fine piece in today’s New York Times laments the end of easy money because low interest rates never led to adequate capital investment or public investment in infrastructure. The problem is that supply rarely drives investment: supply of savings and low interest rates. The missing ingredient is demand.

Had we not been dominated by austerity budgeting in Washington, we might have gotten the fiscal stimulus needed to work the economy harder.  More demand would have led to more investment.  Then with costs low—interest rates—we would have gotten strong capital investment.

Had the economy been growing more strongly, there would have been more room for the federal government to spend on infrastructure. Austerity put the lid on both private and public investment. The results are tragic.

Monetary policy alone will rarely do the trick. The drive to eliminate the federal budget deficit has been nonsensical and reduced the nation’s future ability to grow.