Sunday, October 24, 2010
The case of more government spending
This article gives the perspective of parties on both sides of the debate involving more government spending in the U.S. It seems that many economists, including Solow and Friedman, believe that U.S. debt is not something that the country should worry about. These economists, who are pro fiscal expansion, believe that the best way to do so is through spending. Primarily, they encourage investment in infrastructure. On the contrary, Britain has a completely different stance on government spending. Recently, Britain has actually cut government spending in their nation in an attempt to reduce the national debt. The U.S. is confronted with an obstacle because in order to stimulate the economy through government spending, our national debt will increase. On the other hand, if we prioritize national debt then the desired stimulation of our economy may not be accomplished.
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From reading this article it sounds to me that Solow is in support of government spending so long as it is directed toward investments and infrastructure. He believes construction and maintenance of the roads, bridges, etc will created more jobs. He also feels that too much of the current Obama stimulus package was used for state and local budget shortfalls rather than for infrastructure. According to Solow’s model, this dedication to infrastructure can grow the economy and develop more effective workers in the long run.
ReplyDeleteThat being said, capital development is also a key to economic growth. In order in improve k, we must adjust savings. In class we learned that savings in the US is too low. We need to increase our savings to move closer to the steady state. If we spend too much, our national savings will continue to fall. I think we need to be careful not to increase our government spending too much because it lowers our national savings.