Home > Uncategorized > This Just In: Government Spending Good For Economy, Well Being of Workers

This Just In: Government Spending Good For Economy, Well Being of Workers

August 5, 2016

Eduardo Porter’s weekly column on economics in the NYTimes offered a wealth of evidence debunking the myth that government spending is bad for the economy and offered some indications that the public is beginning to re-think the notion that all government spending is bad. Titled “The Case of More Government Spending and Higher Taxes”, Porter’s op ed article drew heavily on the findings of Jeff Madrick from the Century Foundation, Jon Bakija of Williams College, Lane Kenworthy of the University of California, San Diego, and Peter Lindert of the University of California, Davis — who published a monograph titled “How Big Should Our Government Be?” (University of California Press). The answer? MUCH bigger— and much more costly than it is now! Porter writes:

The scholars laid out four important tasks: improving the economy’s productivity, bolstering workers’ economic security, investing in education to close the opportunity deficit of low-income families, and ensuring that Middle America reaps a larger share of the spoils of growth.

Their strategy includes more investment in the nation’s buckling infrastructure and expanding unemployment and health insurance. It calls for paid sick leave, parental leave and wage insurance for workers who suffer a pay cut when changing jobs. And they argue for more resources for poor families with children and for universal early childhood education.

This agenda won’t come cheap. They propose raising government spending by 10 percentage points of the nation’s gross domestic product ($1.8 trillion in today’s dollars), to bring it to some 48 percent of G.D.P. by 2065.

He then describes how doing this will not decrease GDP, will not diminish the incentive for workers to work harder, and will not slow growth. He does this by offering examples of how Western European countries have spent 10% of the GDP on government spending and remained economically competitive. He also offered this insight into our country’s priorities as compared to those of other developed nations: “Americans took the fruits of their rising productivity in money. Europeans took it in free time.” 

Porter offers data from surveys indicating that most voters are willing to spend more on government funded projects but offers one sobering reality in his otherwise optimistic outlook— racism:

Americans have long been more suspicious of a big, centralized government than Europeans have been, of course. But in recent decades, the nation’s difficult racial divide has played a crucial role in checking the growth of public services. It is much easier to build support for the welfare state when taxpayers identify with beneficiaries. In multifarious America, race and other ethnic barriers stood in the way.

The American government pretty much stopped growing when the civil rights movement forced whites to share public space with blacks. Tax revenue as a share of the nation’s economic output hit a peak in 1969 that it would not attain again until 1996, according to the Organization for Economic Cooperation and Development.

An examination of our drug policies offers an example of how identity with victims plays a role in our perceptions: Taxpayers didn’t identify with crack users but DO identify with opiod abusers, and so we are now looking at drug abuse as a disease and not a moral failing. Taxpayers who felt that the inability of welfare beneficiaries to get work was a sign of laziness are now seeing that meaningful employment is elusive even for those with college degrees and are more open to some kind of government intervention. We had to hit bottom… but now that we have, MAYBE better days are ahead!

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