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01 February 2010

Can Government Spending Help Grow the Economy

I wonder, is President Obama's Budget really going to help the economy?  Friedman and Keynes are at odds on what effect government spending, specifically deficit spending, has on a nation's economy.  Keynes says you have got to increase consumption by increasing government spending.  This in effect puts more money back into the economy, especially when industries are not investing.  Friedman says that governments only get money one of two ways, by taxing or by borrowing.  In both cases he government crowds out investing by taking money that might have been legitimately invested in the economy and redistributing it to other economic sectors (i.e. borrowing money that would have been invested in buying factory equipment and providing it as a tax incentive to build roads).

I say there is a balance; government consumption can be used to help jump start an economy, but only if it leads to actual job creation.  President Obama's Budget seems to be trying to meet that mix, but the question is will it survive the pork barrel process of Congress.

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