Government has become its own worst enemy when it comes to the economy,
with public spending putting a damper on growth that otherwise continues
at a steady if unspectacular pace.
Friday'S GDP report
confirmed what a drag government can be: While consumer spending grew
at a 2.9 percent clip, state and local governments cut back spending by
1.2 percent on an annualized basis and the federal government pulled
back by 5.6 percent.
4 comments:
Frank - what are you trying to argue here? Are you saying that because government spending cut spending, it created a loss for the GDP? If so, I would agree with you. When consumer confidence is still relatively low to preview 2008 levels and investors still have their stocks locked into long term contracts due to the recession. It only makes sense for the government to increase spending until CC rises, investors believe that the economy will continue to rise and they can start investing in the short term.
I would agree with you. People have money, we have a high savings rate--people just do not feel safe spending yet. I am a believer that CC pays a higher role in our economy then most think. People have money, we just have to figure out a way to get them to start spending it--and increasing spending is an option.....however one that is somewhat controversial because of our 14 trillion $ defect....
Government intervention is always a heated debate among economists. However, it is hard to say who is right and who is wrong. There is no such a standard that could clearly measure the effect generated from a change of government policy/strategy. I agree that cut government spending at this time might dis-encourage consumption which might ultimately has an impact on economic growth. However, the recovery of the consumer confidence might balance out the effect induced by the decrease of the government spending. In a word, concerning for the government intervention, there is no certain answer but disputes all the time. More research needs to be done to further our understanding of government policies.
I agree with Kexuan's comment. Government intervention may not be the best for economic growth in certain situations. However, it does play an important role dealing with externalities, a process that can lead to better quality of life for individuals. Over time, this can lead to a better economy.
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