Paul Krugman offers some wisdom on the Biden team's claims for economic growth in their FY21 budget:
No bombastic boasts about incredible economic growth — because the Bidenites aren't that kind of people, and history has been unkind to such boasts. Policy can cure or cause recessions, but long-run growth is hard to change 2/
— Paul Krugman (@paulkrugman) May 29, 2021
Assuming that government policies stay within normal bounds, they can affect growth rates at the margins but that's about it. Steady, high economic growth depends largely on technological advance, and most government policies don't have a lot to do with that.
They don't have nothing to do with it, and certainly it's a good idea to support an environment that encourages scientific and technical advances. For the most part, though, those aren't the policies that legislators fight over. Partly that's because everyone agrees they're good, and partly because they rarely have a short-term effect that might influence upcoming elections.
Steady, high economic growth depends largely on technological advance ...
Yes, specifically basic science and fundamental (vs. applied) technological advance, and on other public goods with long-term payback, like education and infrastructure, precisely the kinds of things that private entities do not invest in because they cannot return sufficient private profits sufficiently quickly to satisfy capital investors. These are precisely the kinds of things government must invest in, along with the other things they need to do, and by nature they do not have much effect on near-term economic measures.
Don't forget mail service, and more recently the rural electrification and phone service.
Yes those IMO are infrastructure, along with better Internet connectivity and digital access, facilities like public libraries (ones appropriate to current technology) and community colleges, and support (short of actual state provision of services) for things like child- and elder-care that enable individuals and businesses to do the things that, yes, lead to real growth.
Hey, government has no business "investing" in things, since if something were worth investing in, someone would have already invested in it. There is in fact no such thing as "public investment" -- it's a phony term used by kooks like Robert Reich to deceive the gullible public.
As I think I probably mentioned on KD's MJ blog, I came across Dan Bongino saying the above a few years back (maybe before I had even heard of that particular wingnut).
Sure, and Margaret Thatcher said there was no such thing as social welfare, only individual welfare, and look how well that worked out.
Glibertarians and their more overtly Rightist allies routinely make these sorts of silly claims. But the existence of public goods, using the economics definition, is proven by simple observation, and it’s a relatively trivial exercise in mathematical microeconomics to prove that private investment in such goods is below Pareto-optimal levels. Without government funding of such things, we’re ALL worse off.
Unless these things can trigger commercial innovation, they don't provide growth. The late 20th century had 2 things going for it. The blowoff of peak boomer spending and the last gasps of the information revolution(aka Computers go private). There is nothing like that now. Millies only filled in the post-boomer cavity, not exploded past it like the Boomer's did the 1920's/30's baby bust.
Structural growth simply is down. Which mean the old normals(like bond rates for example) need to be revised downward.
Trying to force a mythical "boom" and growth to you drop capitalism simply won't work. It just creates huge debt bubbles.
One things that partisans will fight over is regulations, and regulators. Yet they are needed for commerce to exist.
That fighting can lead to regulatory capture and short term gains for industry and long term headaches for the government.
Outside the Industrial Revolution, which's technological change was so large, it created 2 generations of growth that could feed enough people despite panics in the 90's and late 10's. Before 1879 malnutrition, famine were common in Capitalism's first 300 years.
Essentially 1929 was a death rattle of unregulated capitalism. 1925's end of the industrial revolution was the trigger. Lucky us the information boom of the post-war era provided growth until 2000!!!!! But since, then the double whammy of leveled off birth rates and reduced investment means slower growth. Maybe, degrowther's are where the real left wing left by the 90's.
As my father said, the free market wants white children to die. Now it is too far gone. Any liquidation will destroy the whole thing.
I would also argue Biden's GDP forecast is too low. The Boomer retirement wave is nearing its endgame and Covid probably sped that up. By the mid-2020's, Xers will be begin retiring in droves with Millies now entering their peak spending years. This will boost structural GDP a bit until 2040.
I'm surprised no one mentioned warfare or the MIC
Computers started there
Nuclear power started there
The military developed rockets
Do we need more warfare to increase GDP?
Actually, the first use of rockets was for entertainment purposes, as fireworks. Military applications came later.
Two points.
1) Call it what you want -- insist as some apparently do that the private sector "should" do it, but no economy thrives without fundamental infrastructure: roads and bridges, education, telecommunications and broadband, etc. Governments which fail to invest in these areas preside over lousy economies.
2) When income and wealth inequality reaches the proportions it has in the US, it becomes a major drag on economic activity. Simply put, it starves the economy of aggregate demand, since those who need and want things can't afford to buy them and those who can already have them. Accordingly, we see precisely what we did when Trump and his party cut taxes on the wealthy. There was no point in investing itin new business assets because what demand there was was already being met, so they directed it into financial assets, rather than growth equity.
Government policy -- specifically those Biden is proposing, namely investment in infrastructure and higher taxes on higher incomes (and wealth) -- should have a significant benefit.
The national highway system. Hydropower. Rural Electrification. Public schools. All pretty much useless for helping long term growth. We should just stop funding them.