Should the US Government Spend More?

Economists and investors agree that whichever party forms the next US Government, it must cooperate with Congress to spend much more money. The big question is the amount of money to spend and the time to do it. Everybody agrees that in case an economic crisis hits the United States, the rescue effort must include government spending. Even Janet Yellen, the Federal Chairperson, agrees. She said that fiscal policy has played a major role in tackling tough economic downturns. One of her colleagues, John Williams of San Francisco Fed, was more direct when he said that fiscal policy must be the first responder equivalent at the time of recession.

Need of the hour

There were even discussions on whether the United States should create kind of “automatic stabilizers” which would jump in whenever the economy sinks and crosses a certain level. The Federal Reserve has been doing the majority of the work of boosting the nation’s economic growth in the last few years. The Fed has argued that there are limits to what it can do.

Investors speak in one voice when they ask the Congress to unscrew the money tap as quickly as possible. Larry Summers, who was the Treasury Secretary when Bill Clinton was President, has asked for increased government spending for a long time now. According to him, more spending by the government will push the nation out of what he terms as the economic “secular stagnation”. Identical views are echoed by a whopping 48 percent of the investors. These investors hold the opinion that the present global fiscal policy can be regarded as too restrictive. This view, as found by the Global Fund Manager Survey done by BofA Merrill Lynch, also wants Europe to spend bigger amounts post BREXIT vote.

Political yes

The above is also applicable for the US, where the economy is performing well. About 43 percent of total experts who responded to the survey said that government spending can be described as “too restrictive”. This is an increase from the 29 percent who responded a year before.

Both presidential candidates. Donald Trump and Hillary Clinton, have clearly received the message. They have given a proposal to up government spending, particularly in infrastructure. Democrat Clintion has wished to to push in $275 billion during her initial term into this sector in improving US roads and bridges. When it comes to the Republican, Trump has promised twice that much amount of money.

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