Moreover, included in the US measure is the highest ratio of defense spending to GNP of any advanced nation. This means that excluding defense, we have by far the smallest public sector plus transfer system, in relation to GNP, in the developed world. Moreover our public sector has grown more slowly than that of any other developed nation. Could it be that many of our problems arise because our government is spending too little, in relation to GNP, rather than too much? Can we really manage the problems of a modern economy with less government participation than other nations require? Our social and economic statistics do not paint an encouraging picture.These issues call for analysis and interpretation. Yet in public political discussion it is all too commonly assumed that government spending must be reduced further. However, recent studies have provided evidence that public investment in education, R&D and infrastructure will add more to future GNP than private spending, and further is likely to stimulate private productive investment. Far from trying to curb or cut government spending, the Clinton Administration needs to do just what Professor Friedman apparently fears—"…deliver…little if any deficit reduction, but instead [provide us with] a big increase in domestic spending, financed by a combination of new taxes and defense cuts…"
Moreover, included in the US measure is the highest ratio of defense spending to GNP of any advanced nation. This means that excluding defense, we have by far the smallest public sector plus transfer system, in relation to GNP, in the developed world. Moreover our public sector has grown more slowly than that of any other developed nation. Could it be that many of our problems arise because our government is spending too little, in relation to GNP, rather than too much? Can we really manage the problems of a modern economy with less government participation than other nations require? Our social and economic statistics do not paint an encouraging picture.
These issues call for analysis and interpretation. Yet in public political discussion it is all too commonly assumed that government spending must be reduced further. However, recent studies have provided evidence that public investment in education, R&D and infrastructure will add more to future GNP than private spending, and further is likely to stimulate private productive investment. Far from trying to curb or cut government spending, the Clinton Administration needs to do just what Professor Friedman apparently fears—"…deliver…little if any deficit reduction, but instead [provide us with] a big increase in domestic spending, financed by a combination of new taxes and defense cuts…"
DR. FREIDMAN RESPONDED:
I supported President Clinton's deficit reduction package (indeed, I argued in these pages for a more aggressive program than the President's) not merely because I believe increased investment is essential to achieving productivity growth and with it a rising standard of living but also, and importantly, because I share the President's assessment that on average the US economy will be near to full employment during the period in question.For example, I suggested in Day of Reckoning that President Reagan's tax cuts and greater military spending not only did not crowd out US private investment during the high-unemployment years of 1981–1984 but probably crowded in some investment by increasing overall economic activity and hence people's incomes and their demand for many products. In the end, I was therefore pleased that Congress passed the President's program. No one likes paying higher taxes, of course, or doing without the programs curtailed by cuts in government spending. But I believe that reducing the government's borrowing, and so increasing our country's investment, is the surest way we know to begin to correct the dual problem of declining average living standards and widening inequalities about which I have previously written here.
I supported President Clinton's deficit reduction package (indeed, I argued in these pages for a more aggressive program than the President's) not merely because I believe increased investment is essential to achieving productivity growth and with it a rising standard of living but also, and importantly, because I share the President's assessment that on average the US economy will be near to full employment during the period in question.
For example, I suggested in Day of Reckoning that President Reagan's tax cuts and greater military spending not only did not crowd out US private investment during the high-unemployment years of 1981–1984 but probably crowded in some investment by increasing overall economic activity and hence people's incomes and their demand for many products.
The answer is... not to stop government spending but to stop government borrowing, and reign in the government bureaucracy, which the Bush-Republicans created. They sold out our nation, our nest egg's and our children inheritance to foreign banks and foreign countries, and placed our overall security on the most untenable ground ever.
What President Obama needs to do is stop government borrowing to attack the deficit, and pay off the foreign debt, ASAP. President Obama must continue his full court press and pass the twin reform of both the energy and health sectors and achieve the economies of scale and energy indepence that are so large a part of our present and future GNP. President Obama must continue to invest heavily, and even take a more aggressive approach to implementing the public investment in education, R&D and infrastructure that will add more to future GNP than private spending will ever accomplish on its own, and which is further likely to stimulate private productive investment well into our childrens future.
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