Government\'s Role in Economic Growth

ECONOMIC INSTABILITY VS. FISCAL POLICY

Fiscal Policy vs. Economic Instability

Much has been stated and asserted about what governments can do to inhibit or create economic growth. Indeed, many politicians campaign and assert that they can create jobs and economic growth. Others suggest that such statements are pure folly and are no indicative of reality. The truth about governments and their ability to start or stop economic growth is somewhere in the middle. While governments passing and enforcing fiscal policy can encourage or allow for growth, they cannot organically create it but can absolutely hurt the economies they say they want to save if they act the wrong ways.

If the last five years in the United States has proven anything, it would be that keeping interest rates extremely low and offering piecemeal tax breaks alone are not enough to fix the economic travails and problems that were laid bare during the Great Recession from 2007 to 2009 and that still fully hasn't healed in terms of the housing and job markets. Indeed, news just came out that the United States economy contracted by nearly three percent in the first quarter of 2014. Even so, there are things that government can do, and largely has not been doing, to make things smoother and more expedient in terms of eliminating or preventing economic stability (EconLib, 2014).

One example of fiscal and similar policy creating problems is the recent spate of piecemeal extensions of the budget ceiling and budget impasses over the last few years. That issue was solved with a long-term solution that lasts about two years into the future but for a while deals had to be struck every three to six months so that the government could just meet their obligations for budgets and spending that was already in force and agreed upon. The reason this led to economic instability was in large part because the taxation playing field was not defined all that far into the future and some people were demanding higher taxes. To a lesser extent, but certainly not insignificant, have been the concern about the trillion-plus deficits the government has been running as of late as a matter of routine since the economy tanked in late 2007 and early 2008. Another common and accepted way that governments adjust for economic issues was already mentioned in passing, and that is the lowering/raising of interest rates as the fortunes of the government and its economy rise and fall. As the economy does better and better, it begins to cost more money to borrow as demand is high. However, when the economy falters, the rates are lowered so as to encourage more borrowing and investment. However, also as noted before it is not a "fix all" as there are certainly other factors that encourage or discourage borrowing such as recessions, budget deficits, uncertainty about tax rates/types in the coming years, health insurance costs/ObamaCare and so on (Hepler, 2013)(O'Leary & Selbin, 2013).