The role of government always seems to be the dominant topic of any political debate, especially when examining the US economy on a macro scale. What should the government do to mitigate market failures? How should they support consumers and producers alike? But the biggest question that separates the left from the right side is how big of a role should the government have in the American economy. It was just 8 years ago when a recession hit the US. This recession was named one of the worst global financial crises by former head of the Federal Reserve, Ben Bernanke. It’s widely known that it is the government’s job to propel the economy past institutional failures and bankruptcy of a recession by lowering interest rates, implementing tax cuts, and more government spending. But what happens when the recession is over? Is it solely on the government to stimulate growth and revive a once threatened economy or do businesses also have a responsibility to lend a hand?
Economists will always point out that growth fluctuates over time as the well being of a country and its economy staggers. The year is now 2016 and it seems like the US economy should have fully bounced back from the most recent recession that ended in 2009. But the question to be asked is: whose job is it to promote growth if recovery is slow? Timothy Taylor, blogger at the Conversable Economist and editor of the Journal of Economic Perspectives, recently appeared on an episode of Econtalk and gave his two cents on the subject. Taylor touched on this question of the role of government and business to create economic growth in times when growth is needed. There was an interesting paradox that was brought up: why do firms face the blame when the care of workers is brought up and how come only the government is expected to find economic growth? A lot of focus is placed on companies to give employees better wages, health care, or benefits when times are tough. Taylor compares firms and businesses to golden geese eggs; we are always telling them what to do or give us. Housing permits, parking structures, zoning issues, environmental policies. There are a variety of government regulations like these that are needed and done for good reason. But we also have to protect these golden geese and allow them the space to continue to invent and compete. Which brings the discussion to question of isn’t it the firms who are also the key to economic growth?
The end of the recession has come and recovery is on the horizon, but it is slow as seen in the past. At the peak of the recession unemployment was at 10% and has now come down to 5%, according to the Bureau of Labor Statistics. But as Taylor states, output and employment isn’t to everybody’s satisfaction. So at this period, post-recession, where is the growth? It is still being expected to be sought after by the government in the form of low interest rates and government spending. It is in the best interest of the producer to modify and improve their product as a way to continue to gain profit. Thus shouldn’t this innovation be labeled as important to the recovery of the US economy? Governmental policies could help support innovation and development and ultimately encourage firms to continue to create. Many larger companies such as Apple are placing more invest in buying out the ideas of smaller businesses instead of spending more on internal product development. Essentially many companies are outsourcing their research and development. It would be interesting to see how growth improves if research and development is internalized within companies and reinforced by the government through incentives. It is common knowledge that growth must be achieved to see a thriving economy, but one must first figure out which path or set of paths can produce a healthy economy.