Question

Describe some of the choices the government makes between consumption today and investment for tomorrow.

Answer 1

When the economy needs short-term demand stimulus, as it does now, the stimulus may come from infrastructure spending, i.e. government investment, or from spending on something with little long-term gain, such as massive fireworks shown across the nation–big lavish events costing millions and millions of dollars in the most distressed economic areas (state) The goal is to kick the economy in the short run, and a fireworks show is just as good at that mission as spending on infrastructure if the investment is about the same.

Consumer spending is what households are doing in order to meet their daily needs. This contains all goods and services in this private consumption. Each of us is a customer. Every day, the products we purchase build the market that keeps companies competitive and hires new workers. Nearly two-thirds of consumer spending is on goods, such as land and health care. Certain services include finance, savings, and insurance services. There are also cable and internet services, and even non-profit services.

In the long run, there is where they vary. The firework display leaves only memories–and sometimes that's enough to justify spending–but let's say that the displays were for the most part nothing more than an excuse to spend money to get local economies going (not that there's anything wrong with that; also, perhaps a sequence of shows would be easier so that the excitement spreads over time and helps the economy through it. Nonetheless, spending on infrastructure has long-term benefits and can help the economy grow faster.

It seems, therefore, that spending on infrastructure is the obvious choice, as it has both short-term and long-term benefits. But there is another factor as to how easily each form of spending can be put in place. If a "fireworks show" can be set up very quickly, while it takes much longer to get infrastructure spending underway, then strategy should be a combination of spending that hits the economy instantly (government consumption) and spending which hits the economy a little later, has long-lasting effects and stimulates future growth (government investment).

Then the politics is there. Conservatives also oppose government investment (for example, arguing that the multiplier is zero even in poor economies, arguing that tax cuts enabling the private sector to invest are more effective than government spending, or arguing that our debt is too high to spend any longer. And the claim that the private sector does it better doesn't hold because most of this spending is on public goods, if it provides them at all, the private sector will not provide in sufficient quantities. Finally, today we can afford to borrow to fund investment projects with long-term benefits that outweigh the costs.