Despite all the rhetoric these days about tax and budget cuts, the reality is that we will only see real improvement in employment prospects for our nation’s workers if we start seeing strong economic growth. What’s needed is the kind of strong, sustained economic growth that provides American businesses assurance that as they hire more workers there will be sufficient economic demand for the goods and services those workers help deliver.
Tax cuts can help shore up demand for goods and services in the short run, but you can’t cut taxes enough to spur economic activity and job growth long term. And tax cuts without reductions in spending add to the federal deficit. Eventually, the kinds of massive deficits our government has been running become a major problem.
Meanwhile, reductions in government spending in the short run translate into reduced demand for goods and services. The kinds of drastic spending cuts currently being discussed by many conservatives under the guise of “limited government” could seriously undermine, or at a minimum delay, economic recovery. The only way forward for growing our economy requires the Federal Reserve to keep the money supply growing, and keep the cost of capital (i.e., interest rates) low. At the same time, federal spending must be maintained at levels sufficient to support short term demand for goods and services.
Government spending — especially deficit spending — won’t result directly in strong job creation. Private sector investment is needed to create the millions of jobs Americans need. But government can ensure a social safety net that we all benefit from. Unemployed workers don’t create demand for goods and services. Uneducated Americans won’t contribute anything to our economic future. A crumbling and outdated infrastructure can’t support the American economy in an increasingly competitive world. Government can and should provide research and development funding for the new technologies that are likely to spawn new industries and strong economic growth in the future.
In the late 1950s and 1960s, investments by the government in the DARPA and NASA programs were our response to the Soviet Union’s launching of Sputnik. Those government investments led to the emergence of information age industries that have powered the American economy for a generation, and provided our military with the leading edge advantages that have kept America strong. We need to keep investing as a nation in the technologies that put the American people back to work.