The majority of economics students know that government expenditures boost gross domestic product. However, the latest US GDP figures suggest that increased government spending has also resulted in private investment, which compounds its influence on economic development.
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Alex Williams, economist with labor advocacy group Employ America, points out that the data behind the GDP report shows an uncharacteristically rapid growth in a subcategory called special machinery equipment. This includes equipment used to make semiconductors.
Williams stated that "the CHIPs Act is already visible in aggregate data", referring to the US law of 2022 which provides $280 billion for new funding in domestic research and manufacture of semiconductors or chips.
Earnings statements also show the impact. Cleveland-Cliffs a major US steel manufacturer announced on April 26, that it would make new investments in its steel production because of the CHIPs Act as well as the Inflation Reduction Act. It is assuming that the companies will build more due to federal dollars.
This proves what British economist John Maynard Keynes, who lived in the 20th century, theorized. Government investment is an investment and can boost a country's economic growth the same way business confidence can. This idea is in opposition to what economists refer to as Ricardian Equivalence. They believe that private actors will be more conservative, waiting for taxes to increase due to government spending.
Williams stated that "I believe people are beginning to reevaluate the orthodoxy in light of how successful demand-side fiscal policy has been in preventing an even deeper recession from accompanying this pandemic."
Detractors of government stimuli often claim that public investments crowd out private investment. Williams noted that not only did each of the stimulus measures that Congress passed during the first half-term of US President Joe Biden focus on areas in which the private sector underinvested, but there is now a high probability that government spending will increase private investment, meaning it will actually crowd in private investment instead of pushing it out.
Robinson Meyer, founder executive editor of climate-focused media Heatmap News called this "the green vortex," where policy, technology and business work together to lower carbon emissions.
Tax incentives will encourage private investment in renewable energy sources, including wind, solar and other forms of renewable energy.
Williams stated that investment was actually on the rise because everyone is pushing for more investment and not higher penalties.