Macroeconomic Policy and U.S. Competitiveness

Richard H.K. Vietor and Matthew C. Weinzierl

The United States is on a glide path to fiscal disaster, with experts projecting that the federal government will take in far less money than it spends--indefinitely. Our current fiscal policy is eroding competitiveness in several ways, and business conditions in the U.S. will deteriorate if there's no change in direction. The authors examine how fiscal policy relates to the three drivers of productivity: improving human capital, increasing physical capital (equipment or software, for example), and using these forms of capital more efficiently. Government spending for many public goods, such as education and infrastructure, contributes directly to one or more of them, whereas spending on health care and entitlements does little to enhance competitiveness directly. Taxes are needed to fund public goods, but they sometimes distort the allocation of human and physical capital. And large government deficits put upward pressure on the cost of borrowing for companies. The authors propose a plan--they call it "20/21 by 2021"--to reduce the deficit from 3.8% of GDP (the Congressional Budget Office's most likely scenario) to just over 1%.

Read the article here.

Read the working paper, "Macroeconomic Policy and U.S. Competitiveness", here.

Tags: Challenge, Macroeconomic Policy

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  • 16 Feb 2012

    Kiran Kadali

    Macroeconomic policy and U.S. Competitiveness

    Education is most important, education and research leads to innovation new ideas and products that would help us to stay ahead and competitive. Many Asian countries are having a leading edge over U.S. because there are more Graduates and Engineers graduating every year. Education in U.S. has become very expensive. The incentive for a graduate to complete his engineering and land into a job that would pay off his or her debt is slim. So, U.S. a change in macroeconomics to make education affordable by government providing 100% to 50% scholarship to smart students and for those who don???t quality providing direct loans to students at no interest if paid in first five years after graduation.

    Kiran Kadali