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  • March 2012
  • Article
  • Harvard Business Review

Macroeconomic Policy and U.S. Competitiveness

By: Richard H.K. Vietor and Matthew Weinzierl
  • Format:Print
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Abstract

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%.

Keywords

Macroeconomics; Government and Politics; Financial Crisis; Policy; Competition; Public Administration Industry; United States

Citation

Vietor, Richard H.K., and Matthew Weinzierl. "Macroeconomic Policy and U.S. Competitiveness." Harvard Business Review 90, no. 3 (March 2012).
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About The Authors

Richard H.K. Vietor

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Matthew C. Weinzierl

Business, Government and the International Economy
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