Macroeconomic Policy and U.S. Competitiveness

Richard H.K. Vietor; Matthew  Weinzierl

Article | Harvard Business Review | March 2012

Macroeconomic Policy and U.S. Competitiveness

by Richard H.K. Vietor and Matthew Weinzierl

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;

Format: Print

Purchase

Citation:

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

On May 9, 2018, in an extraordinary upset, Mahathir Mohamad again became Malaysia’s Prime Minister. Najib Razak, who had headed the government since 2009, had been swept up in the 1MDB scandal—perhaps the biggest state-corruption incident in history. Although Malaysia’s growth had remained solid since the financial crisis, the scandal undermined the budget, the country’s debt position, and foreigners’ willingness to invest. What was it in the history, culture, and institutional structure of the country that had allowed 1MDB to happen. And could the 93-year-old Mahathir get the country back on track?

Faculty & Research

Macroeconomic Policy and U.S. Competitiveness

Abstract

Citation:

About the Authors

More from these Authors