There's an economic fantasy you sometimes hear in D.C. It often gets trotted out when politicians are trying to add billions or trillions to the national debt. They claim that all the new spending — whether it's tax cuts or corporate subsidies or infrastructure projects — will be worth it in the end because we will supercharge economic growth.
This fantasy recurs again and again, because economic growth is a potent force. Over the next few decades, tiny changes in how fast our economy grows could decide the fate of the federal government — whether we can bring the massive national debt under control or whether we spiral into a fiscal crisis.
Today on the show, we talk to three economists who have been sifting through the latest evidence. They're trying to figure out what the government could actually do to make the economy grow faster. Could we even grow fast enough to outrun our national debt?
The list of papers and studies referenced in the episode:
- Congressional Budget Office calculations on potential budget scenarios based on different growth scenarios: The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget
- Douglas W. Elmendorf, R. Glenn Hubbard & Zachary Liscow wrote a paper looking at seven different government policies and their effect on the deficit and economic growth: Policies to Reduce Federal Budget Deficits by Increasing Economic Growth NBER
- The paper that looked at taxes in the US since WWII and found that a one percentage point cut in the corporate income tax rate ... increased GDP by 0.6 percent after one year: The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States (p. 1213)
- The study that found that for every additional dollar the US government spent on Medicaid for low-income children, the federal budget got back $1.78 in the long-run from things like higher tax revenues and lower healthcare costs in the future: Unified Welfare Analysis of Government Policies* The Quarterly Journal of Economics Oxford Academic
- The study that looked at US research spending since WWII and found that for every dollar the government invested in non-defense R&D, it got back about $1.50 to $2: The Returns to Government R&D: Evidence from U.S. Appropriations Shocks – Research Dept. Working Paper No. 2305
- Doug, Glenn and Zach calculate that if the US government accelerated high-skilled immigration, it could help boost productivity growth by up to 0.05 percentage points after a couple decades: Policies to Reduce Federal Budget Deficits by Increasing Economic Growth NBER (p. 33, the Appendix)
- The Department of Energy estimates that for every dollar we invested in building out the electric grid, customers could end up saving up to $1.80 in lower electricity costs: Chapter 2: Long-Term U.S. Transmission Planning Scenarios
- The research that says that over the 30 year period up to 2010, if you had made it much easier to build in the seven most congested parts of the country, GDP would be 8% higher: Urban Growth and Its Aggregate Implications Econometrica
This episode of Planet Money was produced by Emma Peaslee with help from Sam Yellowhorse Kesler. It was edited by Jess Jiang. It was fact-checked by Sierra Juarez and engineered by Ko Takasugi-Czernowin. Alex Goldmark is Planet Money's executive producer.
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