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  • Writer's pictureJennifer Light

Economic Growth: Prioritizing the People

In a world where our country has a large and still continuously growing amount of national debt, coupled with dips in our economy, we need to prioritize one or the other in order to save us from economic ruin. The question is, which?

Luckily, economic growth can indirectly save us from a debt spiral and stimulate our economy. Not convinced? Keep reading!

We need debt to function.

Federal debt may have risen, but borrowing costs have not. The cost of government borrowing has plummeted. Interest, compared to the national debt and money flowing within the economy, is extremely low. According to Krugman 2015, “The United States suffers from obvious deficiencies in roads, rails, water systems and more; meanwhile, the federal government can borrow at historically low interest rates. So this is a very good time to be borrowing and investing in the future.”Therefore, if we were to invest now with historically low interest rates to pay back, more income could be made to pay off debts when we really need to.

According to Boushey 2011, “Over the past two years, increased investments in infrastructure have saved or created 1.1 million jobs in the construction industry and 400,000 jobs in manufacturing by March 2011.” Almost all of these jobs were in the private sector. Federal debt can also serve as a safe haven for investors as stated by Krugman. “When the housing bubble burst, all that AAA-rated paper turned into sludge. So investors scurried back into the haven provided by the debt of the United States.” The government should focus on other problems in the nation, using the debt to our advantage instead of an issue that isn’t an immediate crisis.

Econ Growth reduces debt

Stephen Moore of the Washington Times outlined how “A 3 percent-plus growth rate also means that the debt as a share of GDP goes down every year and eventually falls to its lowest level since the 1970s.” For example, he states, “if we can achieve 3.4 percent growth for the coming decade, then we lower the deficit by roughly $4.5 trillion over the decade.

Economic growth is important because it increases living standards and wealth in America, reduces income inequality by increasing employment, and will increase tax revenue

According to the IMF: “debt-to-GDP ratios should be reduced organically through growth, or opportunistically when less distortionary sources of revenue are available.” According to CRFB (Committee for Responsible Federal Budget) “Faster economic growth can help improve debt projections in at least two ways. First, faster growth produces more revenue -- enough to result in $315 billion of deficit reduction for every 0.1 percentage point increase in the annual growth rate. But in addition, faster growth increases the economy's capacity to carry debt. Thought of another way: when we measure debt as a share of GDP, a higher GDP can help lower debt-to-GDP the same as lower nominal debt levels can lower the ratio.”

It benefits citizens!

The US is in desperate need of economic growth and spending on things like education, roads, and other infrastructure which would raise the living standard of citizens now as well as in the future and further help to service our debt. According to the Federal Reserve Bank of St. Louis, “On average, those with more education tend to earn more income. In 2015, the median weekly earnings of a person (age 25 and over) with a professional degree were $1,730, while those for someone with a bachelor's degree were $1,137 and those for someone with a high school diploma were $678.” Investing in infrastructure along with human capital with economic growth would see several things occur. Firstly, tax income for the government will rise as more and more people become employed and earn higher wages.

Better infrastructure would allow the end to economic loss spent in congestions, with over $305 billion lost in profits. Along with this, government payment on unemployment benefits and welfare would decrease as well, saving the government more money in the long run. In fact, economic growth would see an increase in jobs directly. Stimulus spending allows for increased employment which would result in economic growth. According to Brannon 2013, “If the economy grew at 4% per year, we would generate $260 billion in additional exports over the decade, creating over 1.5 million jobs.”

Self sustainability would increase across the board, lowering welfare costs across the board. Nearly 19% of the budget could be reduced in the long run, helping to pay off debts while improving the standard of living. Economic growth creates a positive effect on businesses as well. As profits of small firms and businesses increase with economic growth, their business confidence will grow and will thereby be able to meet more challenges.

According to Chron, “Helping small businesses start and thrive is a win-win situation for the government. Local businesses help support the tax base through businesses taxes and through the wages provided to employees.” With social security to reach solvency by 2036, it is ever more important to focus on economic growth to create new jobs so that those who can no longer retire have a safer and more stable job to work until they can reach new retirement ages.

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