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Economics

Does Government Matter?

As Americans celebrate the 235th anniversary of their independence, the country is embroiled in a typically noisy debate. This time, the argument centers around whether Congress should raise the ceiling on national debt in the interest of preventing a potential government default. The issue has proved to be partisan catnip. The GOP opposes any new taxes to pay down the U.S. debt, which is close to 95 percent of the country’s gross domestic product, on the basis that government has created this problem and that more government cannot be the answer. The U.S. debt burden, House Speaker John Boehner says, “can be traced to a misguided belief by politicians that the American economy is something that can be … influenced positively by government intervention and borrowing.”

Republicans want deep cuts in government spending to be part of any deal to raise the debt ceiling. Democrats counter that such measures would imperil the recovery. And they insist that robust government remains a key element of future growth. “We can’t cut our way to prosperity,” President Barack Obama recently said.