So far with only me posting things have been a bit one sided. I do, however, have points that I can make on both sides of most issues. While I believe that economic stimulation from the government should mostly be based on reducing taxes (which I detail here), there are many benefits to using spending as a stimulus.
Government spending allows for development in areas which are either not directly profitable, or which will show profit only after too long of a term to make it a palatable investment for the private sector. Just because the initial venture isn't profitable, however, doesn't mean that there isn't substantial economic gain to be made, sometimes that venture will lead to others which turn a profit.
A clear example of this from the past is the space program. In the 1960s and 1970s building craft and systems capable of exploring the solar system, launching satellites, and putting people on the moon were not economically viable programs. While today that has changed, much of what has enable private industry to begin looking to outer space is a direct result from what NASA has already done. Indirectly there were advances in technology made to overcome the challenges of NASA's missions which where helpful for hundreds of other industries (NASA calls them spinoffs and has over 1600 of them in a database they also have a flash driven summary). In any case, there have been thousands of products which would have been either impossible to make, much more expensive, or vastly inferior had it not been for the space program. The space program significantly contributed to the economic growth which resulted from these products being developed cheaper, faster and better.
A current example that most people support is energy research. Alternative energy sources are mostly not economically viable for the private sector because they require too high of investments in the development of new technologies to make them either feasible or economically competitive with existing energy generation methods. If the initial investment is not made by government spending then the growth of these industries will be very slow. Government funding into this area, however, could result in a huge boost to the economy as new technologies are created to solve problems of energy creation. Even if none of the primary objectives are successful there are bound to be both short and long term benefits through technological advance and short term job creation.
Since government spending is not used to create direct profit, it can be used on areas which do not create a direct financial return on the investment, but also on programs which increase the quality of life, and therefore the wealth, of people. Examples of this are the creation of roads, power grids, and other infrastructure type projects. While there is little direct return expected from these ventures, and therefore little incentive for the private sector to get involved, these projects also allow for economic development. Increasing roadways allows for reduced transport times and therefore costs which not only helps business with delivering goods, but also people by reducing their travel costs. Less time commuting, shopping, driving kids, etc. results in more time for people to use to enrich their lives.
Finally, the government is run by people who can be held directly accountable to the people. Politicians have to act in the interests of most people or risk the loss of their position.
So government spending is necessary to a healthy economy. It drives stagnant industries forward when long term investment is required and creates short term boosts to the job market by creating a demand for products and services to overcome challenges which the private market is not yet willing to take on. It also allows for more indirect wealth creation since it is not limited to direct profitability. For all these reasons, we need to have a healthy amount of government spending to strengthen the economy.
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