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Government Spending on Low Value Projects Increases Current U.S. 'Policy Value Gap'

7 Pages Posted: 9 Aug 2012 Last revised: 10 May 2013

Niles K. Chura

Ouray Group

Wayne Winegarden

Pacific Research Institute

Date Written: August 2, 2012

Abstract

Despite a historically unparalleled increase in federal spending since the 2008 financial crisis, the U.S. economy remains subdued, as evidenced by the 1.5% growth rate in the second quarter and dismal employment figures. Continued weakness will undoubtedly have a deleterious impact on the U.S.’ credit profile, which will exacerbate the concerns regarding the government’s ability to service the debt along-side its social commitments. This piece argues that an analytical framework based on standard financial concepts, such as return-on-investment and opportunity cost, provides a superior understanding of the true impact that government fiscal policies have on economic growth. Such a framework clearly illustrates that the stimulus policies enacted since 2008 are playing a role in suppressing economic growth and more importantly, the expectations for future growth, by mis-allocating society’s resources. The authors also introduce the concept of a “Policy Value Gap,” which is the cost to society (defined as the deviation between the trend economic growth rate and the actual lower rate) from misguided government policies, which include fiscal policies.

Keywords: macro, economics, tax, fiscal, policy, deficit, policy value gap

Suggested Citation

Chura, Niles K. and Winegarden, Wayne, Government Spending on Low Value Projects Increases Current U.S. 'Policy Value Gap' (August 2, 2012). Available at SSRN: https://ssrn.com/abstract=2127328 or http://dx.doi.org/10.2139/ssrn.2127328

Niles Chura (Contact Author)

Ouray Group ( email )

McLean, VA 22101
United States

Wayne Winegarden

Pacific Research Institute ( email )

One Embarcadero Center
Suite 350
San Francisco, 94111
United States

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