What Does The U.S. Manufacturing Recovery Mean For Commodities?

[T]he private sector functions at its best when it is enabled and supported by a strong, capable, effective public sector. It needs government to write and enforce the rules that align private profit-seeking with the public welfare. It needs government to fund or supply the public goods — education, infrastructure, research and development — that enable people to participate in the marketplace at a high level and push the whole system to new heights by advancing the frontiers of knowledge and technology. It needs government to provide social insurance against various hazards of life — poverty, sickness, and joblessness — and thus protect well-being against downside risks, prevent the mass waste of human potential that would otherwise occur, and sustain support for economic dynamism even in the face of its incessant disruptions of people’s plans and expectations. 

Fiscal conservatives’ goal of shrinking the government until it is “small enough to drown in a bathtub” completely misunderstands the role of the state in a modern economy. As I have detailed elsewhere, the evidence is overwhelming that quality of government, not size of government, is the key to freedom and prosperity. Around the world, high-quality governments tend on the whole to be somewhat larger rather than smaller.

Do we need fiscal rules? Absolutely. In a dissenting chapter included in A Fiscal Cliff, I outline a set of rules that would guarantee long-run fiscal sustainability while leaving room for cyclical stimulus or restraint as needed and permitting a government whose size is determined by the country’s actual needs rather than driven by ideology. (An updated version of the chapter is available on the Niskanen Center website.) 

For far too long, successive presidential administrations and Congresses have made tax and spending decisions with little regard for either appropriate short-term demand management or long-term growth and fairness. But naïve calls for fiscal austerity are not the answer. We do not face a fiscal cliff – we face a deficit of clear thinking about the proper size of government in a liberal democracy and the proper way to achieve the sustainable prosperity that we all want and deserve.

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