Macroeconomic Policy in the Age of the Individual

In the Age of the Individual it is even more important for government to lay effective policy to allow for private sector innovation. In the wake of the Great Recession, global governments have taken a number of approaches to address slow GDP growth, which is still, 4 years later, not back to pre-recession highs. The European model is the austerity model. While fiscal discipline is important, and will pay dividends in the next decade, it wasn't the amount of spending that was problematic, it was the type of spending. The American model is steady as she goes (with bonuses), but here the issue is not the spending, but on what. Both models are not addressing the correct issue.

The myth of the Welfare State and its economic benefits
In politics, it is often stated that direct government handouts to the poorest of society is the best way to stimulate growth. These handouts come in the form of targeted tax cuts, food stamps, welfare and unlimited unemployment insurance. The pro-welfare argument is that people with the least are most likely to spend the money, thus a $100 gets spent and creates economic growth as that works through the system. The challenge is that low-end foods and goods are very low-margin products that are likely made overseas. The people who stimulate economic growth are "aspirational buyers" from the middle class. The mom who wants a Coach bag, or the suburban teenager who "needs" an iPhone. These are high margin goods that create jobs in the markets they are purchased (Coach has a big sales/marketing organization and iPhones run on cellular networks that are services (forever business)). That same $100 may create 10X the economic activity because of the add-on services that come with it.

This comes back to the issue of the Welfare State, Obama's Recovery and Re-investment Act paid to keep unproductive people in their jobs and extend UI to 99 weeks (basically 2 years!), only about 10% went into infrastructure that would pay dividends in the future. The same in Europe, where Britain and France already pay people NOT to work almost in perpetuity. Reductions in benefits to people who have lived off the state for so long is a recipe for revolt.

Both the US and Europe need economic stimulus, and both have epic infrastructure deficits. If money was being poured into new roads, bridges, government buildings and community buildings the economic accelerators would magnify. It would also provide companies (construction, architecture, MRO, support, software) with a multi-year sales pipeline that would buffet the decline in other business.

Considering government has spent $5 trillion on stimulus in the last 4 years, they haven't bought much other than junk food and cheap Chinese goods. Time to change the policy.