Economic growth is measured by an increase in gross domestic product (GDP), which is defined as the combined value of all goods and services produced within a country in a year. Many forces contribute to economic growth; unfortunately, no one is 100% clear about what these forces are or how to put them into motion. If this information was known, the economy, spurred by these forces, could grow at a constant rate unencumbered by recessions and stagnation.
Politicians and economists are forever holding debates on the different ideas trotted out with the promise of being economic panaceas. Measures taken to induce economic growth include infrastructure spending, deregulation, tax cuts and tax rebates.
Using Infrastructure to Spur Economic Growth
Infrastructure spending occurs when a local, state or federal government spends money to build or repair the physical structures and facilities needed for commerce and society as a whole to thrive. Infrastructure includes roads, bridges, ports and sewer systems. Economists who favor infrastructure spending as an economic catalyst argue that having top-notch infrastructure increases productivity by enabling businesses to operate as efficiently as possible. For example, when roads and bridges are abundant and in working order, trucks spend less time sitting in traffic and they don’t have to take circuitous routes to traverse waterways.
Additionally, infrastructure spending creates jobs as workers must be hired to complete infrastructure projects that are green-lighted. It is also capable of spawning new economic growth. For example, consider the construction of a new highway, followed by gas stations and retail stores opening to cater to its motorists. (For related reading, see: Can Infrastructure Spending Really Stimulate the Economy?)
Stimulating the Economy With Deregulation
Deregulation is the relaxing of rules and regulations imposed on an industry or business. It became a centerpiece of economics in the United States under the Reagan administration in the 1980s, when the federal government deregulated several industries, most notably financial institutions. Many economists credit Reagan’s deregulation with the robust economic growth that characterized the U.S. during most of the 1980s and 1990s. Proponents of deregulation argue tight regulations constrain businesses and prevent them from growing and operating to their full capabilities. This, in turn, slows production and hiring, which inhibits GDP growth. However, economists who favor regulations blame deregulation and a lack of government oversight for the numerous economic bubbles that expanded and subsequently burst during the 1990s and early 2000s.
Tax Cuts and Tax Rebates
Tax cuts and tax rebates are designed to put more money back into the pockets of consumers. Ideally, these consumers spend a portion of that money at various businesses, which increases the businesses’ revenues, cash flows and profits. Having more cash means businesses have the resources to procure capital, improve technology, grow and expand. All of these actions increase productivity, which grows the economy. Tax cuts and rebates, proponents argue, allow consumers to stimulate the economy themselves by imbuing it with more money. (For related reading, see: Do Tax Cuts Stimulate the Economy?)