A fiscal policy success

The result is proving what the 20th century British economist John Maynard Keynes theorized: That government investment is investment, and it can lift a country’s economy in the same way that business confidence can. This idea stands in contrast to what economists call Ricardian Equivalence, or the idea that however much the government invests, private actors will save because they’re waiting for their taxes to go up as a result of the government spending, removing the potential for a consumption boost.


“I think that people are starting to reevaluate this orthodoxy, in light of the tremendous success of demand side fiscal policy in preventing a deeper recession from accompanying the pandemic,” Williams said.


When public investment “crowds in” private investment

Often detractors of government stimulus will say that public investment crowds out private investment. But not only were each of the stimulus bills that Congress passed in the first half of US president Joe Biden’s term focused on areas where the private sector was underinvesting, there’s now a good chance that government spending increases private investment—meaning it actually crowds in private investment rather than pushing it out, Williams said.


The most obvious example of this has been what Robinson Meyer, founding executive editor of the climate-focused media company Heatmap News, called “the green vortex,” in which policy, technology, business, and politics work together toward lowering carbon emissions.

Of the nearly $370 billion in spending that the Inflation Reduction Act steers into fighting climate change, $270 billion will come in the form of tax incentives, encouraging private investment in wind, solar, and other sources of renewable energy, among other projects.


“Since they’re all pushing in the same direction of more investment, as opposed to something like higher penalties for not being green, investment is actually increasing,” Williams said.

📬 Sign up for the Daily Brief

Our free, fast, and fun briefing on the global economy, delivered every weekday morning.