Government Investment is the solution to Economic Growth.

According to the results of a three year EU funded program government investment is the solution to spur economic growth in the European Union countries. Economics Professor Marianna Mazzucato claims that we need to de mythologize the austerity imposed on the PIGS by Germany. Will the PIGS be able to re balance through austerity? The question to ask is what caused Germany to become a surplus country? Is it the wage cost i.e. Greek wage costs having risen compared to Germany? Germany increased productivity not by keeping wages down but by major investment. So the question is: if we want Europe to be re balanced so that we don’t have PIGS but TIGERS everywhere, we need investment. Merkel is doing great things in Germany. She is redistributing income between the German provinces and she makes major investments. There have been measures to keep wages down in Germany but that was not the solution to Germany’s problems. The solution was massive amounts of investment, the highest compared to GDP ratio.
What we need to do is increase the growth rate. That can be done through capital expenditure in infrastructure projects. As long as the growth rate remains below the interest rate the debt to GDP ratio by definition increases. In the long run this is an expensive situation. So the question is: do we want to spend now on activities that will yield future returns? Just look at the US economy when they invested in the internet massive amounts of government spending and they later had huge returns. This the situation in which we find ourselves today. So we want to foster long term growth or do we panic about the short term. Panicking in the short term is going to cause huge long run costs. Thus we need to investment spending to finance innovation and get growth.
The question is: “how can we get the financial markets realigned with the real economy”?
We have to re balance the performance that we use. We need to change the incentives. Corporations have spent disproportionate amounts of money in getting back their shares in comparison to the investment made on their employee’s skill advancement. Although we talk about skills many companies do not invest in their employee’s skills.