Government Policy And How Economy Is Affected

There are several factors which could have impeded the economic growth expected after implementing the new budget with increased spending in defense, education, and infrastructure. Internal and Outside lag and the public's own opinion of the longevity of the changes implemented could have varying levels of effect on the outcome of the budget modifications.

Internal lag is how long it takes for the government to realize that there is a problem and come up with a solution. If it takes the policy makers a year into a recession to acknowledge there is a problem, you have an entire year of losses to make up for.

Outside lag is how long it takes for the implemented changes to affect the economy. Changes put in place today could take anywhere from several months to years to have noticeable impact. Take money allocated to education for example. While it would create jobs, in the building of new schools, it could take months for that money to be allocated, then more time to decide how that money is going to be used, and then even more time as the recipients being to implement their improvements. Before long two years have gone by and you still have not begun to see the effect of your budget change.

Lastly if the changes being implemented are viewed as short term fixes to a much bigger problem by the public, they might continue to withdraw from economic activity by continuing to save money and not put it back into the market. While improvements to infrastructure and education have obvious long term benefits, I think that additional spending on defense, given the increasing anti-war sentiment, might lead people to view that economic stimulation as short termed.

Reference:

O' Sullivan, A, & Sheffrin, S (2006). Economics, Principles and Tools.Upper Saddle River, NJ: Pearson,