An Alternative to Fiscal Policy?

Whenever the government changes government spending or taxation as a means of influencing the market economy -- either to stimulate more production or to restrain inflation -- that is "fiscal policy." We have explored these possibilities in the last chapter.

But what about investment? If we want to stimulate more production, why not rely on increasing investment? We know it will have the same "multiplier effect" as government spending, and in the long run it will also lead to increased productivity.

It appears that:

• If the government has enough control over business to control investment, then you have a planned economy, which will fail for other reasons.
• If the market is free enough for capitalism to "do its thing," then the government can influence investment only weakly and indirectly.

HOWEVER,...

• Indirect influence might still be better than no influence, and
• We don't really know for sure that it would be a weak influence.

Interest