Question

Government borrowing makes the most sense for which type of spending: defense, education, or social security. Why?

Answer 1

As an overview, it is important to note that the private sector and the household sector are the dynamic sectors of the economy (growth triggering sectors). On the other hand, the government sector is a relatively static sector of the economy. Therefore, it makes sense to limit government spending while creating conducive policies that encourage private and household sector spending.

At the same time, it is critical for the government to intervene in some sectors. The first sector where government spending makes most sense is the defense sector. Every country needs to have a robust security system and this cannot happen at individual or corporate level. The entire responsibility related to defense and security is in thew hand of the government and therefore it makes sense for the government to expand spending in the sector ( as and when needed).

If there was a next most important segment that needed government spending and support, it would be the social security spending. The reason is that during times of recession and high unemployment, the government spending ensures that basic necessity of some low income household are met. Therefore, it is a critical component of spending that increases when the economy is in a downturn, but should be limited when economic growth is robust.

The education sector can be driven by conducive policies and high degree of private sector spending. While the government can regulate the sector to ensure that exorbitant fees are not charged, there is no critical need for government spending in the education sector.