MIT Golub Center for Finance and Policy
Public Policy
The Economics of Government Investment Policies and Why They Cannot Undo Fiscal Imbalances
By
With debt burdens mounting in the United States and abroad, policymakers have shown renewed interest in using government investment strategies to address fiscal imbalances. In this policy brief, MIT Sloan Distinguished Professor and MIT GCFP Director Deborah Lucas, argues that such approaches, while appealing in theory, cannot deliver the hoped-for results. Drawing on basic principles of finance and balance sheet accounting, she explains why borrowing to invest in risky assets does not increase a nation’s net worth and may in fact amplify fiscal risk. The brief also analyzes the Cassidy–Kaine proposal to create a Social Security investment fund, showing that, despite its intent to strengthen the system, it would merely delay needed reforms without addressing the fundamental imbalance.
