There are many benefits of living in a market economy, most of which we witness first-hand. However, there are some areas where the efficient equilibrium of market allocation falls short. The market doesn’t automatically invest in education and infrastructure, and by definition it ceases to function effectively in a recession. Fortunately in these cases, government can and should intervene. Such government activity promotes productivity and job growth, which alleviates pain during times of recession and leads to economic stability in the long term.

The government plays an indispensable role in funding and providing education. Without government assistance, many Americans are unable to obtain the college degrees that are increasingly necessary to succeed in a high-tech economy. Through grants alone, the Federal Government helps to pay tuition for nearly nine million students who would otherwise be unable to afford college, and it provides subsidized, low-interest student loans for millions more. Even more significantly, state governments heavily subsidize tuition at state universities, which allows local students to obtain competitive educations while avoiding student debt.

The economic benefits of this assistance are evident. Investment in human capital has been one of the primary engines driving the growth of the American economy over the past century. Highly educated workers are both more productive and more fiscally responsible. More importantly, they are also far more likely to make technological discoveries – often with the help of federal assistance –that improve existing industries and create new ones, which drives job creation.

However, investment in education does not appeal to firms because the payoff is never seen directly. Some private aid for students is available, but for corporations, short-term payoffs usually outweigh long-term benefits. Unless newly graduated students work for a loan agency, firms will receive no immediate gain from investing in education. This creates a significant gap between the amount lent on the private market and the amount that would be economically efficient – in other words, market failure.

The market also fails to invest efficiently in infrastructure, an essential element of the framework of the modern economy. Capital investments in interstate highway and public transit systems as well as GPS and the Internet provide numerous benefits for a large cross-section of the economy. Though corporations benefit from these public goods, they generally don’t profit from direct investment in them. The government should have a large role in creating basic tools, which the private sector can use to innovate and, ultimately, create jobs.

It is also important that the government invest in social infrastructure like basic scientific research. Every year the Federal government funds a large number of grants for scientific research, much of which is utilized for innovation. This research is often expensive and rarely has direct commercial applications—the development of string theory or the hunt for smaller subatomic particles has no immediate payoff. By expanding the breadth of human knowledge, however, basic research frequently generates new activity and creation. Most modern inventions rely on basic research conducted decades or even centuries previously; nuclear theory, certain types of pure mathematics, and general relativity were all believed to lack application when first developed but resulted in nuclear power, computers, and precise GPS devices. The value of basic research lies in its availability to anyone who sees in it a potential application; there is no patent available on the Laws of Thermodynamics or the germ theory of disease. As a result, the government is the only entity both willing and able to promote the sort of technological progress that drives the growth of the entire economy.

But the government’s most important economic power today is its unique ability to fight recessions. In a recession, financial institutions stop making funds available, while both firms and individuals cut down on spending. The result of this is that perfectly good economic resources—the labor force, but also factories and infrastructure—go to waste. Because the government is not primarily concerned with making a profit, it can engage in fiscal stimulus in the form of unemployment aid, aid to state governments, and public works projects in a way that firms simply can’t. Moreover, this recessionary spending isn’t “irresponsible budgeting” because it doesn’t require the artificial diversion of economic resources. It simply reactivates idle resources to do what they should be doing anyway, and increased tax revenue from the resulting economic growth can help finance the stimulus. Because government is able to take a long-term approach as well as run deficits on a large scale, it is in a unique position to revitalize the economy. Far from being the time to cut budgets and rely on the private sector, recessions are an ideal time for government to increase spending.

These three facets of government economic activity are not separate, either. Consistent investment in education and infrastructure helps build a stable economy, and recessionary spending helps protect the education system and invest in infrastructure. The government has a responsibility to serve the people when private industry cannot. By increasing funding to education, research, and infrastructure, the government can provide jobs while also laying the foundation of a stronger and more productive economy.