Welcome back to The Economic Wagon — your quick daily ride through the trends shaping tomorrow’s economy. Today, we’re unpacking how governments around the world are spending big again — and what that means for growth, debt, and the global balance of power.
Today’s Post
The Future of Fiscal Policy: Governments Are Spending Big Again
For a while, it looked like the age of massive government spending was over. After the pandemic stimulus surge, countries promised to tighten budgets, control inflation, and bring debt levels down. Fast forward to 2025 — and the opposite is happening.
From Washington to Berlin to Tokyo, governments are spending big again, funding industrial policies, green transitions, and defense expansion. The new era of fiscal activism isn’t just a response to crises — it’s becoming a permanent feature of the global economy.
The question now isn’t if governments should spend more, but how much longer they can afford to.
💸 A world hooked on fiscal power
In the 1980s and 1990s, the trend was clear: smaller government, privatization, and free markets ruled the day. But over the past decade, that thinking has flipped. Governments are back in the driver’s seat — not just as regulators, but as major economic players.
Here’s what’s fueling this fiscal revival:
Geopolitical rivalry: The U.S., China, and Europe are in a race to dominate technology, energy, and defense.
Climate transition: Trillions are being poured into renewable energy, electric vehicles, and infrastructure upgrades.
Social safety nets: Aging populations and inequality are forcing governments to spend more on pensions, healthcare, and benefits.
Economic resilience: Supply chain disruptions and global shocks have made “self-sufficiency” the new buzzword — and it costs money.
According to the IMF, global public debt reached 93% of GDP in 2025, and total government spending accounts for nearly 40% of global output — the highest in modern history outside wartime.
The U.S.: Running hot and running big
The United States is leading the fiscal charge.
The Inflation Reduction Act, CHIPS Act, and Infrastructure Investment and Jobs Act have together unlocked over $2 trillion in spending commitments for green tech, semiconductor manufacturing, and infrastructure renewal.
While designed to strengthen the economy, these programs are also political. Both parties, despite their rhetoric, are embracing large-scale public investment — just in different areas.
The government’s budget deficit now sits around 6% of GDP, even with solid growth.
Debt-to-GDP has climbed above 120%, rivaling post–World War II levels.
Yet the economy keeps humming: GDP growth is near 2%, and unemployment remains low.
It’s a fascinating paradox — the U.S. is spending heavily, debt is soaring, and yet the dollar and bond markets remain strong. As one strategist put it: “The U.S. isn’t acting like it’s broke — and so far, the world still believes it isn’t.”
Europe: Balancing growth and restraint
Europe’s fiscal story is more complicated. The EU loosened spending rules during the pandemic but has since tried to reintroduce discipline. Still, the spending taps haven’t exactly closed.
The European Green Deal and national stimulus programs continue to pour billions into clean energy and industrial modernization. Germany and France are both running larger deficits than pre-2020 averages.
The EU’s joint borrowing mechanism — once a temporary pandemic tool — is becoming a long-term fixture.
Southern nations like Italy and Spain are still heavily reliant on EU recovery funds.
And new spending on defense and energy security (especially after the Ukraine conflict) has become politically untouchable.
The result: Europe is walking a tightrope between fiscal caution and political reality. Everyone wants growth — but no one wants austerity.
China: Stimulus with a twist
China’s fiscal strategy looks different — but it’s no less aggressive.
After years of relying on monetary policy and credit expansion, Beijing is now leaning on targeted fiscal stimulus to stabilize growth. Local governments are issuing record amounts of infrastructure bonds, and central authorities are pushing public investment to offset weak consumer demand.
But unlike the West, China is constrained by local debt problems. Many provinces are deep in the red, and Beijing is trying to clean up hidden liabilities without derailing the recovery.
In short: China is spending, but cautiously — trying to thread the needle between stimulus and stability.
📉 The debt dilemma
All this spending comes with a cost — literally.
Global interest rates have stayed higher for longer than expected, making debt more expensive. Servicing costs are eating into budgets worldwide. The U.S. now spends more on interest payments than on defense, and similar trends are emerging in Europe and Japan.
Economists call this the “fiscal squeeze” — when governments can’t easily raise taxes or cut spending, yet their debt burdens keep rising. It’s a slow pressure cooker that limits long-term flexibility.
Still, markets have been surprisingly forgiving. Investors seem to prefer predictable deficits with strong growth over austerity that kills momentum.
🧭 The next phase of fiscal evolution
So where does this go next? Three big trends are emerging:
Industrial policy is here to stay. Governments will keep subsidizing strategic sectors — from chips to clean energy — to stay competitive.
Debt will be redefined. Some economists argue high debt isn’t a crisis if growth and productivity rise alongside it.
Tax reform is coming. Expect new forms of wealth, carbon, and corporate taxes to balance budgets without slowing innovation.
The Bottom Line
The new era of fiscal policy isn’t about restraint — it’s about redefinition. Governments are spending big again, not just to fix crises but to shape the future.
That means higher deficits, more public investment, and a shift in how nations think about economic power. The world is rediscovering an old truth: money doesn’t just flow through markets — it also flows through policy.
For readers of The Economic Wagon, here’s the takeaway: the age of austerity is over. The age of ambitious, debt-fueled, government-driven economics has just begun.
That’s All For Today
I hope you enjoyed today’s issue of The Wealth Wagon. If you have any questions regarding today’s issue or future issues feel free to reply to this email and we will get back to you as soon as possible. Come back tomorrow for another great post. I hope to see you. 🤙
— Ryan Rincon, CEO and Founder at The Wealth Wagon Inc.
Disclaimer: This newsletter is for informational and educational purposes only and reflects the opinions of its editors and contributors. The content provided, including but not limited to real estate tips, stock market insights, business marketing strategies, and startup advice, is shared for general guidance and does not constitute financial, investment, real estate, legal, or business advice. We do not guarantee the accuracy, completeness, or reliability of any information provided. Past performance is not indicative of future results. All investment, real estate, and business decisions involve inherent risks, and readers are encouraged to perform their own due diligence and consult with qualified professionals before taking any action. This newsletter does not establish a fiduciary, advisory, or professional relationship between the publishers and readers.