Role of government, after a conversation with one of my favorite conservatives

When talking about economics it is very interesting when talking to conservatives. I had a good conversation with my grandfather today, and he is of the impression that if the government will do it, it will be inefficient and bad, because they are taking my money, what benefit do I see? He also has a problem with government borrowing.

The way I see government spending is fairly moderate. I do not believe the government must be involved in every sector of the economy, but I do see them as having a very important role. I see a role for government regulation, to protect against fraud, abuse, and pollution, but I also do see a very important role for the free market and allowing people to innovate, because this is a major role for economic growth.

Our conversation was starting to get louder, which was unnecessary when I posed a question, if you can borrow at 2% interest and spend it in a way to get a 4% return, should you borrow the money? This got my grandfather to think and it makes sense, so I posed the proposal that when a government is deciding whether to change taxing, spending, and borrowing they need to consider the following:

1. What will be the cost to the economy if we tax or borrow X amount of dollars?
2. What will be the net benefit to the economy when we spend X amount of dollars?

The overall long-term impact to the economy of various taxing and spending proposals vary widely. Education, food stamps, and health care have very large benefits to the economy as a whole. Military tends to have a smaller multiplier at the level that America spends on our military. When deciding between all of these programs in an uber-utilitarian framework where your goal is to minimize externalities, increase GDP growth, and minimize inequality, in my political beliefs, there are a lot of different ideas which need to be considered in order to determine the proper course of action.

This means that the proper course of action for the economy depends on a wide variety of factors. I take a very Keynesian approach to economics myself, where the government should act as a counterweight to the economy as a whole.