Clinton Saves But Nixon Invests

Opinion pieces and speeches by EPI staff and associates.

[ THIS PIECE ORIGINALLY APPEARED IN PAJAMASMEDIA.COM ON APRIL 11, 2007. ]

Clinton saves but Nixon invests
There are jobs only the government can do or fund. So why aren’t these getting done?

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Greetings, Pajamaheddin. I’ve signed on to do a regular column here. My homeland is MaxSpeak, You Listen!, which has been on the Pajamas blogroll since the beginning. (For this mortal sin I was delinked by Mighty Mouse Markos Moulitsas, Lord of Daily Kos.) I also post regularly at TPM Café. In my day job I’m an economist at the Economic Policy Institute in Washington, D.C. I am left of center on a lot of things, but you’ve got the “Sanity Squad,” so shouldn’t the Insanity Squad get equal time? Trust me, it’ll be fun. You’re all broad-minded and unafraid to confront alien ideas, right? Of course you are.

This morning there is a story about the wave of traumatic brain injuries (TBI) suffered by U.S. soldiers in Iraq. You can survive an IED with nary a scratch but still be seriously disabled by the shock waves. Soldiers are well-protected by the latest body armor, when it is provided, and this reduces fatalities, but it means more are surviving their wounds with disabilities that may never go away. Military medicine has long experience with putting broken heads back together, but less with neurological damage. The author asserts:

“What’s baffling is the Pentagon’s failure to work with Congress to provide a steady stream of funding for research on TBIs.”

This is less baffling in context, namely the bi-partisan stagnation of public investment of all types since 1980. The nation’s “stock” of public capital - infrastructure, research and development, and ‘human capital’ (educated persons) - began growing more slowly than the economy after the 70s. It had reached its peak during the administration of Richard Nixon, the greatest social spender in U.S. history. Contrary to what you might think, non-defense spending under Clinton grew more slowly than under either Bush 41 or 43. Clinton was absorbed in deficit reduction and perhaps reined in by the Republican Congress after 1994. (The G.O.P.’s fiscal behavior after 2000 suggests they were not against spending so much as spending for which Clinton could take credit.)

In public debates about economic growth, the emphasis is always on business investment, but according to the president’s Office of Management and Budget, private capital (plant and equipment) is only about 12 percent of national wealth. Not far behind are public facilities, at eight percent of wealth - 2/3rds the size of private capital. By far the greatest contributor to the economy is educated workers.

Many types of valuable investment will not be forthcoming from the private sector. The TBI problem resembles the ‘orphan drug’ situation: those who need the product don’t have the ability to pay for it. The Feds need to make a dependable financial commitment that will encourage researchers to invest their own time in finding remedies. Even more simple would be hiring people to do the work directly.

Some will be quick to say the government can’t do anything right. How then could we expect the government to undertake the complex task of bringing peace and democracy to a horror-show like Iraq? Or deciding who lives and who dies in capital crimes? Or ascertaining the proper delineation between acceptable and unacceptable research into cloning? It’s all complicated and difficult. Somehow the nation’s economy did pretty well during the public sector’s growth spurt, from 1950 to 1980.

Partly due to ideological delusions, prospects for growth in public investment are dim. Extension of the Bush tax cuts leave deficits that are political obstacles to more investment. The new Democratic Congress has proposed minimal increases in domestic discretionary spending. Republicans are obsessed with tax cuts, and Democrats with deficit reduction. The accursed French have the Train a Grande Vitesse and our Amtrak trains have to slow down to avoid flying off the antiquated tracks. The Bush Administration responds by reducing capital investment in passenger rail, which everywhere else in the world is subsidized in one way or another by government.

Not only is it not good for the economy, it’s embarrassing.

Max Sawicky is an economist at the Economic Policy Institute in Washington, D.C.

[ POSTED TO VIEWPOINTS ON JUNE 26, 2007. ]