JONATHAN CHAIT JANUARY 26, 2011
I suspect that President Obama's emphasis on public investment reflects less a desire to increase spending on infrastructure, R&D and the like than a platform from which to oppose anticipated Republican cuts. He's attempting to distinguish federal spending that subsidizes consumption (like Medicaid or farm subsidies) from that which actually increases productivity and raises future living standards (such as air traffic controllers.) Thus far, as Steven Pearlstein points out, the GOP refuses to recognize any such distinction:
Asked about investment on the television talk shows Sunday, House Republican leader Eric Cantor (R-Va.) and Senate Republican leader Mitch McConnell (R-Ky.) each declared it was just another Democratic ploy to spend more money. Instead of Obama's "invest-and-grow," Republicans now offer "cut-and-grow," which will take its place beside "government ownership of the means of production" and "tax cuts that pay for themselves" in the Pantheon of Economic Nonsense.
Republicans, it turns out, have no public investment strategy, just as they have no health-care strategy and no agreed-upon blueprint for reducing federal spending. What they have are poll-tested talking points, economic delusions and an overwhelming partisan instinct to say "no" to anything Barack Obama proposes. In their response to the president's State of the Union message, they remind us once again that they are not serious about economic policy and not ready to govern.
For another good example of what he's talking about, take a look at today's Wall Street Journal editorial:
Government "investments"—Mr. Obama's favorite word last night—are by definition made for political purposes, rather than for their highest potential return. They are allocated by politics rather than by prices. In our view, that 4% of GDP a year could have contributed far more to economic recovery had it stayed in private hands.
But even if you believe that such spending prevented a depression, it makes no economic sense to keep those resources under political sway now that the recovery is underway. Would you rather have Congress allocating that 4% of GDP, or millions of individuals deciding among Apple, Gilead Sciences, or the next great idea?
The path back to faster growth, more jobs and a more competitive U.S. economy does not travel through more political mediation. Nor does it lie in endlessly easy Fed policy in a misguided attempt to refloat the housing bubble or revive the financial boom. A better economy requires policies that reward work and innovation, while letting capital flow to the companies and individuals with the best ideas.
Even the most committed libertarian will admit that there's such a thing as public goods. The free market is not going to provide roads and bridges. Almost any libertarian will soon concede that things like scientific research and education create positive externalities that will not be priced into the free market.
Now, the devil is in the details. Exactly how much public investment we need, and just how to provide it in a way that minimizes political interference, are important technocratic questions about which we can disagree intelligently. But if you assert that public investment is "by definition" inferior to private investment, then you're committed to ultra-ideological mindlessness that can't survive even the slightest scrutiny.