Cut and Invest to Spark Economic Growth

by Bruce Katz | December 15, 2010

With American CEOs gathered at Blair House for a discussion on the economy this morning, the overriding challenge for the president and business is twofold: how to grow jobs in the near term while retooling the economy for the long haul. The United States cannot return to an economy characterized by excessive, debt-leveraged consumption. Rather, we want to move forward to an economy driven by exports, powered by low carbon and fuelled by innovation.

The playbook of our competitors is quite straightforward: invest with public and private capital in the things that matter (e.g., first class infrastructure to move people, goods, ideas, and energy) in the places that drive their economies--major metropolitan areas like Shanghai and Mumbai and Sao Paolo and Munich. (We recently examined proven strategies from around the world at our Global Metro Summit held in Chicago.)

We must do the same. The president’s National Commission on Deficit Reduction offered a logical solution: “cut and invest.” Dial down wasteful federal incentives that subsidize consumption. Dial up investments that catalyze production and spur innovation.

Best example: The single act of capping the federal mortgage interest deduction, by far the most consumption-inducing subsidy in the tax code, would generate $177 billion in savings over the next five fiscal years. That’s more than enough to make a sizable contribution to deficit reduction and capitalize a series of market shaping investments.

What to fund? We need nimble, market-oriented institutions to unleash private capital and make investment decisions based on merit and evidence rather than politics.

For starters, a National Infrastructure Bank would bring private firms to the table to make transformative investments in our export infrastructure: multimodal facilities at our major ports and improvements to our freight rail networks. Establishing a network of “Energy Discovery Institutes,” perhaps, would quicken the cycle of green invention, financing, commercialization, and production. Or support for small and medium sized manufacturers so they can accelerate technological innovation and sharpen their competitive edge.

Private capital and private entrepreneurs are sitting on the sidelines ready to be deployed.

America cannot just cut its way to the next economy. Government and the private sector together need to invest for the long term, with deliberation and discipline.   

Source URL: http://www.newrepublic.com//blog/the-avenue/80021/cut-and-invest-spark-economic-growth