America has a deficit problem.
But the country’s biggest deficit isn’t
the federal budget deficit.
It’s the deficit in public investment.
The public investment deficit is the gap between
what we should be investing in our future
on infrastructure, education, and basic research,
and the relatively little we are investing.
Increasing public investment needs to be a major goal
of the Biden administration.
Public investment is similar to private investment
in that we invest today because of the payoff
in the future.
The difference is public investment pays off
for all of us, for America.
In the 1960s, we used to make a lot of public investments.
But they’ve been steadily declining ever since.
That decline has been largely driven by
so-called “deficit hawks”
who argue against more federal spending.
"I will oppose this new debt,
and I will continue to sound the alarm
until we change our course."
But as I've been saying for years,
reducing the federal deficit just for the sake of reducing it
makes absolutely no sense.
“Any business person knows that you borrow money
for the sake of investing in the future of your business.
Those are wise borrowings.
Because then you can pay those debts off
when you get bigger.
A national economy works in exactly the same way.
It doesn’t matter that we’re borrowing money,
if we were investing those monies
that we borrowed from abroad
in education, training, infrastructure, factories
— but we’re not.”
The public return on infrastructure investment,
based on a 2020 report taking into account the pandemic,
averages $2.70 for every single public dollar invested,
yet we haven’t made those investments.
Our infrastructure today is crumbling.
The return on early childhood education
is between 10 and 16 percent,
but only a handful of our children have access
to early childhood education.
Public investment on clean energy has an annual return of over 27 percent.
But federal tax breaks favor fossil fuels over renewables by about 7 to 1.
The public return on investments
in basic research and development are huge.
America’s competitiveness depends on them,
because no individual company has an incentive to make them.
The lithium-ion battery
that powers iPhones and electric cars was developed by
federally sponsored materials science research,
while the Internet itself was borne
out of the Advanced Research Projects Administration
of the Defense Department.
And yet in recent years, public investment in basic research
has declined as well.
Are you seeing a pattern yet?
Federal investments in all these areas have shrunk
even though the payoffs from these investments are gigantic,
and the costs of not making them are astronomical.
American productivity is already suffering.
Now, some say we don’t need to worry
about this public investment deficit
because private investments will fill the gap.
Baloney.
Corporations are focused on getting
the best return for themselves,
not for America.
For most of the last four decades,
corporations have made money by lowering their costs
at the expense of working people:
capping wages, reducing taxes,
and deregulating.
A common assumption is that
when American corporations are profitable,
Americans are better off.
But that's false.
Trickle-down economics is a sham.
Tax cuts and subsidies to big corporations
and the wealthy don’t build the economy.
Economies don’t grow from the top down.
They grow from the bottom up,
through public investment.
So if private investment won’t fill the gap,
how do we fill it?
Two ways:
tax the wealthy and large corporations,
and borrow.
Tax rates on the wealthy and on corporations
have continued to drop over the last 40 years,
just as the deficit in public investment has grown.
In the 1950s, the highest tax rate on individuals
was over 90 percent.
Even after tax deductions and credits,
it was still over 40 percent.
But since then, tax rates have dropped dramatically
on the wealthy.
For the first time on record,
the 400 richest Americans now pay a lower effective tax rate
than people in the bottom half.
Revenue from corporate taxes has also plummeted.
If wealthy individuals and corporations want
all the advantages that come with being American,
they have to pay taxes so America can afford
the public investments necessary for a high-wage,
high-productivity society.
Now the other way to pay for public investments
is through public borrowing.
This kind of borrowing doesn’t burden future generations,
because it’s used to build a better future
for those future generations.
Now, remember:
there’s a difference between borrowing for the future
and borrowing for today.
You might not want to borrow to pay for a vacation,
but it’s perfectly rational to borrow to purchase a house,
because a vacation doesn’t have any future return,
while a home does.
Right now, the federal budget irrationally
treats all government borrowing as the same.
The government needs a public investment budget,
separate from the current spending budget,
to clarify what we are investing in
and allow us to keep borrowing for investments
as long as the returns justify it.
Public investment is the biggest
and most important deficit you’ve never heard of.
Don’t listen to people who claim we can’t afford to invest
in the American people.
We can afford it.
We can’t afford not to.
Joe Biden needs to recognize this,
and make public investment a central part
of his economic strategy.