News Release

“Public Investment”: On a Dead-End Track?


In a real sense, trains are “symptomatic of what is wrong with the way people think about economic policy” — and the consequences for the United States are very serious.

That’s the theme of a new essay by economist Max B. Sawicky. “Public spending is seen as a sink, not as a boost to economic growth,” he observes. “We ask why public services can’t be provided like DVD players, when they are different. Voters don’t like the idea of parting with the services they are getting, but many are reluctant to approve the expansion of such services, along with the taxes that would finance them.”

Sawicky adds: “Well-educated commentators in bow ties and Phi Beta Kappa pins pontificate: ‘The government does not create wealth’ (or jobs). In fact the government has built facilities with a value of about 2/3rds of private sector plant and equipment. Moreover, the government has financed the acquisition of ‘human capital’ worth four times as much as business capital. Public investment is a very big deal in the U.S. economy.

“Such investment enjoyed a heyday through the ’70s but declined thereafter. … Unfortunately, any hopes for public investment are caught between the Scylla of Republican tax cut mania and the Charybdis of Democratic deficit dementia. And not far ahead is the far bigger problem of Baby Boom retirements, which bring an escalation of the costs of Social Security and Medicare. At that latter point, about a decade away, a determination to balance the budget and meet all entitlement commitments at present revenue levels leaves not a penny for public investment, or indeed for domestic spending of any type. Something has got to give.”

Sawicky worked in the Office of State and Local Finance at the U.S. Treasury Department. He is now at the Economic Policy Institute.

His article “Public Investment Slows to a Crawl” is posted here.