July 22, 2010
Atkinson: Cut the Deficit with Public Investment
Not "everything should be on the table" for budget cuts to reduce the deficit, argues ITIF President Rob Atkinson in a recent essay. Despite what "neo-classical inspired budget hawks" may insist, Atkinson points out, all spending is not created equal and slashing budget line items for investments that spur innovation could actually serve to put the U.S. further in the red.
What's behind this widespread unwillingness to prioritize investment? Budget hawks fear that sparing one item from the chopping block will only validate the demands of interest groups to exempt their pet programs. In addition, many adhere to a neo-classical economics perspective, which holds that government plays a negligible role in economic growth and should be neutral with regard to private sector activity... But government should be anything but neutral. Science and infrastructure funding is more valuable than farm subsidies. Government support for research in computer chips is more valuable than support for potato chips...
In contrast, an innovation economics approach to the budget distinguishes between spending on consumption and spending on investment. For innovation economics advocates, all spending (either on the tax or expenditure side) should be on the table, and all investment (on the tax and expenditure side) should be off the table...
We need to expand investments in education and training, science and research, technology (including, but not limited to clean energy) and physical infrastructure. In economic downturns, successful corporations don't cut key investments because they know that these investments are vital to gaining market share and competitive advantage in the moderate term. Governments should think the same way.