jump to navigation

The Case for Government Investment March 28, 2009

Posted by federalist in Economic Policy, Government Spending, Markets, Taxation, Transportation.
trackback

As a libertarian I like to believe that anything worth doing will be done by for-profit entities.  But we know that in practice there are many public goods and services worth providing that will not be provided in anarchy — typically because they suffer from at least one of three characteristics:

  1. They require more up-front or concentrated capital than private entities can reasonably provide.
  2. Potential returns are too risky or distant, rendering the risk/reward calculus untenable for a profit-seeker.
  3. Returns are too difficult to capture for a non-government entity (practically by definition of a public good).

If public infrastructure investment can reliably increase economic activity, then not only can government capture returns on the investment through constant-rate taxes on a growing economy, but it would even be reasonable to fund the investment with government debt.  This is, in broadest terms, the premise for a large amount of the Obama administration’s proposed deficit spending.  Robert Reich today presents a reasonable argument based on this premise:  He suggests that the United States grows and competes internationally based on its productivity, and that public goods like a ready base of strong human capital and infrastructure are critical to growing productivity.

Only those Americans whose parents can afford to give them a high-quality private education and health care, and who can situate themselves in locations with excellent infrastructures of telecommunication, transportation, public health and safety, have been able to link up with global capital on more positive terms. But not even they are entirely secure economically, because they face growing shortages of talented people they can rely on within easy reach, and can’t entirely avoid the disadvantages of a deteriorating public infrastructure, such as ever more congested roads and airports.

Obamanomics recognizes that the only resource uniquely rooted in a national economy is its people — their skills, insights, capacities to collaborate, and the transportation and communication systems that link them together. Public investment is the key to attracting long-term private investment so that a nation’s people can prosper.

Advertisements

Comments»

1. federalist - April 2, 2009

I have a hard time imagining government investments justified by this premise that could be undertaken by the federal government: Can the federal government make an investment in New England that benefits citizens in the southwest as much as those in the northeast? More likely this type of investment would have to be left to cities, metropolitan areas, states, and perhaps in the limit stat consortiums.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: