It’s no secret that America’s highways and bridges, not to mention our schools and public utilities, are in a serious state of disrepair. Still, the latest numbers on government investment come as a shock.
Despite the persistent need to stimulate economic demand and today’s historically low borrowing costs, the Financial Times reports gross government capital investment fell to just 3.6 percent of GDP last quarter, the lowest level of public investment since the end of demobilization after World War II.
America needs more spending and investment, not less, to stimulate demand and put latent productive resources to good use. Although the economy is expanding, today’s growth is still not enough to bring us out of our current malaise.
The United States may need as much as $2 trillion in new stimulus to ensure a rapid return to full economic health, according to The Century Foundation’s Andrew Fieldhouse.
Unfortunately, Washington is in thrall to a small number of conservatives in Congress who would rather see the government shut down and the nation default than any increase in taxes or deficit spending. As a result, there is an emerging consensus that last year’s sequestration cuts, once uniformly denounced as a “meat cleaver” approach to deficit reduction, will not be rolled back any time soon.
Instead, Democrats have been reduced to arguing over revenue-positive tax reform, perhaps the least offensive (and least inspiring) of progressive causes, and to what extent they will accept “cost-of-living adjustments” to Social Security—also known as entitlement cuts.
There are other options. Even in today’s polarized political climate, there are creative ways Congress could leverage minimal public investments to achieve a significant economic impact. One possibility is a national infrastructure bank, an idea promoted by my TCF colleague Michael Likosky, which would make use of public-private partnerships to take underutilized capital off the sidelines and put it to use making sensible improvements to our aging infrastructure.
Once upon a time, it was conservatives who pointed to our neighbors across the Atlantic as bogeymen—for socialized medicine, or sclerotic growth. Now it is liberals who are warning that we risk becoming like Europe, mired in a misguided and counterproductive cycle of economic austerity and high unemployment.
So far, the United States has avoided that fate, thanks to trillions of dollars in fiscal and monetary stimulus. But we’re not out of the hole yet. Perhaps our plunging rate of public investment will be a wake-up call.