Public Investment Versus Wasteful Spending: Take Two

Harry Moroz

Public Investment Versus Wasteful Spending: Take Two

Last week, Andrea debated E.J. McMahon of the Manhattan Institute about the effects of the Obama tax plan on New York City and New York State. When the discussion turned to the nation’s mayors, McMahon confidently asserted:

“[Mayors] want more aid…Every mayor wants federal money to help balance their budgets. That’s what they’ll tell you.”

Andrea argued that this claim misses the crucial point that federal investment in – as opposed to increased spending on – cities will improve our overall economic health in the coming years.

DMI’s MayorTV has traveled the country interviewing mayors from cities big and small about what they would like from the next president, and one of the most striking aspects of the interviews is that all mayors recognize the broader role that cities, not just their city, play in the nation’s economic life.

Mayors on both sides of the aisle want to see aggressive public investment in infrastructure, education, efficient energy, healthcare, skills training, and other policy initiatives that, if properly funded, could create new jobs and rebuild a safety net for struggling workers. They are hoping the next presidential administration will serve as a stronger mouthpiece on the national level for innovative policy solutions crafted at the local and state level.

Deficit hawks will doubtless bemoan any increased government spending after the Treasury Department’s costly bailout of the financial system. But public investment is not wasteful spending: it is proven to produce the long-term economic growth, productivity, and a stable employment base that tax policy and deregulation cannot deliver. Indeed, research (sub.) suggests that concern about deficit reduction – and its relationship to private investment – is overblown. On the other hand, as economist Jeff Madrick recently explained, “government spending, when done well, contributes critically to economic growth.”

Madrick cites several examples of what public investment has given us over the years: the canal and rail systems that helped drive economic development and expansion; the public school system that generates a literate and informed workforce; and the GI Bill that sent a generation of Americans to college. Indeed, such investment yields a skilled, well-paid employment pool that can compete with lower-wage economies by producing high-tech products and offering advanced services. Tax cuts for the wealthy could never create such a productive economic climate.

The persistent myth that smaller government spurs economic growth has left the United States lagging in social spending, with crucial investments – as Dean Baker pointed out ten years ago – needed in physical infrastructure (public transportation, roads, bridges), human capital (health care, higher education), and technology (energy efficiency, broadband).

On MayorTV, mayors from across the country have rejected as outdated and simplistic the tired clichés about “tax and spend” liberals that conservative think tanks like the Manhattan Institute use to frame the conversation about cities. These mayors instead recognize the value of public investment and argue that cities – with their higher population density, existing infrastructure, and abundant human and cultural capital – are the best places to begin investing.