Debt or Investment?

By Robert Bernstein   |   May 13, 2021

Republicans have railed against deficit spending for decades. But, every Republican president since 1981 has increased the Federal deficit. Only the Democratic presidents Clinton and Obama have lowered it.

When the Democrats are in office, the Republicans oppose any plans to increase government spending, claiming that we can’t afford it. Even though they have no problem with running up huge deficits when they are in power.

President Biden is proposing a $2 trillion plan to improve the nation’s infrastructure and shift to greener energy and transportation. Once again, the Republicans are opposing such spending, saying it is “way too big.”

But why are we focusing on deficits at all? Does anyone even notice the difference between a debt and an investment?

Suppose you are a plumber and you can’t find any work because you don’t have the proper tools. Does it make sense to borrow money to buy those tools? Is that the same as borrowing money to throw a keg party for your friends?

In case it is not obvious, there is a return on the investment in the tools when you get work and make money. After the keg party, there may be a hangover and a mess, but nothing else that lasts as a benefit.

In 1964, Japan had barely recovered from the destruction of World War Two, yet it had opened the first high-speed rail system in the world. Germany and France followed soon after. Right now, the fastest trains in the world are in China. According to international definitions, the U.S. does not have a single mile of high-speed rail.

High-speed rail could replace much air travel in the United States. In 2007, France did a test of existing trains on existing tracks and reached speeds over 350MPH. At this speed, trains would actually be faster anywhere in the U.S. than flying, if you include door to door travel time! And, of course, trains can run on sustainable electric power.

Imagine the infrastructure we could have if we really invested in new transportation technology and dreamed big? Can you imagine the return on that investment?

Instead, Republicans offer tax cuts to wealthy individuals and corporations. Little of that money is invested in anything productive. According to a January 4, 2020 Wall Street Journal analysis of the Trump tax cuts, corporations used most of their tax cut money to buy back their own stock. Not for investment in capital equipment.

And the wealthy just used their tax cuts for a big keg party!

What other kinds of investments could the government make that would have a net positive return?

We already saw this with COVID. Most people believe that there was a lightning-fast vaccine development in 2020 by private industry. In fact, Obama initiated funding the research on an mRNA vaccine for this purpose in 2013. The world had already seen SARS and MERS and Obama wanted to be ready to head off the next coronavirus epidemic. That research directly led to the Moderna vaccine. When COVID hit, all they had to do was program the specific viral code and test it.

The Climate Crisis threatens to flood tens of millions of people in coastal U.S. cities. Investing a couple of trillion dollars in sustainable energy and transportation would be repaid many times over.

As with any investment, the sooner you invest, the greater your return. I first started talking to people about Global Warming in 1981, when we should have started investing and averting the crisis we have now. Yet, even now, a Green New Deal is a win-win-win for the environment, for good jobs for workers and for consumers.

The biggest investment payoffs are in pure research and exploration. At a press conference in Sacramento on February 28, 1967, then-governor Reagan told a crowd that the taxpayers shouldn’t be subsidizing intellectual curiosity. Is there any technology today that did not start out as mere intellectual curiosity?

One problem with our political and economic system is that it rewards short-term thinking. Jimmy Carter initiated investment in sustainable energy in the 1970s. But it takes time to develop the technology and get it into production. Reagan shut down what little had been started before it had a chance to bear fruit.

Wall Street expects returns on a similarly short time scale. Only a government has the money and long-term ability to invest in the biggest projects with the highest returns. But it takes a public educated enough to demand this.


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