Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 14, 1993 TAG: 9303150550
SECTION: EDITORIAL PAGE: D-3 EDITION: METRO
SOURCE: GEOFF SEAMANS ASSOCIATE EDITOR
DATELINE: LENGTH: Long
CAPITAL DISTINCTIONS
PRESIDENT Clinton properly draws a distinction between "investment" and other kinds of government spending.But does he always draw the distinction properly?
Republican critics of Clinton's economic proposals charge that government "investment" is government "spending."
Well, yes. But while all "investment" is necessarily "spending," not all "spending" is necessarily "investment."
Investment spending is for things that promise a payback. The iffier the promise, the greater must be the potential reward for the investment to make sense.
Non-investment spending is for everything else.
I suspect that many of the critics understand and appreciate the point, at least to a degree, but simply don't want to concede it.
Anyone who attacks government "waste," for example, is making use of the distinction. What is "waste," after all, but non-investment spending at its worst? It promises nothing whatsoever by way of payback.
As a practical matter, identifying waste - let alone rooting it out - isn't as easy as it sometimes appears. There's more to it than calling Al Gore on a hot line with a list of your favorite peeves.
What looks like waste may in fact be necessary work. What to one citizen is waste may to another be the valuable consequence of intelligent policy. Budgets don't come with a line item, handily removed with a flourish of the red pencil, for "waste."
Conceptually, however, waste is the easy part of the investment/non-investment distinction. So long as we don't get too specific about it, most of us can agree that wasting taxpayer money - that is, spending it on nothing of value - is bad.
After that, things get trickier. Take, for example, the matter of agricultural subsidies, a favorite target (rightfully, in my opinion) of budget-cutters everywhere but in places like Iowa.
You can't say such subsidies are waste, inasmuch as (a) they artificially prop up farm prices, which is what they're supposed to do, and (b) they, like other entitlements, are basically wealth-transfer mechanisms rather than operational government programs.
Likewise with the big-money entitlements: Social Security, Medicaid, Medicare and - the one that tends to get left out of consideration of entitlements - payments on the national debt.
They all do, more or less, what they're supposed to do. And they are basically wealth-transfer mechanisms, rather than operational programs.
In the case of Social Security, the transfer is generational, from young to old. In the case of debt service, it is economic, from Americans in general to people affluent enough to have portfolios with government securities in them.
That so huge a percentage of federal spending is for entitlements is why much of the deficit-reduction debate - the one about cut spending vs. raise taxes - misses the point. Whether you cut entitlement spending or raise taxes, the net effect is the same: more money in the U.S. Treasury, less in private hands.
On this score, the best entitlement program to cut is debt service, because its private-sector beneficiaries include foreigners as well as Americans. But you do that by containing the debt, not by altering a budget line item.
There are other reasons, however, for wanting to cut entitlements, one of which is that they're not investments.
Oh, some may be, just a little. A substantial portion of the debt service, for example, is attributable to the borrow-and-spend military buildup of the early '80s, which in turn spun off some technological advances of general application. Some Medicare and Medicaid benefits are in the service of treatments that ward off even costlier-to-treat ailments.
But on the whole, entitlement spending is not investment, even if it's not waste either.
And as every business and family knows, there's overhead, much of which is necessary and valuable. Fire and auto insurance. Utilities. Groceries. Clothes. Shelter, at least partly. (For homeowners, shelter is also partly an investment.)
The nation has overhead costs, too, such as defense. The more you can cut overhead costs, the more you can spend on investment.
But danger lurks. You're flirting with catastrophe if you cut your insurance coverage, or your defense, by too much.
The great virtue of Clinton's investment/non-investment distinction is that it gets beyond the limiting vocabulary of the '80s. Tax rates and deficits are important. But what wasn't talked about until Clinton came along are even more important questions: What are we raising taxes or piling up debt for? What're we spending the money on?
But there are also caveats:
The "investment" label comes too easily to presidential lips. Is Clinton's summer-jobs program for young people an investment? In my book, only if it provides training in productive skills. Otherwise - and the history of federal jobs programs suggests the otherwise is what'll happen - it's non-investment spending on makework.
Not all investments are good investments. Space stations and supercolliders probably will yield knowledge of some value. But will it be of greater value than the projects' very high costs? The risk-reward ratios seem awfully high.
"Investment" in "human capital" is different from investment in physical capital. If additional spending on childhood immunization and Head Start more than pays for itself, great. But keep in mind that unlike, say, a highway-construction project, it doesn't end. Each year, there'll be a new crop of kids to be immunized or Head Started.