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PAUL SOLMAN: To take a step back from the Washington budget debate, why balance the budget? Economically, what exactly are we trying to accomplish? Well, for these and other questions, we turn to two eminent economists, Murray Weidenbaum, chairman of the Council of Economic Advisors under Ronald Reagan, he’s now head of the Center for the Study of American Business at Washington University in St. Louis, and Robert Heilbroner, who brought several generations of readers back to economic basics with his book The Worldly Philosophers. He’s professor emeritus at the New School of Social Research in New York. Gentlemen, welcome to you both. Prof. Weidenbaum, let’s start with you. Put simply, what’s the economic argument for moving toward a balanced budget?
MURRAY WEIDENBAUM, Economist: (St. Louis) Basically, we need to leave more of our money in the private sector so that we generate enough saving and investment for a more rapidly growing economy, more job creation, and an economy that can do a better job of holding its own in an increasingly competitive world market place.
PAUL SOLMAN: So the argument for you is that government shouldn’t be taking up this much of a share of the economy?
PROF. WEIDENBAUM: That’s right.
JIM LEHRER: And, and Prof. Heilbroner, how do you respond? What’s the argument for, for–against what he’s saying?
ROBERT HEILBRONER, Economist: (New York) First of all, it’s not a very big share. It’s a very normal share, but the share that all industries or countries have. And secondly–
PAUL SOLMAN: That is government’s share of the total?
PROF. HEILBRONER: Government’s share of the total. And secondly, I think Murray Weidenbaum overlooks the fact that government makes an indispensable contribution to the well-being of society by doing what it does, partly by carrying out the functions of government and even more important, by carrying out certain kinds of capital investments which the private sector can’t do. Of course, there are roads and bridges and tunnels and there’s educational support and research. That’s absolutely essential. And if government doesn’t carry out those functions, the country will slow down this growth. And finally, most of those functions are financed and should be financed by borrowing, just as they are in the private sector. When the private sector carries out its ordinary business of selling goods over the counter, it doesn’t have to borrow. When the private sector decides to build a new wing on the shop to set up a whole new plant, they have to borrow the money. It’s just too much to take it out of the current budget. And the same should be true of government. Government should borrow for purposes that expand and accelerate our growth and our well-being.
PAUL SOLMAN: So Prof. Weidenbaum, how do you respond? Doesn’t government need to borrow? If we don’t borrow more than other countries, what do we have to worry about here?
PROF. WEIDENBAUM: There are two key points that bob Heilbroner overlooks. First of all, we save much less as a proportion of our economy than most of the other large industrial nations, so after the government borrows, there’s very little, certainly an inadequate supply of saving left over for private investment. As for government borrowing for government investment, the fact is, overwhelmingly, the deficits that we have are not for investment but for consumption, for transfer payments, entitlements is the new buzzword for that. The smallest proportion of our budget is devoted to the items that might make for a stronger future economy. Most of the federal budget is dissipated in terms of any serious economic effect, and after all, we are not talking about eliminating government, eliminating the budget. We’re talking about slowing down what’s been a very rapid increase in deficit spending.
PAUL SOLMAN: Prof. Heilbroner, he makes two points here, first about private saving. Is the government eating up the private savings of the American people and, therefore, we don’t have any money left over in banks and so forth to invest, the private sector doesn’t, how do you respond to that?
PROF. HEILBRONER: Well, the question of savings is a very complicated one. And the funny thing is there’s more than one number. I mean, the Department of Commerce does show a fall in savings, and the Federal Reserve Bank shows a rise in savings. And there are other ways to figuring the number, and they’re very, very untrustworthy. It seems to me that the numbers, that the momentum of this society does not hinge on a shortage of savings; it hinges on a shortage of investment, and investment is not held back by savings when you have lost a lot of employed factors. Certainly, investment in public capital of various kinds is not hindered because there isn’t enough savings of a person some way or other, government borrowing, deficit, is crowding out the private sector. I don’t think there’s scintilla of evidence.
PAUL SOLMAN: But Prof. Weidenbaum thinks that your investing is really consumption or pork. He didn’t say pork, but how do you respond to that? I mean, did the government–you say it’s investing. He says, hey, I look at the same spending, and I see that as consumption.
PROF. HEILBRONER: Murray Weidenbaum raises a very important point, which if we had an hour we might clarify. It has–it has to do with the fact that there really is no very clear budgeting on the part of onlookers who look at the government figures and divide it into two categories: ordinary maintenance, operational expenses, and capital expenses, investment expenses. You can go through these numbers and find buried investment that is simply not pulled out as such. You look at the government figures; there is not a figure called government investment. But people who have looked, like Bill Nordhous, for example, have come up with much larger numbers for the importance of the government in the total economy than show up. What is needed, of course, is the clarification of the numbers, then people would stop worrying so much. If we knew, for example, which seems, I think, likely, that the government actually invests through education, through infrastructure and the rest, something like $200 billion a year, and there was a deficit, of borrowing, of $200 billion, nobody would get worried, you’d say, well, that’s good, I’m glad we have that public investment, and of course, we’re borrowing for it, that’s the right thing to do, and we’re doing what every other country does. There’s nothing unusual in our proportions, in our volume of expenditure.
PAUL SOLMAN: Prof. Weidenbaum, how do you respond to that?
PROF. WEIDENBAUM: I would worry about it a great deal, because if you look carefully at the whole gamut of federal government spending programs, you find very little that are effective, that are productive, that are worth taking investment and even consumption funds out of the private sector. Compare the productivity of money spent in the private sector with money spent by the federal government. It’s a very discouraging comparison.
PROF. HEILBRONER: Murray, I’d love to do that.
PROF. WEIDENBAUM: I’ve done it.
PROF. HEILBRONER: Murray, what I would like to do is compare the productivity of the roads, the bridges, the tunnels, the education, the GI Bill type of thing, with the productivity of Disneylands and some other wonderful examples of what private enterprise can do. Which do you think is the more productive? Which do you think urges American growth on to higher levels and to reach more people? Which do you think?
PROF. WEIDENBAUM: Bob, if you want to take the most productive federal investment and compare it with the least productive private investment, you can have a lot of fun, but if you look at the great bulk of federal spending, you find–first of all, you do not find investment–you find consumption. And if you look at the investment, so much of the so-called federal investment are items such as federal buildings that do not generate productivity, do not generate a large return to the future.
PAUL SOLMAN: Gentlemen, can I jump in for a second? Is this just a case of your assumptions, one set of assumptions against the other? Prof. Weidenbaum, you know, you define it one way; he seems to define it another. Is that a fair way to look at things?
PROF. WEIDENBAUM: I suggest that Bob Heilbroner and others do what I have done repeatedly, sit down and look at the details of the federal budget, not the broad statistical categories; look at the individual appropriations for the Department of Agriculture, the Department of Commerce, the Department of Energy, the Department of Health & Human Services. If you won’t wind up shaking your head the way I do when I look at the details, I would be extremely surprised.
PAUL SOLMAN: Let me take it a step away. Prof. Heilbroner, the role of government, at least since the Depression, the 1930′s, has been to promote growth in the ways you’re talking about and also to fiddle with the economy, if you will, stimulate it when it needs stimulating, certainly during the Depression. Have we–are we seeing a revolution here, a change? Is that era over do you think?
PROF. HEILBRONER: I hope not. It seems to me we should be doing what all the industrial countries are trying to do, use the government to fulfill the, the national needs for growth and for well-being. And by pulling back, by frightening ourselves with words like debt and deficit, without even recognizing that deficit just means borrowing, and of course, there’s good borrowing and bad borrowing, and that debt just means government bonds and without them, we’d be a very handicapped nation, indeed, but, of course, we frighten ourselves with the words. I fear we may be pulling back in activities that are very important. Murray says there’s lots of waste in the government. I don’t doubt there’s waste in the government. There’s lots of waste in the private sector, and I’m sure he doesn’t doubt that. You can’t–you can’t smear the whole effort. Of course there is–of course a matter of redundancy and nonsense–the same way that you could smear the private sector by saying, look–by my using Disneylands as being the example of, of what the private sector does as a whole. But you have to recognize that both sectors are indispensable for a nation like this, a capitalist system, to continue and to grow, and the public contribution is just as important as the private and in some ways more important because it can’t be done by the private sector. It doesn’t yield profits.
PAUL SOLMAN: Prof. Weidenbaum, do you see a revolution here, a sea change, an era ending?
PROF. WEIDENBAUM: I see a sea change. For once, we, as a nation, seem to be embarked seriously on an effort to redress the balance between the public and the private sector. And that is the key term, balance. Neither one of us wants to eliminate the public sector or the private sector. I think the tilt has been excessively in favor of government. The time has arrived to tilt the balance in favor of greater private decision-making, because to take the Disneyland example, no one forces you to go to Disneyland; that’s your personal decision to use your money. On the other hand, the boondoggles in the agriculture, commerce, energy departments, et cetera, are nothing that you and I can decide on. The government decides to spend our tax money for those purposes. That’s the essential difference.
PAUL SOLMAN: One last question. What about fairness here? Prof. Heilbroner, how important is that a factor in what you’re saying, arguing for the bridges and the like in terms of who will have to pay if we balance the budget?
PROF. HEILBRONER: I think fairness is of extraordinary importance, and I think unfortunately, the numbers show that we’ve become a less fair, a dramatically less fair country over the last 20 years. Part of that can be redressed by the government, not all of it, and part of it can be redressed by the government undertaking activities like support for education, which in the long run is the best way to redress things, indeed, like racial tension and certainly the handicaps of being under-educated.
PAUL SOLMAN: And Prof. Weidenbaum, fairness, just briefly?
PROF. WEIDENBAUM: I think the basic approach to fairness is to give the individual person, the individual family more opportunity to decide how it wants to spend its–and invest its own money and not let government do it for them.
PAUL SOLMAN: Well, thank you both, gentlemen, very much.