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| WHY BALANCE THE BUDGET? August 8, 1997 |
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Questions asked
in this forum:What's the difference between the deficit and the national debt? Should domestic spending be considered as "investments?" How does the deficit relate to the $300 million interest payment? Is balancing the budget short-sighted? Will a balanced budget reduce interest rates? Does the budget deal include a plan to reduce the national debt? Viewer comments on a federal balanced budget
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July 29, 1997:
A background report and debate on the budget deal struck by Congress and the White House.
June 26, 1997:
The Senate works on finishing touches for the budget reconciliation.
June 10, 1997:
Rep. Bill Archer and Treasury Secretary Robert Rubin discuss the budget negotiations.
May 22, 1997:
The Senate works through numerous amendments on its way to a balanced budget deal.
May 2, 1997:
Congress and the President make a deal to balance the budget by 2002.
February 26, 1997:
The Republican Balanced Budget bill is rejected by the Senate, overturned by one vote.
February 7, 1997:
Office of Management and Budget Director, Franklin Raines, and Sen. Pete Domenici (R-N.M.), debate President Clinton's budget proposal.
January 30, 1997:
The NewsHour historians look at the history of bipartisanship.
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The Office of Management and Budget has placed President Clinton's FY 1998 Federal Budget request on the Internet.
Bill Loges of Waco, TX, asks: President Clinton likes to refer to domestic spending as "investment." Some of the spending he has proposed in the past would involve deficit spending, and the implied logic is that we would get more return on that spending than we would pay in interest on the incurred debt. Is there any reliable way to assess the investment value of domestic spending? Is it purely metaphorical to label his proposals investments, or is there a standard method in economics for evaluating their performance as investments such that it's not a metaphor at all?
Paul Solman of WGBH-Boston responds:
Dear Mr. Loges,
I'm afraid all of economics is, in some sense, metaphor. But perhaps the better way to put it, regarding the concept of "government investment," is "optimistic metaphor." Or even "euphemism."
To answer your first question bluntly, there's arguably NO uncontroversially reliable way to define government investment, certainly not at the time it's made. You could even stretch the point, and say the same for investment in general.
What is "investment?" It's spending on THE FUTURE, as opposed to "consumption," which is spending on the here-and-now. The assumption is that when you "invest," we are forgoing consumption today so we can do more consuming tomorrow. That implies we're "investing" in ways of making the economy more productive, like coming up with new technologies.
But when it comes down to cases, the problem of definition gets knotty.
Example. Let's say the federal government "invests" in synthetic fuels, specifically "shale oil" (as it DID in the '80s). To the energy worryworts of the 1970s (many of us), this was an "investment" in America's future energy needs, an "investment" in our national security (since it would relieve our dependence on Middle East oil), even an "investment" in new technology that might lead to further economic gains down the line. To skeptics, however, it was pork-barrel spending, pure and simple: an effort to funnel money to interest groups in those states (and companies) with significant shale oil deposits.
An impartial observer might take another point of view: that the difference is really between a "good investment" and a "bad investment," which you'd only know well after the fact, when the "investment" paid off or didn't. But there are all kinds of problems with this position; neither time nor inclination permits me to spell them out.
Is spending on children's health an investment? Does it make us more productive as a society? Or simply line doctors' pockets? What about spending on NASA? And so on.
All that said, I should add that a number of economists have, in recent years, argued forcefully for a new method of national accounting that would specifically label government investments as INVESTMENTS, just as companies do. This so-called "capital budget" would be somewhat arbitrary, as I hope I've demonstrated above. But at least it would suggest that not all government spending is "consumption." Or, at least, the government hopes it isn't.
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