It’s the Investment Deficit, Stupid


shrinking america.jpgFareed Zakaria has a piece in this morning’s Washington Post titled “America’s Grim Budget Outlook.”
But his argument is less about budget cutting than the investment deficit America’s future faces compared with other periods of its history.
Simply slashing the programs that build out America’s innovation capacity and human capital and thinking all will be well flies in the face of America’s past investments in itself. As I have written previously, President Obama’s call for a five year, non-defense discretionary freeze in spending forfeits America’s future to China.
There is a glut of capital in the world that if accessed for strong investment would transform the US economy into leadership again. America’s problem today is that it has a frayed social contract in which the growth and gains of the last couple of decades have gone almost exclusively to the top 1% in the nation — and that those banks and financial institutions that were gamblers instead of investors turned out to be the ones who got paid off, at the expense of the American middle class.
Zakaria writes:

President Obama sounded this call for investment in his State of the Union address. His budget tries to preserve and even expand spending in key areas that will contribute to future growth. But he faces a Republican Party that is fixated by a budget-cutting mentality but refuses to propose entitlement cuts and in which a sledgehammer is preferred to a scalpel. And America’s business community is sitting on the sidelines, betting its future on the growth in foreign countries (which themselves are making huge investments for their growth).
America’s growth and prosperity over the past few decades have been consequences of major investments made in the 1950s and 1960s. Some of those are the interstate highway system; a public education system that was the envy of the world; massive funding for science and technology that produced the semi-conductor industry, large-scale computing, the Internet and the global positioning system. When we look back in 20 years, what investments will we point to that created the next generation of growth for the next generation of Americans?

The President also called for this kind of investment in his National Security Strategy report — identifying the US economy and the health of the middle class as a vital national security issue.
In my book, the gravity switch must be turned on when it comes to out of control defense spending that has little multiplier effect for the private sector in the United States.
The Afghanistan War which will cost about $120 billion this next year represents the equivalent of hiring about 3.5 million workers in the private sector in the US. Next time the anemic job growth results the Obama administration are released, think about the offsets in the services provided in emergency response, police, health care, and teachers — but also the three and a half million jobs that might otherwise be in place for Americans.
— Steve Clemons
Editor’s Note: Image above is from article by Parag Khanna in New York Times Magazine titled “Waving Goodbye to Hegemony.” Used with permission.


15 comments on “It’s the Investment Deficit, Stupid

  1. questions says:

    Maybe it’s time for the Walker shuffle after all.
    TPM and HuffPo’s slants are very different from what this post suggests.


  2. questions says:

    And for dessert!!
    Walker is walking back some of his crazee. It’s about time.
    The peaceful protests, and the filibustering-like dems deserve a potential round of applause.
    The unions really did good work. The recall threats are good. The Republicans in WI took a long time to respond to the pressure, and at some level, even that is a good thing as it’s good to make sure that the opposition is coherent, reasonable, and really determined.
    There are supposed to be farmers in trucks or tractors trekking to Madison this weekend.
    Peaceful protest. No gun slinging near as I can tell. Just some blue painters tape, a little bit gamy in the smell department, and a lot of voices are heard.
    Really good.
    So far.
    Of course, he could still walk back the walkback in some kind of Walker Shuffle someone will need to put up on YouTube eventually. But from here, it looks good.


  3. questions says:

    Two awesome Mike Konczals (he deserves his own noun for these) — rortybomb:
    How debit cards transfer money from the poorest to the richest…. And how they sucker people into riskier behavior…. And how they fuck over merchants who lose money on small transactions with debit cards. We should be using cash and leaving the cards at home, in a drawer, cut into pieces.
    And this one:
    Academic feminism’s great points about the relationship between the consensual and the forced — the example below is not from the Wendy Brown piece, but worth thinking about —
    If you buy a gallon of milk for your kids, the economics way to look at it is that you’ve exchanged the money for the milk in a completely voluntary way. You wanted the milk more than you wanted the money or the opportunity costs didn’t bug you or you had extra money and insufficient milk and the dairy or store had extra milk and insufficient money and a free transaction occurred after which everyone is better off.
    OR you could look at is as, the kids are growing, there’s hardly enough money for anything at all, milk is too expensive, but calcium and the pediatrician and they went without last week and the landlord is going to have to wait, and the electricity was cut off….
    So, yes, there’s still a transaction, but how fucking voluntary is it, this market thing we live in?
    Worth the read. Worth thinking about. How free is freedom? How free is the market without subsidies for necessities? How generous are we with subsidies if we’re vacuuming up money from the lower end of the economy to pay for sweepstakes and rewards and free checking and no-fee cards for the upper end of the economy?
    When we allow the market to allocate resources, which Rawls thinks is fine, do we also allow the market to allocate the suffering of doing without basic needs? How free and glorious is that? A market system is only really free for those for whom survival trade offs don’t have to be made.
    But because we’re so stuck on our high diversity low trust set up (see, I’m not calling it racism!) we allow the suffering, and then we condemn those who suffer for their “laziness” or the music they shove up their butts (the enema man!), or the pants they wear below their butts and feet. (But I’m not calling it racism.)
    It’s to think on.
    Meanwhile, Libya is looking worse, the bombing seems to be for real. Gas prices are way up. There’s much debate about the role of commodity speculation or simple uncertainty. And the grumpster is still a GOM.
    And Mark Thoma is now on my daily reading list. He has a piece up discussing someone else’s arguments about racism and our economic issues. Nice to see other people seeing this as well. This other piece, by Karl Smith, and cited by Thoma is here:
    And here’s Thoma’s site:


  4. questions says:

    Watch out, dudes….
    And figure out if this is civil, civil war, civil disobedience, unjustified harassment, threatening to good governance or supportive of good governance, or some other category of behavior.
    Is it akin to O’Keefe, more moral, less moral?
    The internet opens up a lot of variations on an old old theme.
    Antigone buried the body.
    Anonymous will ship tampons.
    Gender issues in both “texts.”
    Who’s to say what the status of these acts are.


  5. David Billington says:

    “The net effect is that the United States will continue to massively subsidize consumption and
    starve investment. This is exactly the opposite of what history tells us produces long-term
    economic growth.” (Fareed Zakaria)
    It may be true that consumption was relatively lower a hundred years ago, but that was not the
    real cause of the nation’s industrialization. History tells us that long-term economic growth is the
    result of radical innovations conceived usually with very little funding. It is an intellectual deficit,
    not a misallocation of national income, that we need to remedy before either the private sector or
    the federal government can make sensible investments.
    “America’s growth and prosperity over the past few decades have been consequences of major
    investments made in the 1950s and 1960s. Some of those are the interstate highway system; a
    public education system that was the envy of the world; massive funding for science and
    technology that produced the semi-conductor industry, large-scale computing, the Internet and
    the global positioning system.” (Fareed Zakaria)
    Massive federal funding for science and technology did not produce the semiconductor industry:
    the transistor and integrated circuit were invented by a handful of individuals in private life in the
    1940s and 1950s. It was only after these intellectual breakthroughs that federal purchases made
    a difference to the takeoff of microelectronics. Even then it took dropouts like Steve Jobs and Bill
    Gates to launch the personal computer. The federal government never funded the early Internet
    with what it would become in mind.
    The semiconductor industry also only did well until the 1980s, when foreign competition
    intensified, and the design advantages that currently sustain the computing industry will last only
    until Asia catches up in its higher-level design skills. The idea that our current outsourcing
    model is permanent, where we design and they manufacture, isn’t going to endure.
    The slide in average personal income is not likely to be halted by further iterations of new
    handheld devices or by seeing ourselves from outer space or by one-time expenditures to rebuild
    bridges and highways. If we keep sweeping the deficit of deeply productive ideas under the rug
    and pretend that all will be well if we simply reallocate money, we are likely to continue to see the
    economic trends that we have seen since the 1980s.
    “In my book, the gravity switch must be turned on when it comes to out of control defense
    spending that has little multiplier effect for the private sector in the United States.” (Steve
    The trouble is that it was defense spending that paid for half of the transistors and integrated
    circuits manufactured in this country during the 1950s and 1960s. The interstate highway system
    was a defense project, as was the expansion of higher education after 1957. Defense spending
    was what largely created our mid-century prosperity, especially in places like California.
    The real need today is not to cut back defense spending but to redirect under its rubric the
    investment spending that we do need here at home. But that will not guarantee the intellectual
    breakthroughs that must happen for the spending to be truly useful.


  6. questions says:

    On the nth “punking” by James O’Keefe-related groups of any and every “liberal” group, and on the parallel “punking” of the occasional conservative by the occasional lefty blogger, and on WikiLeaks, a few thoughts:
    First, if we all keep “punking” each other, we’re going to have a hell of a hard time talking anymore. Spies in the living room, spies at a restaurant, spies on the computer…. Soon we will have an accidental, from the bottom up totalitarian social realm. Bad plan. Really bad plan.
    Second, is anyone surprised that there are vaguely liberal people who are pretty sure the Tea Party has significant racist elements within it, even if a nuanced reading would find more than simple racism, and even if a more nuanced reading might find racist outcomes though not a lot of actual conscious racism?
    Third, is anyone surprised that when you think the cameras are off, and the mics are off, and it’s safe to speak, that you are a little more blunt and less couched in your speech?
    Fourth, does anyone think it’s odd that people have private views that differ from their job descriptions?
    Fifth, do we really want everyone to sound like professional GOM (grumpy old man) Simpson?
    Sixth, could we try to stop being shocked that Planned Parenthood provides abortions, that ACORN registers Mickey Mouse, that Scott Walker and Scott Brown want Koch money, that the Kochtopi support right wing wacko causes and cancer research and the ballet because they are billionaire libertarians who can do whatever the fuck they want with their billions and they can routinely humiliate any politician or citizen they damned well feel like because that’s what it is to be a billionaire?
    And can we realize that as individuals, we are smack dab in the middle of an escalation dominance game that will turn us all into losers?
    Seriously, the more O’Keefe and the various bloggers and comedians go around punking unsuspecting bloviating dumbfuck politicians and executives, the more we go fishing for a truth we already know through the mechanism of falsity, the worse off we’ll all be.
    We already know what’s what with Walker, and Palin, and NPR, and Planned Parenthood, and ACORN, and other groups.
    We already know that when individuals meet with other individuals, they act as, well, individuals.
    We already know lots and lots of things.
    We don’t need more of this shock nonsense to help us confirm the obvious.
    And yet, we’ll take the bite every time. Liberals will be SHOCKED that Palin’s organization really thinks that’s the French guy on the phone. We’ll be shocked that a few individuals at Planned Parenthood may or may not have offered anything to anyone. We’ll be shocked that someone thinks the Tea Party…..
    And through it all, we’ll know that O’Keefe doctors his videos to make it all worse and more seamy, and that the liberals play it straight but probably still shouldn’t do it.
    And eventually we’ll stop talking altogether.
    There must be a better way to know what we already know.
    But now I suppose there will be some more hearings on the evils of Islamist influence and the evils of liberalism…..
    And finally, can we remember O’Keefe’s involvement in that ridiculous seduction of a CNN reporter on a boat escapade? Can we just be done with this dude? Done done done.
    (If this double posts, sorry. I got a weird error message.)


  7. questions says:

    An eye-opener on scoring the written part of high stakes tests — you, too, could do it!!
    “The taxpayers of Pennsylvania pay $30 million every year to Data Recognition Corp (DRC) to develop, print and score these tests every year.
    In May of 2009, the Pennslyvania Department of Education (PDE) signed a $200 million contract with DRC to create and administer the Keystone High School Graduation Exams.
    The tests are scored by temporary workers with no training in education in what some have described as


  8. Casey R2 says:

    Marcy,”Emptywheel”,says it best —
    Obama has declared that he has the authority under the 2001 AUMF to indefinitely hold anyone


  9. questions says:

    Straight from kos, a look at the mess Arne left behind in Chicago, and a wondering about what Emanuel will do….
    Note how so many of the usual Bill Gates-like tropes are dismantled. No, not more tests, no, not more evaluation, no, not more merit pay, no, not larger classes, no, not more firing of teachers, they all leave anyway, and really, no, not more data drivel….
    So if this is really what Duncan started, and it seems that he’s at the base of it all, maybe he should start handing out mosquito nets for Bill Gates, instead. It’s satisfying, helpful, documented to work, there’s travel, he can use his people skills, still get in some b-ball time, and he doesn’t need to have spent time teaching or have actually sat at an actual desk in an actual public school that actually doesn’t charge tuition….
    Get this guy out of here!
    And speaking of guys who should be no longer on camera or in public speaking gigs, can we hear it for anyone who says
    The “enema man” and “Snoopy Snoopy Poop Dogg”????
    Eminem has some decent music, on my iPod, actually. Snoop Dogg I don’t know as well. But likely I’ll head over to Amazon and download a few tracks to try out.
    Maybe he’s been reading too many Captain Underpants books to his grandchildren, who then don’t send him thank you notes because he’s too fucking grumpy to bother with. Even the early elementary set gets it. Teh Olds need to find something else to do. Maybe Arne needs some help with those mosquito nets……
    The kindergarten set might like SoSec checks one day, too. And they probably don’t want to be called 1 of 300 million teat suckers. (Sounds like a line from Snoop, but not referring to SoSec….) Even though, of course, many of them were so, literally, not that long ago. But people like to forget that part of life. Mr. Simpson, you do your case no good at all. And you really are a grumpy old man.
    “Here’s President Obama’s deficit commission co-chair on Fox News.


  10. Warren Metzler says:

    I object strongly to Zakaria’s premise. It is a totally unfounded fantasy of liberals that government programs stimulate an economy to become more powerful.
    For example, if a company creates an advertising campaign to attract customers, and fills the various available media to reach as many consumers as possible; it is very possible, that since most of the new customers are arriving because of the “sizzle” that was sold, having no real interest in the steak that is being sold, that they have no affinity for the brand; and sales soon drop off, making it very expensive to sustain all those new customers. So although it appeared that that campaign was valuable, the cost of keeping all those fickle customers in the long run is far more expensive than any increase in sales that occur. A classical waste of money.
    I propose that such it is with government programs to stimulate the population to do anything: businesses to increase business, people to improve themselves, kids to be educated, etc.
    Inalienable rights exist, because they are hardwired internal motivations in every human, and being there, each person deserves the right to pursue them if he so desires.
    What occurs to each human is always and only a product of what that person choose to pursue. It is never a product of what government officials decide to do.
    The recent decline in American’s former position of strength (in leading the world in innovation, economic activities, conceiving personal freedoms, discovering and challenging and succeeding at new horizons, etc.; not at all in military prowess) is not because of anything the government has failed to do. It is solely because the rest of the world is catching on to what previously only we can do. And most Americans refuse to go out and find, conquer and master new capacities. As long as we depend on the government to stimulate change, and most Americans maintain their current refusal to chart new territories, we will continue our current decline (which, like all declines, gets steeper as long as it is sustained).


  11. John Waring says:

    But our politics are so abysmally disfunctional. I think as a nation we are incapable of making rational decisions.
    Great article by Parag Khanna. Thank you for the link.


  12. Don Bacon says:

    The US government, using taxpayer funds, including funding to USAID, has a committed policy of helping U.S. corporations invest abroad, which is instrumental in exporting jobs. American companies have created 1.4 million jobs overseas last year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9 percent.
    The US Foreign Service has representatives at 265 embassies and consulates throughout the world who report to the state department. There are 115 American Chambers of Commerce (AmChams) affiliated with the US Chamber in 102 countries. They are all totally dedicated to helping U.S. corporations invest overseas.
    In Poland the US ambassador recently told the Poland AmCham that “Promoting investment is a noted priority area.” In faraway Kazakhstan the US State Department conceived and developed a program supported by US taxpayer dollars to increase investment in that country. India has one of the fastest growing economies in the world and is a major source of US investemnt and job outsourcing and the US embassy is involved. The US ambassador to India, 2007: “U.S. firms have already exceeded average annual levels – investing $470 million, with indications that total investment for the year will clear $1 billion.”
    Investors’ Voice
    The Official Voice of the American Chamber of Commerce in Kazakhstan
    December 2010
    This issue is based on the mid-November AmCham Economic Policy Forum, the Chamber


  13. Maw of America says:

    It seems to me that if we just elevated Ike’s farewell speech about the danger of the military-industrial complex to the level of a Gettysburg address or MLK’s “I Have A Dream” speech, then more people (especially students) would be aware of the danger’s Ike expressed before they come of voting age.
    Then again, they might just tune it out for another Charlie Sheen interview…


  14. Dan Kervick says:

    Of course, the conservative response is that the government doesn’t need to make these investments. They argue that government spending only crowds out private spending, and that if the government would just shrink itself and get out of the way, the private sector would eagerly utilize those surplus savings to do all the necessary investment in new production.
    So to win the argument progressives need to continue to emphasize that there are kinds of investments that are very useful and highly productive, things that amount to investments in thousands of businesses at once, but that private enterprises cannot realistically be expected to organize and fund. These types of investments, that Adam Smith understood fully well in the 18th century, will not occur as a result of decentralized and localized private sector activity.
    Conservatives are full of all kinds of excuses these days as to why the private sector continues to eschew investment in innovation and expanded production, and why they keep buying safe government debt if they are really so frightened by the deficit. Most of them come down to “uncertainty.” Maybe now the problem is supposed to be expectations of inflation, even though core inflation remains low.
    But of course another explanation is that stagnant wages and broad indebtedness have suppressed aggregate demand for more than two years now, and thrown a tenth of our consumers into unemployment, so many investment opportunities don’t look so promising. But we can’t get conservatives to do anything about aggregate demand.
    We have had a test run of the austerity program favored by Republicans in Europe. And guess what? We are seeing depressed economic activity as a result – not a boost because governments have gotten “out of the way.”
    You would think one Hoover era would be enough for Americans. But now we have another one.
    I have to ask too whether the savings glut is really as large as advertised. A lot of these savings are bound up in assets that are probably overvalued.


  15. max says:

    Outsourcing U.S. gov jobs to non americans + extravagant
    spending in foreign wars -contractors more $$$ waste + no
    accountability =DEFICIT


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