The Other Surplus Option

The New York TImes

The way a debate is framed and choices are posed is often more important than which
option is chosen. That's because the framing of the debate sends a powerful message to
the public about what's at stake. It sets the boundaries of discourse. For politicians to stray
beyond requires too much explaining and runs the risk of appearing irrelevant or radical.

The debate over what to do with the Federal budget surplus offers a case in point.
Congressional Republicans want to use almost all of it for a tax cut. President Clinton
argues that it should be used to pay off present and future obligations. "Save Social
Security. Save Medicare.... And get America out of debt for the first time since 1835," he
said last week in response to the Republican proposal.

Both alternatives cutting taxes and paying off obligations are attractive, if done equitably.
Once the posturing is over, any final compromise is likely to feature some of each. But a
third option to apply some of the surplus to public investments in our future is left out
almost entirely.

By public investments I mean things that will make the nation more productive in the future
but that individuals or businesses have little incentive to do on their own. Such public
investments complement private investments. Without them, the private sector cannot
sustain high returns over the long term.

Politicians once talked about public investment. This was a central theme of the President's
1992 campaign. Bill Clinton came to Washington stressing the urgency of dealing with "twin
deficits" - the budget deficit and America's failure to invest adequately in our people. We
are far better able to afford public investment today than in 1992, when the deficit loomed
large. Yet we're investing less, as a percentage of gross domestic product.

Basic research and development, for example, is the foundation for applied research by the
private sector. The Internet emerged from basic research financed by the Government, and
similar efforts cry out to be made in fields like physics and environmental remediation. Yet
basic research hasn't kept up. In 1992, Federal investment in R & D was 0.43 percent of the
gross domestic product. This year, it's 0.39 percent.

Likewise, an educated work force is essential if we are to reap the benefits of new
technologies. Companies have been investing considerable sums in computers and digital
gadgets, but chief executives complain that they can't find enough skilled people to use
them.

Yet the problem goes much deeper than a chronic shortage of software engineers. One out
of six Americans is functionally illiterate. Our classrooms are overcrowded and understaffed,
some literally falling apart. In 1992, Federal investment in education and training made up
0.61 percent of G.D.P. This year - as record numbers of students swell schools and colleges
- it's 0.58 percent.

The health of our nation's children, Important for its own sake, is also important to our
future prosperity. Yet 1 of every 4 children under 6 years of age is growing up in poverty.
And although progress has been made in getting these children access to doctors, too
many lack good nutrition and adequate care. In 1992, food and nutrition assistance
(including school lunches and infant health) made up 0.53 percent of G.D.P. Now it's 0.40
percent.

The return from public investments in R & D, education, children's health and other
essentials like highways and mass transit is often decades away. But our failure to invest
adequately will also show up decades from now.

Because the Federal budget fails to distinguish between investing for tomorrow and
spending on today (the normal distinction made by families and businesses in their own
budgets), the concept of public investment has been debased by both sides. Either every
favored budget item - from farm programs to prescription drug benefits for the elderly - is
called an "investment," or everything the Government does is assumed to be spending that
crowds out private investment.

But many other nations have figured out how to draw the distinction. There's a
commonsense test. If it's likely to make us more productive in the future, it's an investment.
If not, it's spending.

Granted, there are hard cases. Spending on national parks and environmental protection
might be seen as investments, to the extent they make the future more livable. Yet
spending on health care for the middle aged (like me), although desirable on other
grounds, is probably not. But hard cases should not distract us from making the principled
distinction.

Private investment is critical, of course. The best argument for cutting taxes and paying off
financial obligations is that both free up money for the private sector, some of which will be
invested. But the other portion will be consumed. And it is this distinction - between
investment and consumption - that should be the focus, rather than the distinction
between private and public.

Our future prosperity depends on the amount and wisdom of our private and public
investments and on the restraint we show in our private and public consumption. Therein
lies our real choice.

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