Thursday, April 19, 2018
Opinion

Nation must make 2 huge investments

Rather than present and defend their very different economic theories, politicians and pundits are tossing around a number of distracting rhetorical analogies, largely as a substitute for careful thought.

Those who would impose austerity measures to reduce the deficit to zero often make claims that the United States is becoming like Greece, that the debt represents intergenerational theft of our children, and that we are redistributing wealth from "makers" to "takers." Such assertions are simply reminders of economic illiteracy in high places and are easily rebutted with facts.

Into this noise a new rhetorical flourish has gained some acceptance, one with a bit more face validity than the others. The new claim is that "those who downplay the national debt and deficits are just as boneheaded as those who deny the impact of carbon emissions on our climate." The attractiveness of this misleading conflation lies in the steady accumulation of small contributions to an ultimate disaster: Deficits pile up debt and emissions pile up heat-trapping gases — and both enable a complacent present to steal from the future.

It is an attractive analogy. But it is false. Unlike excessive emissions, borrowing today can produce great economic benefits for the future. It depends on how the borrowed money is spent; that is, whether we spend it on investment or consumption.

Investment in productive assets enables an economy to grow as well as to repay its loans. This use of borrowed money bequeaths to the future a larger economy, enabling citizens to be better educated, more globally competitive and able to enjoy a higher standard of living. There is no resemblance between this outcome and the environmental impact of accumulated emissions. When borrowed money is used for productivity-enhancing investments, there is a benefit, not a theft from anyone — least of all from our children.

When deficits are used to enhance consumption, however, the claimed similarity to climate denial works a lot better. Each generation inherits the capital assets produced and maintained by previous generations.

If that inheritance is in poor condition, such as crumbling infrastructure or ineffective schools, it reflects the preceding generations' selfish consumption of its income in disregard for the future. Similarly, each generation inherits a physical environment — soil, air, climate, etc.

If the current generation degrades that environment, it is in effect consuming some of that environmental quality that could have been passed on. Both cases exhibit a failure of stewardship. Both actions will constrain everything that future generations will be able to do.

So, in the search for boneheads, we find them in both climate deniers and investment deniers. Right now the nation faces an urgent need to make two massive investments: the reduction of greenhouse gas emissions and the restoration of a badly deteriorated national infrastructure.

Both efforts will require deficit spending, and both will help fight the recession and stimulate the economy. While future generations will inherit financial debt, they will also inherit a more productive economy and a better climate — capital assets that they can use to improve their standard of living. We do not steal from our children by borrowing money for these investments; we steal from them if we don't.

William L. Holahan is emeritus professor of economics at the University of Wisconsin-Milwaukee. Charles O. Kroncke, retired dean of the College of Business at UW-M, also recently retired from USF. They are co-authors of "Economics for Voters." They wrote this exclusively for the Tampa Bay Times.

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