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Disinvesting in America

The House Republican Budget Plan in Action

SOURCE: AP/Marcio Jose Sanchez

California Department of Transportation officials and members of the media get a view of the westbound transition span of the new Bay Bridge during construction in San Francisco.

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By now you might have heard that the Republican budget plan proposed by Rep. Paul Ryan (R-WI) wants to eliminate Medicare as we know it and to give hundreds of billions of dollars in tax cuts to U.S. billionaires —paid for by raising taxes on the middle class and slashing services to families that our economy has left behind. You might also have heard that, in spite of all the pain Rep. Ryan’s plan would inflict on regular families, it makes almost no progress in reducing the federal budget deficit by 2021.

But did you also know that Ryan’s plan will strip bare investments in innovation and competitiveness that are critical to long-run growth and prosperity in the U.S. economy?

Aside from being fundamentally unfair, the Ryan budget plan is bad economics, too. Investment—both public and private—is the most fundamental determinant of economic growth and job creation. Investment boosts productivity and raises living standards for the long-run competitiveness of our economy. Economists across the political spectrum are warning of the threat that cuts to government services pose for job creation and growth in the near term. Most recently, economist Mark Zandi forecast that the Ryan-Republican plan will eliminate 1.7 million jobs in its first two years . But deep cuts to investments proposed in the Ryan-Republican budget plan will also set back the long-run growth and competitiveness of the U.S. economy.

If the current budget debate is an argument over choice and values, then the Ryan-Republican budget shows that they don’t value investing in our nation’s economic future. In three areas critical to creating growth and opportunity—education and skills training, science and technology research and development, and transportation infrastructure—their budget aims to disinvest in American competitiveness to the tune of more than $1.4 trillion in the decade between 2012 and 2021.

Economists assess prospects for economic growth by looking at how investment per capita grows over time—the more capital goods, skills, and knowledge people have to work with, the more productive and creative they can be. At a minimum, investment should keep pace with population growth, inflation, and depreciation. But compared to current 2010 levels, the Republican budget disinvests in America by cutting:

  • Education and training investment per capita by 53 percent
  • Transportation infrastructure investment per capita by 37 percent
  • Science and technology R&D investment per capita by 28 percent.

In fact, by most counts even before the Great Recession investment in the U.S. economy was too low. Cuts to investment proposed in the Ryan-Republican budget will mean a slower pace of job creation, higher costs for businesses, and the risk that U.S. economic competitiveness will fall behind global competitors.

Why investment matters for jobs and growth

Investment is the cornerstone of job creation, economic growth, and long-run prosperity for middle-class families and our country as a whole. Investments—in new scientific research, new factories, transportation infrastructure, and the education and health of our workforce—contribute to growth by putting new technologies to work, lowering costs for businesses, and increasing the productivity and competitiveness of American workers. Both the private sector and the government have critical roles to play in the investment process. Business investment drives the economy, but public investment paves the path on which business investment depends. That’s why countries with the highest levels of combined public and private investment are leading the world economy in recovering from the Great Recession.

Investment in the U.S. economy was already too low even before the Great Recession. Following President George W. Bush’s budget policies that directed massive tax cuts at America’s richest families, business investment chalked up its worst performance in any economic expansion in U.S. postwar history. Much of the private investment the economy did experience in the 2000s was misdirected into the unproductive real estate bubble.

Public investment, too, has been lagging. Today, investment is barely keeping pace with depreciation—the rate at which past investments wear out or are used up. Public investments have been lagging as well. A budget continuing resolution earlier this year already cut $750 million from education . Most aspects of our public infrastructure are crumbling for want of resources creating real economic costs for businesses and families. And according to National Science Foundation figures, federal investments in R&D have fallen from 1.1 percent of gross domestic product—the total value of goods and services produced in our economy—in the early 1990s to 0.8 percent of GDP in 2009.

Investments in education, infrastructure, and scientific research are critical to the health and productivity of the U.S. economy and are also public goods. Like the fire department and lighthouses, public goods are investments from which everyone shares in the benefit, but that the private market is unable or unwilling to provide. We are all better off—individually and as a society—from having education investments boost productivity and earnings of the workforce, infrastructure investments that create efficient and low-cost transportation systems, and research investments leading to technological innovations that not only spawn countless new business opportunities, but also can literally revolutionize the way we live our lives (think internet and satellite communications, cures for cancer, and so on). 

The Ryan-Republican plan to disinvest in America

As more and more Americans worry about their jobs being shipped overseas, it is more critical than ever that we focus on boosting investment to secure U.S. economic competitiveness for long-run growth with broadly shared benefits. That’s why the Ryan-Republican budget takes us in the wrong direction: disinvesting in the American economy to help give tax cuts for the richest of rich, while allowing the foundations for sustained private investment to crumble.

We compare the Ryan-Republican budget’s plan for public investments against merely maintaining funding for federal public investment at the same level they were last year, in per capita terms and adjusted for inflation to 2011 dollars, from 2012 to 2021. The projected constant level investment figures are compared to the shrinking investment levels proposed by Rep. Ryan in the fiscal year 2012 budget resolution he submitted to Congress, adjusted for inflation and expressed in per capita terms. Ideally, for the good of U.S. economic growth and competitiveness, investment would go up. But even viewed against keeping investment at the same levels, we can see just how steeply the Ryan-Republican budget cuts critical investments.

Education and training: Disinvests by 53 percent

per capita investment for education and trainingThe Ryan-Republican budget cuts per capita investment in education and training by 53 percent, cutting from a current level of $416 per person to a mere $197 per person by 2021. (See Figure 1) This proposal would cut investments away from kindergarten through 12th grade education nationally, including education for children with disabilities and investments in educational innovation. It also would take resources away from programs investing in promote adult education and literacy, career and technical education, community colleges, postsecondary education, and student aid. Cutting investment like this will mean fewer people will have access to the education and skills training they need to fuel economic productivity and compete for good, secure jobs in labor market.

Transportation infrastructure: Disinvests by 37 percent 

cuts to transportation infrastructureThe Ryan-Republican budget disinvests in transportation infrastructure investment per capita by 37 percent from current levels, cutting from the current $299 per person down to $187 per person by 2021. (See Figure 2) Investments to improve and repair the nation’s interstate highway system, public transportation, aviation, railroads, and inland waterways will be on the chopping block under these proposed cuts. Our nation’s failure to invest in infrastructure over recent decades has resulted in longer commute times, billions of dollars in gasoline wasted sitting in traffic, frustrating airport delays, and rising energy costs that hit families and business owners alike. To make matters worse, at the same time, other countries are making substantial public investments in infrastructure, improving their relative competitiveness in the global marketplace.

General science, space, and technology: Disinvests by 28 percent

per capita investment for science and technologyThe Ryan-Republican budget cuts per capita investments in science and technology R&D by 28 percent. While we invested $101 per person on research in 2010, the Republican plan will cut science research to $73 per capita by 2021. (See Figure 3) Federal funding for the broad-based scientific research and development programs at NASA, the National Science Foundation, and general science programs at the Department of Energy historically provided numerous technological innovations that have revolutionized our economy, but also provide critical R&D resources supporting private industry. Investments in science and technology research provide a critical foundation for the U.S. economy’s innovation systems.

Conclusion

In total, the Ryan-Republican budget proposal would strip more than $1.4 trillion from public investments in education, infrastructure, and science and technology that create a foundation to support private investments. The key to long-term success and competitiveness of the U.S. economy is to boost public and private investment from the low levels of the past decade. By disinvesting in the sources of productivity and competitiveness to pay for tax cuts for the rich, the Ryan-Republican budget plan puts little value on America’s economic future.

Adam S. Hersh is an economist at the Center for American Progress. Sarah Ayres is a research associate with the Economics team at the Center.

Data Sources

Actual 2010 budget outlays are from the Office of Budget and Management Public Budget Database. Budget figures are adjusted for inflation to constant 2011 levels using Congressional Budget Office >GDP deflator forecasts. Actual and forecast population is from the U.S. Census Projections of the Population and Components of Change for the United States: 2010 to 2050 . Federal R&D investment is from the National Science Foundation >Survey of Federal Funds for Research and Development .

 

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