Alternate Styles

Budgeting for Investment in Our Nation’s Economic Future

Adam S. Hersh compares the House Republicans’ new plan to finance future economic competitiveness with the president’s latest budget proposal.

House Speaker John Boehner (R-OH) administers the House oath to Rep. Hal Rogers (R-KY), chairman of the House Appropriations Committee. Last week, Rogers introduced a plan to slash $100 billion in the remaining months of FY 2011, cuts that include reductions in education, innovation for energy efficiency and independence, health and life sciences technologies, infrastructure modernization, and export development. (AP/Jacquelyn Martin)
House Speaker John Boehner (R-OH) administers the House oath to Rep. Hal Rogers (R-KY), chairman of the House Appropriations Committee. Last week, Rogers introduced a plan to slash $100 billion in the remaining months of FY 2011, cuts that include reductions in education, innovation for energy efficiency and independence, health and life sciences technologies, infrastructure modernization, and export development. (AP/Jacquelyn Martin)

Economists of all stripes know that investment is the fundamental cause of economic growth and a steadily increasing standard of living. But stripes can suit a lot of different styles, which brings us to the current debate over federal budget policy.

Even in the context of offering deficit reduction, the president’s FY 2012 budget request sports bold stripes. He dramatically increases investments to modernize and expand transportation infrastructure and boost science and research for new technologies and innovation. These investments will spawn new jobs and economic industries and spur competitiveness and innovation in American businesses and the productivity of American workers when the new fiscal year begins in October.

In contrast, House Appropriations Committee Chairman Hal Rogers (R-KY) came dressed for tea in his wildest polka-dot and plaid ensemble. Last week, the chairman introduced a plan to slash $100 billion in the remaining months of FY 2011, cuts that include reductions in education, innovation for energy efficiency and independence, health and life sciences technologies, infrastructure modernization, and export development. It’s a style Rep. Rogers hopes to impose on the FY 2012 budget, too—a style that suits hardly anybody.

With 15 million people unemployed and looking for work, both the president’s deficit reduction and Rep. Rogers’ spending cuts will mean hardship for many families across the country. But the president’s style reflects his understanding that the government plays a critical role in providing public investments and creating incentives and opportunities for private investment. The president offers a budget that prioritizes critical investments in infrastructure, innovation, and education, laying a foundation for the nation’s economic future. Rep. Rogers and his conservative allies do just the opposite. So let’s compare the two budget proposals.

Investing in high-productivity infrastructure

After falling steadily through the 2000s under President George W. Bush, U.S. gross public investment in infrastructure stood at less than half the level (as a share of national income) of a generation before. As a country, we are paying substantial economic costs for this failure to invest in infrastructure.

Most people are familiar with the long commute times, the billions of dollars in gasoline wasted in traffic, maddening airport delays, and rising energy costs. But while we are not making public investments in infrastructure, other countries competing with us in the global marketplace are. Not investing also means our economy is not developing the manufacturing industries and jobs producing high-technology infrastructure goods.

President Obama’s budget will create a National Infrastructure Bank for financing infrastructure investment while expanding investments in highways by 66 percent, double investments in mass transit systems, and increase investments in rail by some 88 percent—including for high-speed rail that will get you from A to B faster and without a drop of gasoline. This will mean three things for the U.S. economy: more manufacturing, more middle class jobs, and lower costs for American businesses.

The plan introduced by Rep. Rogers will cut $600 million from the National Infrastructure Investments program, more than $750 million from federal transit investments, nearly $1 billion from highway investments, and nearly $5 billion from building the high-speed rail of the future. China is building a high-productivity infrastructure and capturing the manufacturing innovation and jobs that go along with it. That’s style for the 21st century.

Educating the workforce of the future

Economists who study economic growth know that strong public investment in education is the leading determinant of growth in the long run. President Obama’s budget calls for boosting federal spending on education overall by $13.3 billion. Though an overall modest increase, the budget makes strides in reallocating resources within education to more successful programs and targets expansion of resources allocated directly to local school districts through the Race to the Top program, rather than through state governments. Early education, through the Head Start program, would receive a 12 percent boost over current funding levels.

In contrast, Rep. Rogers proposes cutting 15 percent from early education, preferring that fewer of America’s kids get a head start on a lifetime of learning. Rather than expanding resources for education investment, Rep. Rogers would take $4.9 billion out of American schools, specifically cutting $119 million for teaching American history, $180 million for math and science teaching programs, and nearly $460 million for literacy programs.

The president’s budget also calls for expanding access to higher education. Pell Grants, the single-largest source of grant aid for postsecondary education, would increase by 16 percent of current funding levels under President Obama’s plan. Rep. Rogers’s plan will cut Pell Grants by 60 percent. But with all of Rep. Rogers’s cuts to reading, writing, and arithmetic, maybe that many fewer students will have the requisite skills to attend college anyway?

Science, innovation, and our energy and climate future

Perhaps the most pressing task of this generation will be to innovate revolutionary energy technologies to power the world economy. Leading this innovation will pay substantial dividends for the companies and national economies that propel this energy revolution. At present, foreign oil imports account for 40 percent of the U.S. trade deficit. Gaining greater energy independence by developing renewable energy sources isn’t just good for the environment; it will put the United States on a more stable macroeconomic path.

President Obama’s budget expands resources for science and research as well as incentives for commercializing the latest innovations in energy technologies and other areas critical to our economic future. Under the Obama budget, funding for the National Science Foundation receives a 13 percent increase, the National Institute of Standards and Technology gets a 15 percent increase, and the Department of Energy’s Office of Science gets a 10 percent increase. Other programs at the Department of Energy to develop and deploy energy-efficiency technologies double under the president’s budget.

Rep. Rogers does not seem to be a fan of an energy-innovation economy in the United States. His plan cuts NSF by 5 percent, NIST by 18 percent, and the Office of Science by 18 percent. An existing program to promote innovation in energy-efficient architecture and cut government energy costs for taxpayers, the Federal Buildings Fund, would lose almost $1.7 billion in funding from Rep. Rogers.

American businesses competing in a global economy

More than ever, the U.S. economy needs businesses and jobs based on developing exports. Agencies designed to remove barriers to export growth and business development—especially for small businesses—receive special attention under the president’s proposed budget. The International Trade Administration and the Economic Development Administration receive funding increases of 16 percent and 11 percent, respectively, in the Obama budget.

The Small Business Administration, which already received a funding bump in the Small Business Jobs and Credit Act of 2010, would get another 4 percent funding increase to help small businesses boost competitiveness. Though conservatives often talk big on small businesses, when it comes time to walk the walk Rep. Rogers cuts the SBA by 9 percent and cuts more than 27 percent from the EDA.

Financial institutions to support the private sector

And speaking of investment, how about investing in a stable and efficient national financial system capable of financing real job-creating economic growth? If the financial crisis and Great Recession have taught us one thing, it is that a robust system of financial supervision and oversight is essential to supporting productive investments in the real economy rather than ethereal financial profits built upon bubbles and speculation.

Remarkably, Rep. Rogers’ spending plan will cut $57 million in funding, more than a third of the budget, from the Commodity Futures Trading Commission, the agency responsible for ensuring the soundness of our financial derivatives markets—the same ones on which Enron gambled and then collapsed and which brought Lehman Brothers and AIG to their knees in 2008. Others of Rep. Rogers’s ilk have called for defunding the Securities and Exchange Commission, responsible for regulating our stock markets and corporate accounting standards, and other financial regulatory agencies.

President Obama’s budget proposes boosting funding for the agencies charged with policing U.S. financial markets, ensuring their stability and efficient operations while preventing corporate financial fraud. The president’s budget would boost funding for Securities and Exchange Commission with a 28 percent funding increase to $1.427 billion, and the Commodity Futures Trading Commission with an 82 percent spending jump to $308 million, compared to fiscal year 2010 budget levels.

The contrasts are clear

Comparing President Obama’s FY 2012 budget request with Rep. Rogers’s proposal for the remainder of FY 2011 reveals two markedly different styles for approaching budget policy. The Obama budget released today makes significant strides toward deficit reduction while investing in the infrastructure, education, and innovation critical to create jobs now and build a competitive foundation for our national economic future. The Rogers spending plan doesn’t.

Adam S. Hersh is an Economist at the Center for American Progress.

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Adam Hersh

Senior Economist