Center for American Progress

RELEASE: New CAP Issue Brief Urges Broader View of How Public Investments Grow the Economy
Press Release

RELEASE: New CAP Issue Brief Urges Broader View of How Public Investments Grow the Economy

Washington, D.C. — A new issue brief released today by the Center for American Progress urges a broader view of how public investments can grow the economy, rather than adopting dynamic scoring and restricting economic analysis to just one mathematical model. The report brings together a wide range of economic research to highlight how many programs that are not traditionally considered investments—including Medicaid, environmental protection, and unemployment insurance—play an important role in growing the economy, alongside more traditional investments such as education, infrastructure, and research. The brief is particularly important for policymakers, members of the media, and others that utilize economic analyses of policy proposals, including those from presidential campaigns.

“It is increasingly clear that an effective public sector is critical to a vibrant economy, which includes investments such as health care, environmental protection, safety net programs, infrastructure, education, and research,” said Harry Stein, Director of Fiscal Policy at CAP. “Particularly in an election year, it’s critical that policymakers, the press, and the public act as smart consumers of economic analysis, rather than taking a myopic view that does not fully consider the role of public investments.”

CAP’s brief includes four recommendations for economic analysis regarding public investments:

  1. Broaden the conception of public investment. In addition to the economic benefits of infrastructure, education, and research, new research is showing how other areas of the federal budget—including many safety net and regulatory programs, such as Medicaid, environmental protection, and unemployment insurance—can also grow the economy.
  1. Consider different scenarios for aggregate demand. Many economic models assume that demand shortfalls never happen in the long run, which minimizes growth effects from policies that stabilize demand. A more realistic approach would be to consider a variety of possible scenarios for changes in demand.
  1. Examine how changes in revenue levels affect public investment. Economic analysis of tax policy should consider how changes in revenue levels affect public investments and other spending programs. Taxes exist to fund these programs, and analyzing tax policy without looking at the overall fiscal picture produces an incomplete result.
  1. Reject dynamic scoring. The first three recommendations would improve fiscal analysis, but they also demonstrate the inherent limitations of economic models. No set of mathematical formulas will ever provide a full picture of how the economy actually works, and dynamic scoring requires conclusions that are beyond the scope of any conceivable economic model. Budget scorekeeping is supposed to be a neutral way to compare the fiscal impacts of different proposals. Dynamic scoring inappropriately biases this process against programs that are hard to simulate in economic models, such as public investments.

Click here to read “Budgeting for Public Investments and Economic Growth” by Harry Stein.

For more information on this topic or to speak with an expert, contact Allison Preiss at [email protected] or 202.478.6331.