I Wish the Government Would Stop Investing and Get Out of the Way

by Veronique de Rugy

Tonight, the president will likely focus on the ways the federal government can invest money to improve the education, innovation, and infrastructure of the United States in order to increase productivity and make the economy grow. How many times have we heard these lines? Many times. Every year, presidents talk about how government can help the economy by investing money, and each time this “investment” fails to bring the promised results.

Here’s the president last year:

But the only way to fully restore America’s economic strength is to make the long-term investments that will lead to new jobs, new industries, and a renewed ability to compete with the rest of the world. The only way this century will be another American century is if we confront at last the price of our dependence on oil and the high cost of health care; the schools that aren’t preparing our children and the mountain of debt they stand to inherit.

Here’s President Bush in January 2008:

Let us fund new technologies that can generate coal power while capturing carbon emissions. Let us increase the use of renewable power and emissions-free nuclear power. Let us continue investing in advanced battery technology and renewable fuels to power the cars and trucks of the future. Let us create a new international clean technology fund, which will help developing nations like India and China make greater use of clean energy sources.

Bush in 2007:

First, I propose to double the Federal commitment to the most critical basic research programs in the physical sciences over the next 10 years. This funding will support the work of America’s most creative minds as they explore promising areas such as nanotechnology, supercomputing, and alternative energy sources.”

Second, I propose to make permanent the research and development tax credit to encourage bolder private-sector initiatives in technology. With more research in both the public and private sectors, we will improve our quality of life and ensure that America will lead the world in opportunity and innovation for decades to come.

Bush in 2004:

So tonight, I propose a series of measures called Jobs for the 21st Century. This program will provide extra help to middle and high school students who fall behind in reading and math, expand advanced placement programs in low income schools, invite math and science professionals from the private sector to teach part-time in our high schools. I propose larger Pell grants for students who prepare for college with demanding courses in high school. I propose increasing our support for America’s fine community colleges, so they can — I do so, so they can train workers for industries that are creating the most new jobs.

I could go on and on. And by the way, let’s be clear: What President Obama calls investment is just spending.

Government should stop worrying about productivity and growth of the American economy and let businesses do what they do well: find ways to make money at a lower cost. This chart, for instance, shows the tremendous increase in productivity of the American manufacturing sector over time.

Since 1975, manufacturing output has more than doubled, while employment in the sector has decreased by 31 percent. While these American job losses are sobering, they are not a sad statement about our economy. These statistics reveal that the average American manufacturer is three times more productive today than in 1975 — a sure sign of economic progress. The same pattern can be found in most sectors of the economy.

That’s exactly the opposite of what the government does. With government, you get, at best, the same service at a higher cost over time.

Take K–12 education, for instance. For years, we have been throwing money at poorly performing schools, yet it has not moved the needle on performance. Over the last 40 years, the federal government has spent $1.8 trillion on education, and spending per pupil in the U.S. has tripled in real terms. Adjusted for inflation, the government spent an average of $149,000 on the 13-year education of a high-school senior who graduated in 2009, compared to $50,000 for a 1970 graduate. Despite the dramatic increase in spending, there has been no notable change in student outcomes. And don’t think that this is because we don’t have enough teachers. The number of teachers per student is at an all-time low.

And it’s not just in education: In real terms, over the past 10 years, Congress has increased taxpayers’ “investment” in transportation by $36 billion. Now add the stimulus money to that amount and think of what we have to show for it. Bad roads and more debts. Congress “invested” $1 trillion to “stimulate” the economy and create jobs. What do we have to show for it? High unemployment, failed promises, and more debt. Overall, Congress has increased taxpayers’ “investment” in federal government programs by $1.3 trillion. And what did we get?

Just throwing more money at these programs (even if the government calls it “investment” rather than “spending”) doesn’t change anything. That’s what Congress has done for decades. That’s why we’re in the dire fiscal and economic situation we’re in today. We need change in action, not change in rhetoric.

The true threat to American competitiveness is a tax code that puts domestic firms at a clear disadvantage — not a lack of skill or innovation on the part of the American worker. Over at Reason, I explain how the tax code is hurting American jobs.

Finally, today on NPR, Steve Inskeep interviewed Andrew Liveris, CEO of Dow Chemical Company, about his book Make it in America: The Case for Re-Inventing the Economy . This is a piece of the interview:

How do you, as a CEO decide which ops to keep in the US and which to keep abroad?

“ We look at all items on the cost line, all items on the incentive line and make the decisions on that basis.”

What are areas where the US doesn’t do very well?

“Well, I not only have high taxes, I have uncertain taxes.  Right now I have more regulations coming at me that are not fact-based, not science based, not data based, I actually don’t even know what my costs are going to be in the next 5 years.  And so I’m sitting back waiting for regulatory reform and the government of course is now engaged on that healthcare and the uncertainty around the healthcare bill and what’s going to end up happening there.  Energy policy. We’ve got lots of uncertainty in the energy policy regimen. I mean, I could keep going but that’s half a dozen”

When the host noted that his comments seemed to focus on uncertainty, Liveris replied:

“The choice. Bad policy vs. uncertain policy is a tough choice. I don’t think we have to go there.”