The Corner

Economy & Business

Compete with China by Investing in Ourselves

Earlier this month, Glenn Hubbard, the dean of Columbia Business School and a veteran of the George W. Bush administration, wrote a short piece for the Financial Times that made a very wise point: If we’re concerned about China’s trade abuses, we’d be wise “to look inward and do what is needed to help America compete.” In particular, I welcomed his call to “revive and increase federal support for basic research in science and technology,” with an eye toward driving further advances in computation, software, artificial intelligence, and robotics that will ultimately redound to the benefit of U.S. workers, and to increase public investment in human capital while boosting the earned-income tax credit.

However, it’s not clear how Hubbard intends to reconcile calls for increased spending on basic research, human capital investment, and wage subsidies for low-income workers with his call for a serious program of fiscal consolidation. One could argue that we ought to shift resources away from social-insurance programs that chiefly benefit the old to various programs that invest in the young. Leaving aside the political obstacles to such a swap, which include the fact that older citizens vote at far higher rates than their younger counterparts and that the parents of young children represent a shrinking share of the electorate, squeezing enough money out of, say, Social Security and Medicare to finance his ambitious agenda for the future would be exceptionally challenging.

In a wide-ranging essay for Foreign Affairs, Kenneth F. Scheve and Matthew J. Slaughter sketch out an ambitious program of human-capital investment that they describe as a strategy for solidifying support for a dynamic market economy. Though I don’t agree with Scheve and Slaughter’s agenda in every respect, it has much to recommend. Notably, they estimate that it “would cost the U.S. government about $250 billion each year, which would represent the largest federal investment in human capital in American history.” That’s not a sum of money you’d find by rooting around under your sofa cushions. In the near-term, at least, it would necessitate either a drastic increase in deficit spending or in taxes. Scheve and Slaughter favor the latter approach, and they outline a number of tax increases that could close the gap. But the tax-averse find themselves in a bind. Consider that savings from the ambitious Social Security and Medicare reforms outlined by Brian Riedl of the Manhattan Institute in his recent federal budget plan wouldn’t come close to filling this gap.

I say all of this ruefully, as my sympathies are with Hubbard and Scheve and Slaughter. Over time, I suspect that Democratic calls for dramatic expansions of the safety net will make these proposals, and the new taxes they will require, look more palatable, though I don’t doubt others will disagree.

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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