April 17, 2021

Public Spending versus Public Investing: There’s a Big Difference

by Hal Gershowitz

Comments Below

It’s time for politicians (especially those who pretend they’re fiscally responsible) to stop speaking of public spending and public investing as though they’re the same thing. Let’s recognize that there is relatively little return on government dollars allocated for routine expenditures, compared to public dollars wisely invested in high-return endeavors such as scientific and medical research, infrastructure, widespread connectivity, quality education, and programs to curtail hunger, poverty, and homelessness.

All government spending is not the same. Some spending can be unproductive, if not wasteful, while some can reap huge benefits to the nation, and it is time for discerning, intelligent people to recognize that. Some government investment produces strong and continuing growth, while some government spending produces little to no ongoing economic benefit. For example, fireworks and community pyrotechnic displays on the 4th of July are fun and great for morale, and, of course, people are employed making them (mainly in China) and selling them here in America, and, yes, some jobs are created to cater to the crowds who come to ooh and aah over the pyrotechnics. That’s all fine, but purchasing Zeus Flourescent Artillery Shells does not constitute an investment in the future.

To further illustrate the point, we spend an estimated $1.3 billion a year on fireworks, mainly produced elsewhere. They are fired off once, and all we have to show for it is some smoke lingering in the air, picnic trash, and, often, a traffic jam. Yes, of course, people are paid to sell the fireworks, and many wonderful resorts and communities host barbeques around the 4th of July fireworks displays. Fireworks on the 4th are fun. But that $1.3 billion is, essentially, for consumption and not for investment. For those who like quirky statistics, that expenditure buys an estimated one pound of fireworks and pyrotechnics for every man, woman, and child in the United States. But, as they say, at the end of the day, it all goes up in smoke.

Now, let’s focus on public investment that returns real value. Two weeks ago, this column reviewed the nation’s investment in the Apollo project to send Buzz Aldrin and Neil Armstrong to the moon, which cost about $152 billion in today’s dollars. That expenditure was widely ridiculed at the time. Former President Dwight Eisenhower called it “nuts.” President John Kennedy, the political father of Apollo, actually didn’t think it had much value either other than accelerating our expertise in rocketry.

Given all that has grown out of Apollo, its cost could, today, be considered the most significant investment ever made by any government next to, perhaps, the Internet which, incidentally, is also the result of an investment by the United States. The Internet has connected nearly every man, woman, and child, every business, every government, every university, every healthcare facility, and, well, just about the entire planet. Tech-giant, Cisco, says the value of this US investment would be about $19 trillion today.

So, just how much did the United States invest in the creation of the Internet?

The first stirrings of internet potential could be attributed to the early mega computing and processing companies such as IBM, Xerox, Remington Rand (Univac),Intel, and others. These systems, however, were not designed to communicate with one another. On January 1, 1983, the United States, under President Ronald Reagan, invested $124 million ($330 million in today’s dollars) to create a new communications protocol that would enable certain academic and other research organizations with defense contracts to communicate with one another.

 Before that date, communication between computer networks was limited to a relatively small group of academic and research organizations that had contracts with our Defense Department. That relatively small and discreet network was known as the Advanced Research Projects Agency Network, or ARPANET for short. The Reagan Administration funded the creation of a new communications protocol called Transfer Control Protocol/International Protocol that all geeks will recognize simply as TCP/IP. From that time on, all networks could communicate with one another with a new universal language. The Internet was, thus, born at the cost of $330 million in today’s dollars.

So, when we contemplate new public investments that common sense should tell us America needs, let’s focus on what those investments will do for America. Let’s stop the semantical gymnastics over the definition of infrastructure. Yes, the time has long since passed when we should have addressed the state of America’s roads, bridges, and public transit. But other facets of life in America, call it human infrastructure, such as outstanding educational opportunities for all of our children, programs to encourage much needed private-sector construction of decent housing, rethinking our nation’s electricity grid so that Americans in this 21st century are never again left shivering without power in the middle of winter, and so that broadband is not an urban luxury, and so that first-class medical support is readily available to everyone who calls America home. We can and should accelerate investment in clean energy, telecommunications, and artificial intelligence.

Today, because of what that 1983 federal $330 million investment has morphed into, we all communicate routinely with handheld computers that we can carry in our shirt pockets compared to the first UNIVAC (Universal Automatic Computer) that the Census Bureau purchased in 1951 that weighed 16,000 pounds and required 5,000 vacuum tubes.

 Let that marinate for a few moments while we consider public investment versus plain old public sector spending.

All comments regarding these essays, whether they express agreement, disagreement, or an alternate view, are appreciated and welcome. Comments that do not pertain to the subject of the essay or which are ad hominem references to other commenters are not acceptable and will be deleted.

All comments regarding these essays, whether they express agreement, disagreement, or an alternate view, are appreciated and welcome. Comments that do not pertain to the subject of the essay or which are ad hominem references to other commenters are not acceptable and will be deleted.

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11 responses to “Public Spending versus Public Investing: There’s a Big Difference”

  1. Jamie Kabler says:

    One of your best
    Thank you for explaining the difference

  2. Perry says:

    Investment in the future is bright thinking.
    Investing in failure policy is what we have today.

  3. Steve Hardy says:

    Hal, as always, an informative and thoughtful essay. The problem I see with government investment is there is no feedback loop. If it fails, we “invest” more money. Our failing K through 12 government schools is a good example of that. There is no way to measure the net total return on all government investments.
    Sure there have been some successes, but what about the failures we never hear about. So we have bloated federal, state and municipal governments eating up lots of taxpayer’s money with many programs or “investments” that provide no current useful services and no accountability.
    If an investment doesn’t provide a competitive return in the private sector, it ceases to exist (unless it gets subsidies or other favors from the government). The resources (land, capital equipment, human capital) are redeployed into other new investments.

  4. Bobbi Holland says:

    Well said, Hal, with compassion and an inclusive heart. It is very informative and a wonderful way to look at the situation. Many thinks again.

  5. Larry Fox says:

    Compelling! This may be your most practical column ever. Investments require projections that show a return on our investment; results must be tracked, and must be transparently reported. Programs that don’t achieve their projected returns should be stopped — not restructured, not moved to another department or renamed. We should choose and structure programs to succeed. This has everything to do with focusing on targeting eager participants (only). These should not be political issues. They are just technique well within our capability. Who could object in good faith to using facts and logic.

  6. Chuck Anderson says:

    Regarding Larry’s comments sadly, I can think of the entire faction of the ‘former guys’ followers for whom facts & logic are irrelevant.
    Hal, I appreciate your cogent review of this subject.

  7. Robert borns says:

    Yes yes yes to the difference. But the devil is in the details. Simply naming a project infrastructure usually is a political ploy used to stuff in pork because that is a way to fool the public. In my view by attempting to make the process simply good guys stuff verses bad guys who want to screw poor hungry people that gives cover to the pork sellers. Is giving hundred of millions to public radio and museums etc what you call good infrastructure spending. I will bet that a thorough reading of an infrastructure bill would make one throw up. As is typical the article in today’s desert sun about the coming water shortage made no mention of how to really solve the problem such as bringing desalinated water from the Pacific Ocean or the sea of cortez. Now that is a legit infrastructure expenditure a la Israeli thinking. But let’s just keep thinking like a society and country that is bent on self destruction. If I sound disgusted with our direction it’s because I am. Lack of foresight is running the show and that is non political.

  8. Ray Galante says:

    Wrong, Bob. Infrastructure spending doesn’t have to be stupid. Let Biden’s folks grapple w/Trump’s Republicans (now almost always disappointingly negative) to start the process. Get with it Congress! Right on. Hal

  9. Susan Duman says:

    Human infrastructure. Never heard of that.
    As always, with gratitude,
    Susan D

  10. BLB says:

    Hmmm, interesting….. I thought the Macy’s 4th of July fireworks was funded by Macy’s, not the federal government…..
    And many of the excellent freeways in Texas ( now that I have returned after 35 years in CA,) have been privately funded….or else they would never have been built. And the Internet expansion over the last 25 years….could that have been helped by the private sector of Silicon Valley?? Hmmm, just food for thought….private sector funding vs public funding???

  11. Thomasin Savaiano says:

    An informative, clear thinking , realistic, factual assessment, truly balanced – recognizing the needs of all Americans and of our Country in general. So plainly laid out that those who read it and can only jump to “yes, but….” aren’t really reading it. And aren’t really saying “yes”.
    Rather, they where and/or for whom their priorities lie.
    Thanks for another fact-filled interesting piece that more folks should read. I will be sharing.

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