Deficits and investment

All of the talk in Washington right now is about deficit reduction. I don’t question the need to bring the deficit down. I do question the means of how to do that. Done right, deficit reduction will help put the economic on a path of sustainable economic growth. Done wrong, it will hobble our economy for generations. And I am deeply worried that we are on the path of doing it wrong.
Of specific concern is an apparently underlying philosophy the proposals that government has no role in growing the economy.
Let’s just look at the National Commission on National Commission on Fiscal Responsibility and Reform. The co-chairs proposal includes a principle of promoting economic growth and competitiveness with the following two points:
• Cut red tape and inefficient spending that puts a drag on the economy and job creation.
• Invest in education, infrastructure, and high-value R&D.
The first point speaks for itself — “just get government out of the way.”
The second point would make sense – it is the standard consensus mantra. However, as the SSTI summary points out, the illustrative list of cuts makes a number of cuts in R&D and economic development programs. And the justification for the cuts again is based on the old the-market-can-do-no-wrong mentality. For example, it proposes eliminating the highly successful MEP program on the grounds that it “supports inefficient companies that would otherwise go out of business.” In other words, the government has no business helping companies. Of course, this is a complete misreading of the MEP program — implying ongoing subsidizes rather than needed technical assistance.
The list of cuts also calls for the elimination of the Economic Development Administration — citing, in part, studies from 1980, 1986 and 1999 as justification. One of the standard rationales for eliminating EDA has been that it no longer focuses just on distressed areas. To me, that is a good thing. The issue of sparking economic growth goes well beyond the old assumptions that all we have to do is help those who have fallen behind. As Brian Darmody (Immediate Past President, Association of University Research Parks and Associate VP for Research and Economic Development, University of Maryland) has stated, “EDA’s recent reforms to link its programs to commercialization, job creation, and an innovation economy should be applauded, and not criticized as straying from ‘its core mission of supporting depressed areas.'”
Unfortunately, the issue for the Commission is one of credibility. Based on what I have seen in the illustrative list, I’m not sure they understand which programs are important to economic growth and which are not. They seem to be approaching the issue from the starting point that no government programs are useful. And that is bad bias to bake into the process.
Frankly, if we are going to have a serious debate about the deficit, we have to get past simply pulling out the tired old list of anti-government ideas.

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