Thursday, March 18, 2010

Investment, huh?

I'm always annoyed when people refer to any government spending that has positive externalities as investment. In some cases, infrastructure comes to mind, I can accept it. Oftentimes, I think it's somewhat disingenuous way of referring to increased government spending.

Case in point from yesterday's Marketplace:
The spirit of the nutrition standards [for school lunches] was, you know, we want to use this public investment to serve our children healthy meals.

Now, I understand the economic logic supporting the use of the word "investment." Kids who eat healthy do better in school. Kids who do better in school have a higher likelihood of being contributing and productive members of society when they're adults. Likewise, I understand the similar logic underlying other social spending, like investments in health care, education, whathaveyou. What's the problem then?

Three problems actually. First, the people who advocate for increased "investment" in various social services aren't primarily motivated by economic returns years from now. It's about providing health care or education or whathaveyou right now. Kids are starving. People are sick. Etc. Second, and this partially relates the first, if kids are starving do you really want your argument to be, "Look, to increase the chances of economic growth a decade or more from now we should feed this starving kid"? The decision of whether or not to feed a kid is not a narrowly economic one.* Third, and related to the second, basing the decision to feed kids when they are in elementary school on economic returns, then leads to a cost-benefit maximization. We'd have to discount the future economic returns from feeding kids and compare it to other alternatives for spending that money and how it would maximize future returns. In short, you start to go down a dehumanizing econometric path that nobody wants.

So, if you are in favor of social spending, then by all means point out that it has positive externalities, but please don't call it an investment. If you want to call plant and equipment (building a bridge, school, or a new hospital) investment, then fine, but the idea that social spending, driven primarily by concern for people not economic returns, is called investment bugs the shit out of me. It's about it being the right thing to do. If that right thing has economic benefits, then bonus, but that isn't the reason to do it.

* When you start to look at a particular policy, then it becomes murkier. What's our proxy for hungry? Is it household income? If household income, then what level? What are the unintended consequences? Etc.


Anonymous said...

As you will recall from your high school textbooks, the gambit of of characterizing social spending as "investment" was first conceived by an aide to the California Governor Jerry Brown in the months immediately following the passage of Proposition 13.

(Prior to this, state and local governments had "capital budgets" that were fairly impervious to bullshit arguments about long-term values.)

FLG said...

I had no idea that's where the change came from, but it doesn't surprise me that Jerry Brown was involved. Swarmy bastard.

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