American Economic Woes: Failure of investment?

[Jon Miller]

This article argues that we have been failing in our national investment, which is why our economy is struggling.

I think that how much we have paid for most things (not R&D) is similar to before... so it must be that we are being less efficient than before. How can this be changed? Other than the shift towards contractors instead of government workers... what could be at fault for this loss of efficiency?

http://globalpublicsquare.blogs.cnn.com/2011/12/11/zakaria-the-real-burden-on-the-u-s-economy-2/

Interesting points is that our national capital has decreased in world ranking enormously while we are still rated very highly in business practices/etc and have very low taxes for our GDP.

Jon

[PLATO]

This is simply one of the more complicated questions to answer I have ever seen on Apolyton.

It would take a virtual textbook to answer it correctly. The interlocking factors that have led to this situation are vast and run the spectrum from economic to social, to religious.

Will be interesting to watch the responses.

[The Mad Monk]

I blame Teachers' Unions.

[Jon Miller]

I blame Teachers' Unions.

They are probably part of it, but they are part of it for every nation.

JM

[DanS]

The levels of investment have decreased in the past few decades in many sectors -- education not being one of them, I'm guessing. One possible explanation is that investment is less valuable or necessary nowadays for the level of technology.

For instance, the investment on freeways is being optimized downward. There hasn't been much innovation in transportation for many decades, so big new investments are not needed. A possible solution would be to innovate better/faster transportation technologies for which it is worthwhile making investments. In other words, work to raise the level of technology or acceptance of technology.

I should note that figuring this stuff out may not be helped much by comparative analysis. For instance, it might make sense for China or Europe to invest hundreds of billions of dollars building high speed rail while it doesn't make any sense to spend a cent for the US or Australia.

[Tupac Shakur]

It's pretty lazy of Zakaria to write an entire column bemoaning America's lack of investment while not bothering to point out the manner in which the American tax code discourages investment.

[Jon Miller]

Except that our infrastructure... in part our transportation sector, has dropped significantly compared to other nations.

Investment will go to countries with better infrastructure because of better returns... and that isn't the US.

So basically, what you are saying doesn't connect with the data (as I understand it).

Additionally, our growth is lower than it was before and we are comparatively decreasing. This suggests that our level of investment is too low of level (since in other ways we are good). This isn't market based, this is the sectors that government traditionally handles (and private enterprise has never done). Namely R&D and infrastructure investment.

JM
(I know that private enterprise does some R&D but it doesn't do the basic R&D that is required to form the base to support more applied R&D that private industry does do.)

[Jon Miller]

It's pretty lazy of Zakaria to write an entire column bemoaning America's lack of investment while not bothering to point out the manner in which the American tax code discourages investment.

Private investment has never done most of the things he is referring to.... and when it has it has been inefficient (see powergrid/etc).

In the US capitalist culture today, I see no evidence that corporations are eager to make 10+ year investments or make 'common good' investments.

JM

[Tupac Shakur]

Zakaria brings up the WWII increase in private investment as a model at the end of his piece...

In other words, the big shift in the United States over the past two decades is not a rise in regulations and taxation but a decline in investment - in physical and human capital. And investment is the crucial locomotive of long-term growth. In our interview, Michael Spence, the Nobel Prize-winning economist, pointed out that the United States got out of the Great Depression because of the spending associated with World War II but also because during the war, the U.S. dramatically reduced its consumption and expanded investments. People spent less; they saved more and bought war bonds. That surge in investment - by people and government - produced a generation of growth after the war.

[Jon Miller]

People spent less; they saved more and bought war bonds. That surge in investment - by people and government - produced a generation of growth after the war.

Government investment was the biggest ever. The other indicators are very favorable for growth and investment (as I understand them) except the government investment part (which is very ineffective, the government is spending the money but no longer getting the results?).

You can't claim that it is the tax code when the tax code is more favorable than ever before (and more favorable compared to other nations).

JM

[DanS]

Except that our infrastructure... in part our transportation sector, has dropped significantly compared to other nations.

See my comments about many of these investments not lending themselves to comparative analyses. The US has excellent infrastructure for its circumstances. Or, do you have any specific examples of infrastructure investments that you think should be made?

[Tupac Shakur]

You can't claim that it is the tax code when the tax code is more favorable than ever before (and more favorable compared to other nations).

You've provided no evidence that the current US tax code is more favorable to investment than ever before. It's indisputable, however, that the current US tax code incentivizes consumption over investment. For Zakaria to ignore that while lauding the high investment/consumption ratios of the WWII era is lazy and/or uninsightful.

[Jon Miller]

Our road infrastructure is now 20th while we were 8th.

This isn't about money spent on investments... this is based on outcomes.

Businesses are going to go to the places where there is better road infrastructure. This is because it will cost them less money to do business there (a lot of money for many businesses go to transportation costs).

You saying that we don't need to make the investments anymore would be true if we were still the best. But we aren't. So your comments is like someone covering their ears and eyes and saying 'na na na, what we are doing is what is best'.

It isn't.

My evidence is that we are losing our competitive advantage. And these are not in the areas of business practices/tax/regulation, but are in the areas of national capital outcomes (infrastructure and education/etc).

And I am not even claiming we aren't spending enough... he pointed out that we have not really cut spending (except for R&D). It is outcome based.

JM

[Jon Miller]

You've provided no evidence that the current US tax code is more favorable to investment than ever before. It's indisputable, however, that the current US tax code incentivizes consumption over investment. For Zakaria to ignore that while lauding the high investment/consumption ratios of the WWII era is lazy and/or uninsightful.

Based on your view, every nations does and the US has done so for the past X years.

This is not where we are losing our competitive advantage.

And even based on your view, it is 'better' now than it was 20 years ago... when we are growing better.

Closing your eyes and saying 'it is taxes it is taxes it is taxes' is entirely non-empirical.

JM

[DanS]

You saying that we don't need to make the investments anymore would be true if we were still the best. But we aren't. So your comments is like someone covering their ears and eyes and saying 'na na na, what we are doing is what is best'.

Why is it important to be the best? We should optimize to our circumstances and care less about what everybody else's circumstances are. Our road infrastructure is just fine -- what would we gain by increased investment in this area?

As an example, in parts of Europe, there are few wood-frame houses. Concrete structures are higher quality, but 2x the investment required. Does it make sense for North American methods to follow European methods? I would suggest not. We would be much poorer if we did.

Likewise, high speed rail makes little sense in the US. Investing in high speed rail in order to have the "best" infrastructure would just make the US poorer.