Infrastructure: Productive Debt for the Public Good

On February 11th, 2010, based on my reading of several Rich Dad Poor Dad books by Robert Kiyosaki and concerned about the deficit, I wrote “Our Government: A Business Without Assets?”

In that post I discussed the difference between debits and assets and noted that our government doesn’t even track the total worth of its assets. I said, “What’s missing is a serious discussion in Congress of the US government’s debits and assets.”

This week British economist, Martin Wolf, echoes that statement in the concluding sentences of his op ed piece in the London Financial Times. In “Assets matter just as much as cutting debt” (11/26/10 p11), Wolf advises the US: “So stop focusing only on liabilities. Look at the assets too.”

Martin Wolf points out that in economics short run and long run policies can have different outcomes. In regard to the long run for the US, he asks, “What is the sense of cutting spending today if the result is a poorer country tomorrow? The alternative, Wolf suggests, is “productive debt.”

Any solo or small business owner or employee looking to advance in life has made use of productive debt. Buying that new computer or a new truck or classes in a new skill can increase opportunities for us and improve our productivity. When they do, these things are “assets” that bring money into our pockets and make us wealthier. The same holds true for a nation.

What is productive debt?

Here is how Wolf puts it. “What then is productive debt? This is a question raised by a thought-provoking paper by Oxford University’s Dieter Helm, an expert in utility* regulation. The kernel is the idea that all societies possess infrastructure assets, which should be thought of as systems. Transport, energy and water systems are examples. We also have education, health, market, financial, judicial, defence and political systems. The more complex the civilization, the more complex are its systems.”

“Utility” or “welfare” economics pertains to activities that promote the “public good.” Things, like infrastructure, that promote the public good are, according to Wolf, those goods and services that “would tend to be underprovided by competitive markets.” In other words, public goods are things businesses can’t make a profit on.

There is an understanding among economists and economics students about the public good that seems to have become lost in the political discussions of our day. I note that many prominent candidates for political office during the past few years have called for “government to be more like a business.” This ideal has been lauded in our national, state, and local politics.

Running government like a business

Running government just like a business is an incomplete goal. The purpose of government, i.e., the public good, is different than the purpose of a business, i.e., customer service and profit.

While it is true that government could emulate some aspects of business by improving itself in terms of efficiency, customer service, and profitability, government also must do much more than any business does. Government needs to serve the needs of its citizens:  it needs to serve the “public good.”

It amazes me that the President of the US and Congress members make so much less than a CEO and officers of corporations. By any measure of earnings, whether it is supply and demand for qualified candidates, size of the organization being run, or the nature of the responsibilities (just think “red phone”), this is utterly backwards.

The President and Congress and the Courts are in charge of overseeing the public good of the entire nation, and sometimes even the world. Is the salary imbalance between government and the private sector due to perceptions about how little is actually being done by government for the public good? Or are they a rejection of the idea that there is a public good that can best be served by government?

Next time your car hits a bump in the road that sends you to the shop to get an alignment or you avoid a triple-the-distance trip by cab or van that the lack of a bridge to get to an airport would require, think again about giving up the idea of the public good.

Mr. Bernanke is now calling for a new short-term fiscal stimulus, but he isn’t saying what the stimulus would be for. Paying attention to augmenting the public good, according to Martin Wolf, is the very definition of what we call “sustainability.” He adds, “Borrowing is no sin, provided we use the funds to bequeath a better infrastructure to the future.” Is Mr. Bernanke or Congress listening?

In my view, Martin Wolf’s vision of “economic sustainability” sure beats building bridges to nowhere!

Copyright © 2010 Nancy K. Humphreys