When Debt is Investment

I recently ran across a very interesting report from the Brookings Institution,¬†arguing for a “balance sheet” approach to fiscal policy. The basic argument, in “economic-ese” was

For a long-term balance-sheet approach to gain traction, politicians will have to drop the ideological biases that are distorting fiscal policy. Proponents of austerity currently use nominal debt figures to scare voters, even in countries with record-low interest rates and large private-sector profits that are not being channeled toward investment. To counter their arguments, opinion-makers should emphasize the expected long-term returns on incremental public investment, not with ideological arguments, but with concrete examples from various sectors in the recent past that have had reasonably good rate of returns.

In everyday English, author Kermal Dervis was arguing–among other things– that we need to distinguish between kinds of debt.

The mortgage on your house is debt. So is the credit-card balance from that shopping spree you indulged in. But the house is a long-term asset–the clothes you bought probably aren’t.

When we look at the books of a business, the purchase of more modern tools and machinery are an investment that will allow the business to earn more in the future (hence the saying “you have to spend money to make money”), while the CEO’s acquisition of a spiffy and expensive corporate jet is unlikely to improve the bottom line.

When we invest tax dollars in improved infrastructure or education, those investments generate future productivity and economic growth.

When we play games with the tax code to subsidize profitable businesses (with influential lobbyists), not so much.

All debt is not equal.

21 thoughts on “When Debt is Investment

  1. “When we play games with the tax code to subsidize profitable businesses (with influential lobbyists), not so much.

    All debt is not equal.”

    Am I wrong considering this to be an apt description of our local CIB as one example?

    As for my personal investments; what little remains of my inheritance has primarily been in CDs since 1998. The very nice interest rate under Clinton has dwindled to less than 1% since Bush took control. Is this the Republican “trickle down” economics in action? Their investments in public safety, public education, infrastructure and pollution control has “trickled down” to less than bare-bones maintenance. This is incurring a massive debt to be passed from this generation to the next with no “future productivity” or “economic growth” for the average American. It is always follow the money and no matter how many “shiny things” they distract us with (sports venues and zip lines) – it always ends with the 1% reaping benefits and we pay the debts.

  2. POTUS no doubt includes “gifts” to green companies in the list of infrastructure improvements rather than corporate largesse and repayment for political support. And we need a refund on the debt created to support education. Since the Department of Education became a cabinet-level agency, American education has been in steady decline. I the past 6 years the federal government has spent trillions of dollars(30, 40, 50?) and increased the debt by nearly $10 trillion. If we wasted $20 trillion on graft and failed programs, is anyone really okay with going in debt by $10 trillion more (even though I highly doubt that even that much infrastructure improvement really occurred)? This idea of going into debt to pay for infrastructure improvements is legitimate, but only when the fed is being a good steward of the rest of the money. A friend of mine was given the money to pay his housing rent at college for the entire semester. He paid monthly, went to Florida for spring break and spent the rest on doobie leaving his rent unpaid. That is a great illustration of government spending

  3. ” A friend of mine was given the money to pay his housing rent at college for the entire semester. He paid monthly, went to Florida for spring break and spent the rest on doobie leaving his rent unpaid. That is a great illustration of government spending.”

    And this is the fault of the government…HOW? They do enough wrong without blaming your pot-head friend’s stupidity – and thievery – on them.

  4. But when a politician tells me that the federal government finances are just like my own checkbook, folks think they understand everything they need to know and it makes sense to them. That totally sets them up for other demagoguery and we are off to the races. It would really be nice if people could hold more than one idea in their heads at one time and not be so vulnerable to Trump one-liners.

  5. Stuart, it could be the Reptilian brain at work. My sister has one—just enough bad information likely sponged off the Republicans and Fox News, but it doesn’t go very deep in terms of conceptual understanding of any concept. And she is always right, of course, if one listens to her, which I don’t anymore.

  6. Holy Crap!

    Did Sheila just land a job with the Daniels/Pence administration?

    She’s making the classic corporatist argument.

    “All debt is not equal.”

    This is the exact argument used by the Daniels/Pence administration to give public money to private corporations. Things that can make money in the State, for the State, for the people of the State, deserve to get attention by the State. Things that don’t make money in the State should reexamine what they’re doing in the State.

    Congratulations, Sheila, you might be quoted by the IEDC.

  7. Sheila and I ping pong about whether civic or scientific illiteracy is America’s largest shortage. Add economic illiteracy. It’s epidemic.

    That is the main weakness exploited by conservative “leaders” (remember yesterday – leaders and followers at the opposite ends of media puppet strings) in moving wealth up generally and to themselves specifically in service of oligarchs.

    Debt, investment, consumer vs capital spending, research and development, risk, benefits as compensation, time value of money, tax policy, all in a dance which is learned and can be applied to disadvantage the low and middle class into servitude.

    Old story leveraged by media to new heights.

    Of course life long education is is the long term answer.

    On the short term we have to rely on sort of patch work solutions blogs like this being a part.

    Democracy counts on the responsible and informed out-voting the bewildered. So on the immediate term that’s the minor miracle that we must pull off. Extend the country saving gift of the greatest President in the hour of our greatest need.

    Hillary? Bernie? Joe? Other?

    Take your pick as democracy insists by consider staying at home on Election Day a vote for economic slavery.

  8. Gopper, capitalism insists that the invisible hand of free markets will move private investment towards the greatest need.

    Of course the general public rather than economic interests are represented by government.

    So priming the investment pump by covering high risk R&D in our essential energy transition makes complete sense.

    But sports? Pure socialized risk and privatized profits. Institutionalized oligarchy.

  9. “Gopper, capitalism insists that the invisible hand of free markets will move private investment towards the greatest need. ”

    Uh, duh.

    Are you even in Indiana, Pete? You don’t seem to be responding to what I’m saying.

    Seriously, are you in Indiana?

  10. Gopper, only been to Indianapolis once. At o’Hare at the moment, Rochester NY in a few hours.

    From what I’ve read here giving tax money to sports businesses is popular among Indiana politicians.

    No?

  11. Blurring the lines between spending and investment was one of Ronnie Reagan’s mantras. It has been repeated often enough that even intelligent people like Gopper believe it.
    Adding to the comment by Pete, the invisible hand of capitalism has been amputated by crony capitalism which stands free market on its head but provides ample subsidies to those that need it least.
    The accountant mentality took control of government following Reagan and is now entrenched in many states, like Indiana. Someone observed that an accountant is somebody that knows the cost of everything and the value of nothing. Take as an example the recent closure of I-65 due to the failing bridge support. We can’t afford it until something fails.

  12. Gopper, is it possible for you to have a civil discussion about these subjects? There’s absolutely no need for all the snide, disparaging, boorish posts you seem to prefer, especially those directed at Sheila. We might take you seriously if you didn’t run everyone and their comments into the ground.

  13. Gee, Ken Glass–Your disdain for education is most evident in your writing. However, education, unlike perpetual war (on the cuff, unapproved spending in the trillions) doesn’t bother you a bit. Just as long as Dick Cheney and his friends get their dividends, you are fine with that? You got some strange priorities, dude. You are begging to be beggared. As far as ‘graft,’ you got blinders on to that, too. Ever hear of a woman named Greenhouse? Check this out: http://www.democracynow.org/2011/7/26/exclusive_fired_army_whistleblower_receives_970k. This career military office was FIRED for doing her job. Apparently she wasn’t giving Haliburton a free pass on invoice plus percentage no-bid contracts. But you are silent about this. And as far as the failure of education as a cabinet post? Only if you consider public education a waste, which I am sure you do. You don’t want EVERYONE educated–only the 1% Again, why do you take the side of the people screwing you?

  14. And you have to understand, in GOOper world, us libtards just can’t understand the subtly and purity of his ‘arguments.’ Every libertarian plays this when they are trying to argue a point that is so lame as to be indefensible, but there hey are–not realizing that all that belaboring just advertises an IQ roughly equivalent to shoe size.

  15. Girl cousin; please never forget Cheney approval of “outing” CIA agent Valerie Plame as a CIA agent, endangering her life and the lives of her family. He husband “happened” to be one of the investigators Bush sent into Iraq looking for evidence of nuclear war materials; his report stated they found no evidence at all. Much later, long after Bush’s stupid comment “mission accomplished” five months after declaring war on Iraq, he admitted receiving the information but chose not to believe it. The crimes of Bush/Cheney administration run deep and the cost in money and lives has not yet been ascertained…that will take years more to even estimate.

  16. JoAnn Green–what I most remember is Bush shooting his mouth off because he didn’t realize until he saw the look on the interviewers face that what he was admitting to were illegal acts. Compounding that is the Obama administration resolutely refusing to prosecute these people, but his AG vigorously prosecuted whistle blowers. When it comes to executive bad acts, apparently anything goes, but career people will be hung out to dry.

  17. Joy asks, “Gopper, is it possible for you to have a civil discussion about these subjects?” In my experience, No. No, it’s not.

    His screen name explains why.

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