President Obama's "you didn't build that" comment highlighted the importance of public investment, but we're not doing anything to make it happen.
I'd like to restart "The Cutter Report" with a commentary about President Obama's remark that "you didn't build that." Relax; I'm not going to pile on the endless series of brainless remarks about how the president hates the private sector. For the record, I don't think he does. I think the endless spinning of the president's remarks by Governor Romney, a whole slew of Republican political "experts" (how do you get to be one of those?), and every half hour of Fox News is only another sign of the apocalypse and nothing to be taken as actual real thought about anything that matters.
Rather, I'd like to take his comments seriously, as I think he intended. So let's start with the fact that President Obama is simply correct. It's no more complicated than that. I've spent two-thirds of my career in business and I think he's right, and so would every businessperson I know outside of the brainless debates of this presidential campaign. We are all damn lucky to have started, run, and been in businesses in America. Not one of us could have done any of this if we were trying to do it in the Eastern Congo. We have a Constitution, a sense of private property, laws, honest courts, decent infrastructure, great R&D, and on and on.
But right now, we risk losing some or many of these advantages. As I detailed last year, and as Third Way, a centrist think tank, spells out in its new paper, "Collision Course: Why Democrats Must Back Entitlement Reform," we have entered an era when as a nation we have decided not to invest in either hard or soft public infrastructure any longer. I estimated then that our total domestic public sector investment is about 5 percent of GDP and I calculated that this will fall to around 2 percent of GDP over the next 10 years (I used OMB numbers, but the projections are my interpretation). Third Way's numbers show similar trends. Federal investment spending will drop from 6 percent of GDP in 1962 to a projected 2 percent in 2018, or from 3 percent of the federal budget to 10 percent. As I've said before, I think this is a disaster. Why?
First, I completely agree with the central implication of Ben Friedman's classic book, The Moral Consequences of Economic Growth. There may be problems that come along with economic growth, but they are nothing compared to the problems of no growth, as we have all seen. And none of the problems progressives care about can be solved in the absence of growth.
Second, as a general proposition, growth is not possible in the middle or long term without investment, and I mean both public and private investment.
But third, investment is even more important to us today, right now. The core truth is that if we are to grow as rapidly over the next 20 years as we did in the last 20, we have to have a productivity revolution. More of our growth will have to come from productivity -- about 80 percent in the next decade, as opposed to 35 percent to 50 percent in the last three decades. To keep growth constant with the last three decades, labor productivity will have to grow by about one-third. If none of this happens, the generation born during the last decade will experience only about 60 percent of the per capita income growth as did the generation born in the '60s. And creating a productivity revolution is going to require an investment revolution in both the private and the public sectors.
But we're not going to get investment or a productivity revolution or decent long-term growth. Growth is certainly not at the core of either political campaign now. Public investment is disappearing from the federal budget, and private sector investment is at best mediocre. Neither end of our ideological spectrum cares enough about growth to make it a priority. (As the loading dock foreman said, "Sure my boss cares about quality; he mentions it at least twice a year. But he talks 'shipping boxes' about three times a day.")
So if you take President Obama's comments as true -- as I do -- and you see them as a shorthand view of the combination of elements that actually creates growth, and if you project forward a little bit, then we aren't going to be building much of anything in the future.
(Note: Many progressives strongly disagree with Third Way's paper. I refer you this post on Bill Keller's New York Times blog, "Boomers and Entitlements: The Next Round," for a debate between James Galbraith of the University of Texas, who also critiqued the paper here at Next New Deal, and Jim Kessler of Third Way. Keller's issue is not my issue in this particular post, but I agree with him, and after reading the Third Way paper and the debate, I mostly agree with the Third Way perspective.)
Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.
Construction workers image via Shutterstock.com.