The Investment Deficit

Over the last 50 years, our nation's productivity tripled. The Dow Jones industrial average ballooned over the same period, growing from an average of 1,000 in 1970 to between 10,000 and 14,000 over the last decade. There are more billionaires and millionaires alive today than there were during the last 100 years combined. We can process, send, and retrieve information at a speed unthinkable even two decades ago. The typical middle-class family can point to more than one car in the garage and multiple television sets in the house. We have more stuff, and more people have this stuff than ever before.

Yet most Americans are losing ground in the areas that really count: Median income has declined, particularly for a new generation of workers; job quality too has suffered, with new workers less likely to have health care or retirement benefits; poverty remains stubbornly set above 10 percent; high-quality child care is unaffordable for most low- and middle-income families; air quality is below acceptable standards for 127 million people; hours spent on the job and on the commute continue to increase; and getting a college degree now costs three times what it did a generation ago.

For the last 30 years, our social, environmental, and educational progress has stalled. But our nation's elite, notably Congress and our national media, is in the throes of a pinstriped panic over the nation's rising debt and deficits. They argue that the mounting national debt is the greatest threat to our nation's future. But the greatest threat confronting the country is not the fiscal deficit. It's the public-investment deficit.

During the post-World War II era, our nation, often motivated by the bogeyman of communism, revolutionized itself -- we built roads and schools, invested in basic research, doubled our high school and college graduation rates -- and in the process, created a middle class that in turn continued to fuel our nation's economy through its massive purchasing power. Underlying this national progress was a social contract struck by companies, government, and workers that provided stability and security for the overwhelming majority of Americans. The economy had a purpose -- building and sustaining a middle class, which was acknowledged as the key to continued national progress. It was an era of prosperity fueled by the twin engines of public and private investment.

Then things began to unravel. The confluence of technological change, rising new exporting nations, and the bumpy stagflation and oil crisis of the 1970s created a fertile breeding ground for conservative economic policy: tax cuts, deregulation, and smaller government. Government pulled back, citizens checked out, and we all lost something along the way. We lost our common purpose.


We can't go back to the old economy. Technological change and globalization are genies that can't be put back into the bottle. But we can choose as a nation to forge a new social contract to rebuild opportunity, which has been flattened by a long period of disinvestment in our public structures and a deeply rooted distrust in government.

The clearest evidence of our investment deficit can be seen in the experience of a new generation of young people, now struggling against the twin evils of the Great Recession and the accumulated effect of a generation of ignored public needs. Today's young workers are confronting the highest unemployment rate on record -- nearly 26 percent among 16- to 19-year-olds and 15 percent among 20- to 24-year-olds as of June 2010. Joblessness among African American and Hispanic youth hovers at Depression-era levels, at 32.5 percent and 24.5 percent respectively. But even before the recession carved deep slices of unemployment among the millennial generation, the earnings of young workers had been declining for all but the most educated -- leaving both men and women of this generation earning less than their parents did.

And so young people have rushed onto college campuses, creating a sharp acceleration in our college enrollment rates. But, as tuition at public universities has more than tripled since 1980, many students have found completing college financially impossible, dropping out under heavy-work and student-loan burdens. Those high tuition prices aren't being driven by a penchant for new football stadiums and the addition of endless student amenities. The main driver of tuition increases is a steady decline in state funding of higher education, which has failed to keep pace with enrollment growth and in 2005, hit a 25-year low. In 1980, state funds accounted for 46 percent of the operating support for public institutions, but just 27 percent in 2005. Now, with states facing gaping budget holes, higher-education funding is further eroding, leading to more tuition increases and cuts in state student aid across the country.

When tuitions started climbing faster than inflation, more middle-class families found the price harder to meet. To address this middle-class squeeze, policy-makers began shifting financial-aid resources, at the state and federal level, away from grant aid for the neediest students toward merit- and loan-based aid. Often, "merit" aid was used to attract affluent students who didn't need the financial help -- because the college needed their high board scores to game the rankings. Today, the average college graduate leaves school with over $20,000 in student-loan debt, and according to a 2005 report, more than one in five borrowers leave college without a diploma.

The reversal in state funding and financial aid has also affected college attainment. The United States, which once led the world in the percentage of young people with college degrees, now ranks a pathetic 12th among 36 advanced nations.


In the case of higher education, we've fallen behind in an area in which we once excelled. But at the other end of the educational spectrum, we've always lagged. In early care and pre-kindergarten education, we've suffered from a complete unwillingness to fund and support what most developed nations recognized long ago: Affordable child care is both a necessity for working parents and a key investment in a child's well-being. Yet, the United States has invested relatively little in early childhood education and care and still hasn't achieved universal preschool. In 2008, 39 percent of children ages 3 to 5 were not enrolled in nursery school, preschool, or kindergarten, a small improvement from 41 percent in 2007.

The most recent data available for cross-country comparisons show that the United States spent 0.3 percent of gross domestic product on early care and education, making it the 10th lowest out of 37 countries. Australia spent about 0.4 percent of GDP, the United Kingdom and Mexico spent about 0.6 percent each, and France spent about 1 percent. In addition, our nation does not have guaranteed paid family leave for new parents, a policy common to other developed nations.

Because the majority of children under the age of 5 are raised by parents in their 20s and early 30s, the lack of affordable, high-quality child care is another way in which today's generation of young workers struggle in the labor market. Women pay the steepest price for the lack of paid leave and subsidized child care, from low-income service workers who churn in and out of jobs as their child-care arrangements collapse, to middle-class and professional workers who often sideline their ambitions due to a combination of inflexible work arrangements and expensive child care. But the burden is not just borne by today's young workers -- it's borne by the entire nation. Academic studies have consistently shown that early care and education is critical for a child's well-being -- a bang for the buck that's been shown to save the public nearly $13 for every dollar spent. President Barack Obama has pledged to increase funding for early education, and the stimulus bill contained about $4 billion in extra funding to Head Start and the Child Care Development Block Grant. It's a start, but it's too small to considerably change the fact that we are only providing child-care assistance to one in seven who qualify for it.

There's a parallel story in the state of our nation's physical infrastructure. In some cases, such as our roads, bridges, and dams, we've failed to maintain what was once an exemplary system. In other cases, such as investing in energy alternatives, basic research, and new infrastructure needs such as broadband, we've withered under the pace of modernization.

Our nation's system of roads and highways are now in gross disrepair. The American Society of Civil Engineers gave our nation a D grade, estimating that a total five-year investment of $2.2 trillion would be needed in order to conduct the necessary repairs to bridges, dams, roads, and schools. As anyone who travels internationally can attest, our nation's broadband and cellular coverage is antiquated compared to other developed countries -- putting us 15th out of 30 countries in broadband penetration.


There are many reasons for our investment deficit. Chief among them is the conservative economic philosophy that promotes private wealth over public investment, and therefore tax cuts over spending on public structures that benefit everyone. Now, in the wake of two unfunded wars, the largest tax cuts in history, and a historic and deep recession, the nation's financial elite is focusing on deficit reduction. This austerity appeal is taken as a sign of government responsibility while it is said that new domestic investments are beyond our fiscal reach. Yet it is the rebuilding of our nation's social and physical infrastructure that has the greatest chance for creating broadly shared and sustainable economic growth -- the foundation on which our fiscal future surely does rest.

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