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Posted by: Michael Mandel on February 14

pgl of Angry Bear objects to my previous post on deficits. He says:

The simple point is that public investment has NOT increased even as private investment has declined. Mandel’s usual reply is that national income accounts fail to count investments in R&D and education, which is fine. But we have not dramatically increased the share of national income in either R&D or education

Oh, oh, I agree with him—up to a point. The share of national income going to going to R&D and education has not change much over time—-which is exactly why I am so insistent calling R&D and education investments!

pgl wants the U.S. to invest and save more—so do I, but I just have a broader definition than he does. I want to encourage more resources devoted to R&D. I want to encourage more resources devoted to science and engineering education, and funding college for low-income and middle-income kids. I want to do the investment in the Knowledge Economy.

From this perspective, I don’t like the latest Bush budget. The proposed 2007 budget takes a hacksaw to education outlays, cutting it by 18%, or 21% in real terms. Spending on R&D goes up slightly, but slower than the growth of the economy.

All told, Bush is proposing to reduce “Knowledge Economy” investments from 1.8% of GDP in fiscal year 2005 to 1.6% of GDP in fiscal year 2006. Outlays on Knowledge Economy investments are reduced by $15 billion.

This may be fiscal restraint, but I don’t like it, and I don’t think it should be counted as deficit reduction. Do you?

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Reader Comments

David Foster

February 14, 2006 09:32 AM

Your 1.8% number for "knowledge economy" investments reflects only Federal spending, right? Because most education spending in the US is state & local level, and the numbers I've seen put total K-12 spending alone at around $500B.


February 14, 2006 10:20 AM

Wow, something we completely agree upon. ;-) My perspective is pretty much "modified Libertarian" in that I'm extremely anti-federalist, believe federal taxation should be completely eliminated, and think taxes overall should be limited and more correlated to real results; however, I think a modern civilization needs infrastructure investment and "infrastructure" includes public use items like roads, public transit, long-term-oriented R&D, and most importantly education. We can make no better investment in a "knowledge economy" than in knowledge; i.e. education. Cutting education while sending billions more to warfare says to me that this administration's vision of the future is one in which we dominate the world militarily and not economically.

Side note: Of course, anyone paying attention knew this before the 2000 election. This administration is based on the militaristic PNAC think-tank which included Cheney, Rumsfeld, and Wolfowitz among others.

Henrique Plöger Abreu

February 14, 2006 11:31 AM

The economic world order is rapidly changing, to one based upon the flow of intellectual, not financial capital. Every job, every industry and every region of the world – developing and industrialized nations alike – is experiencing profound changes in the way we manage our most precious resource – human talent, do develop this precious resource we need to increase investments in general education and R&D. We need to aim at developing new models of learning which readress the balance between knowing what and knowing how by permiting children to learn to become researchers and innovators while working with teachers to evaluate and improve their skills in these areas.


February 14, 2006 12:12 PM

Total spending on R&D seems like a rather crude measure. How about some measure of the quality of and commercial applications for this spending.

Government spending on developing computers and jet aircraft post-WW2 was worthwhile. Spending on developing better smart bombs and body armor seems like it would have limited commercial application unless you envision a dystopic future.

The same applies to private sector R&D. GM spending money developing bigger SUVs is wasted money. And Microsoft spending billions of dollars on research...what commercial applications have resulted? Buggy software and money-losing commercial products?


February 14, 2006 12:47 PM

Be fair - I have referred to R&D as investment not properly counted in the NIPA accounts. We agree on this point.


March 29, 2006 03:03 PM

I still think that investments in education are the most profitable. The problem is we won't ever be able to count them.

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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