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U.S. Needs to Invest Its Way Out of Debt: Leonhardt


In order for the U.S. to have a fiscal plan more nuanced than whining at one another, some compromises are going to have to be made. Pragmatism will have to replace strict dogma. Once we have something that both sides hate equally it'll be a decent sign that progress is being made. New York Times' Washington DC Bureau Chief David Leonhardt has a slightly modified Keynsian approach to the matter that, whatever its other merits, will be certain to add some nuance to the finger pointing.

In his new book "Here's the Deal," Leonhardt lays out his thinking starting with the premise that both sides have already won what matters to them most and it's killing us. Republicans minimized the tax hikes that became inevitable with the drubbing they took at the polls in November. The Democrats kept the benefits, specifically those for seniors. The result is a country running huge defecits in order to invest in the our elders.

Sorry Boomers but the ROI on Medicare and Social Security is fairly close to zero in strictly financial terms.

Leonhardt's idea is to keep the revenues from higher taxes but use it not for propping up our legacy Ponzi Scheme benefits program, but rather start investing in education and early science. For evidence that the government isn't totally inept at such investments Leonhardt points to the Internet (which he says was developed by the Pentagon rather than Al Gore or the free market), the national highway system, synthetic rubber and the jet engine as programs that all started as government programs prior to being handed off to capitalists.

Of course, the jet engine and synthetic rubber were the result of defense spending. So was the highways system which was good for the economy but not at all coincidentally a function of President Eisenhower's admiration for the autobahn. There's also ethanol, Solyndra, the Volt... Let's just leave it at "hundreds of billions of dollars in pork-laden boondoggles" for the sake of brevity.

"The question is do you thnk the value of the Internet is greater than the cost of Solyndra?" Leonhardt responds in a way that will certainly get him a return visit to Breakout for a more spirited debate.

Leonhardt's basic idea is sound. When the country spends on the elderly it pays for it by reducing investments in the future. Regardless of how that makes you feel emotionally, the economics of it are straight forward. If you take spending as a given you should at least try to put the money to work in places that have the chance of benefiting future generations.

"Relative to other countries the United States spends more of its money on older people and less of its budget on younger people," Leonhardt notes. If that doesn't change, a nation of under educated generations toiling at low-tech dead-end jobs is all but inevitable.