Would you support a reclassification of money spent on education, both on a personal level (for calculating savings rates of the public) and the government. If it is an investment, how do you track performance?
I believe that while it makes sense to classify education as an investment, our government** would take the “found” money and increase spending (and not on more education). So while it is better classified as an expense, don’t give the government another tool to show fiscal irresponsibility.
*Mods - I grabbed just enough out of the 800-word article to help guide the discussion. I hope I did not grab too much. Trim if you feel appropriate.
**I really, really don’t want this to be an political argument. Please save your invective against either party for other threads.
Absolutely not. That is just more numbers magic and we don’t need more of that. One thing the U.S. government isn’t short of is R&D and long-term investigation and training. Look at the number of government grants at any moderately prestigious private university.
This proposal would just introduce all kinds of accounting tricks, and with them, laws of unintended consequences. When it comes down to it, a government dollar is a dollar and we don’t want to obscure that fact.
Supposing education costs are reclassified, I wonder whether or not interest paid on education loans would still be tax deductible. If not, I imagine quite a bit of revenue would be recaptured.
That’s the kind of thing I am talking about. A dollar spent by the government is a dollar spent. The wisdom and benefits of that spending should speak for itself and will pay off at exactly the same rate that it eventually pays.
Reclassifying things is simple numbers magic and opens fraud, deception, and corruption with open arms. It becomes much easier for government projects and programs to expand if the money to run them is never “spent”, it is merely “invested”. No accounting department or politician could resist shifting to as many “investments” as possible whether they are real or not.
In the end, you are still faced with dollars in should roughly equal dollars out and nothing should obscure that fact.
Not that I disagree with how our elected representatives would game the system, but big business has figured out how to account for investments such as R&D and even education. They can track it, and have a good idea which streams are producing results (and are paying for the non-productive streams).
I think it would also be a hard sell to the public. We hear about the success of Viagra. Some people get upset that drug companies make so much off of it. However, we don’t hear about the 99 other drugs in various stages of R&D that never got off the ground. Investments need to be tracked; they need to show a return. If the return is knowledge. how does one quantify whether or not it is a good investment, and whether money should be spent on similar investments.
Personally, I think private money spent on education (tuition specifically) should be tax-advantaged. I think we need to go further than section 529 plans. Nothing wrong with creating incentives for things with future payoffs.
However, the big difference is that business and private individuals categorize things for the purpose of showing it to the government for tax advantages.
The government is going to categorize things so it can show what to itself?
No, no, no. There is only so much money and money in needs to roughly equal money out. You can’t just categorize things away as investments so that they don’t count the same way against deficits. That is a back-door attempt to wish more money into existence than is there.
It is impossible to value those investments anyway. The flu of 1918 could return next year or there could be a nuclear war. Experts can’t even predict the future price of one stock on the stock market let alone the whole economy ten years from now.
The government can use tax schemes to promote private investments. It cannot use accounting tricks to move its own money around in ways that make it less accountable.
I don’t have access to the Business Week article. Is it discussing “investment” in terms of the government budget or as macroeconomic theory?
The government doesn’t really treat anything as investment. A billion dollars spent on a bomber is the same as a billion spent purchasing wilderness land is the same a a billion spent on medicare is the same as a billion raked into a large pile and set on fire. The federal budget is a system of managing cash flow. Just as taxes, fines, penalties and borrowings create cash available for spending.
In 1992 and 1993, when President Clinton first won election, he held several televised conferences to address pressing problems. He did suggest that certain expenditures should be viewed as investments because they would pay off with lower costs to the federal government in the future. For example, money spent on preventive health care would eventually more than pay for itself in future savings. While we should make these prudent expenditures, they are not recorded as assets on the government’s books.
On the other hand, I can see how a government agency measuring the economy would try to split all spending into consumption goods, investment goods and government goods. Clearly building a factory is investment and eating a pie is consumption. I guess the bomber would be a government good. There could be some trouble classifying education and health care (especially when not provided by the government). It is interesting.
Measuring education and healthcare as investments would probably scew the models a lot. The US economy would show a huge amount of investment goods at the macro level. I’m not sure how you would really be able to classify them. Spending $500,000 keeping a 105 year old comotose woman alive on a ventilator is hardly the same as immunizing every poor kid in Chicago. Both are health care. Only one could rationally be classified as an investment.