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Opinion

Battleground Budget

By A. Michael Spence

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The lesson from many developed and developing countries is that underinvestment in infrastructure, human capital, institutions, and the economy’s knowledge and technology base reduces long-term growth.

The world’s developed economies, of which the United States is by far the largest and systemically most important, face a range of difficult political and social choices. President Barack Obama’s proposed US budget acknowledges and addresses those choices and tradeoffs directly and fully for the first time in the post-crisis period.

Obama’s proposal is an important, honest, and politically courageous document. The debate that follows will largely determine whether the US shifts toward a strong, inclusive, and sustainable pattern of growth and employment, and how the burden of moving to such a path will be shared by Americans of various ages, educational levels, incomes, and wealth.

We know that powerful technological and global market forces have reduced dramatically the number of routine professional and blue-collar jobs, shifted employment options for the middle class toward the non-tradable side of the economy, and channeled growth in national income toward capital and high-end employment, with stagnating income elsewhere. Job creation remains weak, and employment continues to diverge from growth.

These trends cannot be blamed entirely on poor policy choices or shortsighted government. They arise mainly from an increasingly integrated global economy’s shifting technological landscape; but they have been exacerbated by a systematic pattern of public-sector underinvestment.

Read full article as published in Project Syndicate

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A. Michael Spence is the William R. Berkley Professor in Economics & Business.