Everybody, Get Ready for the Smallest U.S. Investment Budget in Recorded History

Both the White House and GOP budgets cut domestic spending on infrastructure, education, research and other investments to historic lows as a share of GDP

by Derek Thompson, The Atlantic
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Non-defense discretionary spending. God, what a hideous term. The tip of the tongue takes a trip of ten steps and falls on its face at the -ding. In fact, it’s such a revolting sequence of consonants, maybe that explains why politicians think we can cut it to the bone without anybody noticing.

Here is the case for noticing.

When government talks about spending as “investments,” they’re talking about this category, mostly. NNDS is everything that isn’t Medicare, Medicaid, Social Security, defense, and mandatory spending on programs like unemployment benefits. It’s everything that is infrastructure, education, training, disaster relief, environmental protections, international affairs, scientific research, and employee salaries.

In other words, it is the bulk of what we have historically called “Government.” And in both President Obama and Rep. Paul Ryan’s budgets, “Government” gets cut to a historic low as a share of, well, government. Here’s the graph of non-defense discretionary spending (“Government”) since 1970. After 2013, Obama’s budget traces the orange line and Ryan’s budget traces the blue line.

In the last half-century, the U.S. government has gradually changed from an investment engine to an insurance company. In 1969, direct payments to individuals and investments (i.e.: education and training, scientific research, and infrastructure) each made up one-third of the federal budget, Ron Brownstein reported. In the last half-century, wars have ended (the defense budget includes investment, too), and infrastructure has languished, while entitlements have grown. Now payments to individuals have doubled their share of the budget to 65 percent. Investments have fallen to 14 percent.

The United States is a rich, aging country. We’re acting our age. With growing health care costs, we now spend 2.4X as much on the elderly as on children — a ratio that isn’t out of line with other rich economies. We don’t want to cut entitlements for seniors, and we don’t want to pay families to accept higher taxes. As a result, government grows while “Government” shrinks.

Yesterday, Nobel Prize-winning economist Joseph Stiglitz visited The Atlantic. I asked him when, if ever, the deficit would be a problem. He rejected the question pretty quickly. “It’s not about the size of the deficit,” he said, “so much as what you’re spending it on. If you’re going to create debt, create assets.” Create assets.

Insurance is the part of the budget that manages risk and broadly protects us from poverty: poverty from circumstance, poverty from retirement, poverty from medical bankruptcy. Non-defense discretionary spending is the part of the budget that creates assets. Both categories are important. But, squeezed between our promises to seniors and our aversion to taxes, the latter is on track to fall to historic lows, in both the White House budget and the GOP budget. It is very had to win any sort of future with a backsliding investment strategy.