Yes, the Nation Is Almost Broke; No, It Is Not Poor

It was a difficult week for remembering the truth of the assertion by two prominent economists that: “This nation has enormous wealth, and neither the federal government’s fiscal predicament nor the problems of the 1990s diminish the economy’s great, underlying strength.”

Rather the message of the Bush Administration’s budget proposals seemed one of growing debt and weakness--a $399-billion federal deficit this year and a projected $352-billion deficit for fiscal 1993, which begins Oct. 1.

The national debt is now at $2.7 trillion, equal to half the nation’s annual output of goods and services, and rising much faster than the gross national product. The United States was last so deep in debt in the years after World War II, when the cost of waging and winning that war had ballooned the national debt to 117% of GNP.

Now, as the President said last week, the nation has come through the longer struggle of the Cold War, and has been victorious. But the victory has left the economy at a crossroads. And even though Bush spoke boldly of a promising future, many Americans have a hard time understanding how we can get there from here.

If anything doubts and fears are magnified in California, where Gov. Pete Wilson struggles against recurring budget deficits caused partly by a rush of immigrants making greater demands on schools, hospitals and welfare than the tax system can afford.

The result, locally and nationally, are nightmare visions of state and nation as future also-rans with fading standards of living--larger Argentinas, so to speak.

Yet from every side come voices saying it doesn’t have to be that way, that the key to a brighter future is investment. Bush is urging tax cuts to spur private investment. The Congressional Budget Office is calling for public investment in roads and water systems, airports and schools to increase long-term productivity.

Wilson agrees. Despite budget troubles, he wants to issue $6 billion in state bonds to build schools and other public facilities. This month Treasurer Kathleen Brown will sell $1.04 billion in California bonds for schools, clean air and transit projects.

And that’s exactly the right thing to do, say S. Jay Levy and David A. Levy, a father-son team who head the Jerome Levy Economics Institute at Bard College in Annandale-on-Hudson, N.Y.

Their institute, which calls together scholars from all over the world, has issued a report entitled: “How to Restore Long-Term Prosperity in the United States.” It contains the ringing endorsement of “the economy’s underlying strength” that begins this column.

The Levys not only join the call for increased government investment, they explain how it should be financed. The way a business finances a factory or a new computer, say the economists--borrowing for the plant or equipment and amortizing the loan as the investment yields a return.

Specifically the Levys would have the U.S. Treasury buy bonds issued by states and cities, and bring in private investment, to pay for schools and airports--repaying the bonds from economic benefits yielded by the airports and schools.

If the idea sounds odd, it’s because we’re not used to hearing of public facilities yielding a return. But they do. The Congressional Budget Office estimates that a $1.5-billion investment in runway capacity would yield $11 billion a year in reduced delays for passengers, lower operating costs for carriers--productivity, in a word.

As to the economic benefits produced by better schools, Americans need look no further than the example of postwar Japan.

Or to our own history in the modern South. There in the depths of the 1930s Depression, the Tennessee Valley Authority built dams and power plants. The beneficiaries were farmers whose land was made more fertile, industry that grew up with the new electricity and prospering communities.

It’s worth noting that the foundations of a more productive South, and of the whole nation’s postwar prosperity, were laid during the Great Depression. The investments yielded growth and productivity that easily repaid the wartime debt. Those in 1946 who looked at the high debt were misled about the economy, while those who saw what the borrowings were achieving saw the prosperity to come.

Similarly, investments for California’s growing population today will yield a powerful future. Because now another foundation has been laid in the Cold War’s trillion-dollar investments in the know-how of such aerospace institutions as Lockheed’s “Skunk Works.”

But in the last decade, while defense spending increased, investment in civilian infrastructure lagged badly. That’s why the Levys and others call for repairs.

The Levys are not ivory tower economists. In 1986, years before most experts, they said the U.S. economy would suffer severely from overbuilt real estate. Their insights result from generations of inquiry. Jerome Levy, father and grandfather of today’s economists, was a businessman in the depression of 1908 who asked Presidential candidate William Howard Taft why able bodied people couldn’t find employment. “Darned if I know,” replied Taft in effect, inspiring Levy’s lifelong quest.

Today his descendants say that declining real estate values will continue to discourage private industry’s investment, so government must be the front runner. But they have lost none of Jerome Levy’s insight that America is able-bodied. As their report puts it:

“The United States is endowed with resources, scientific talent and facilities for advancing the technologies on which growth depends. It also has a heterogeneous, dynamic society with a unique ability to revitalize itself.”