I do not listen to political speech. I have more important things to do (like watch the Ohio State (Go Bucks!) - Purdue (my brother's school) basketball game. I can always read the text later and read the pundit's comments. Last night was the state of the union address and the President asked for more billions in government spending. Only he did not call it "spending". Instead he used the word "investments". Like "revenue" before it, "investments" means something completely different when uttered in the context of government. Consider the definition of "revenue". Investopedia defines revenue as "the amount of money brought into a company by its business activities". Consider then its definition of government revenue as principally money received from taxation - meaning of course that no business activity was required to earn "revenue" in the case of government. Thus revenue is the result of meeting consumer demand for business and the result of expropriation by the government. Similarly, "investment" means something completely different when it is utter by a politician. When "investment" applies to business it is "the act of utilizing money or capital in an enterprise with the anticipation of profit." However, when a politician says "investment" it means spending. The President's speech asked for more "investments" in education, infrastructure, scientific research and renewable energy. Did any of the pundits as what has happened to all the previous "investments" made by other administrations? For instance, how much has been "invested" in education? I dare say trillions and what has been the return on that "investment" - merely among the lowest achieving students in the developed world. "Investments" in renewable energy mean subsidies that have cost us billions and have resulted still in losses for private companies and governments (see Massachusetts). An ironic by-product of renewable energy subsidies has been a rise in world food prices and the world's poor made worse off as their food prices and energy costs go up. It has also ravished Dafur and helped finance the Rwandan genocide. We have "invested" at least one trillion dollars in infrastructure over the past three administrations. So what happened to the money? How was it used? How could we have a crumbling infrastructure having spent $1 trillion? If indeed our infrastructure is crumbling then someone needs to go to jail. The market could not sustain the losses from such "investments" and would have abandoned each long ago. Another ironic point is the President's advocacy of research in scientific research when he has abandoned the manned space program. More times than not, the government funds losers and is incapable of picking winners - only the market can do that. So "investments" in scientific research will be research in the areas favored by politicians and not those generated by the market. However, Obama simply does not get it - nor does any of his inner circle of advisors. Up to now, Americans invented and then went abroad to manufacture due to the hostile regulatory climate in this country toward manufacturing and the high cost of labor. History tells us that R&D tends to flow to the source of manufacture. It is true that the Asians do not seem particularly inventive but that does not mean that innovative Americans won't migrate to Asian in order to be more hands on with the final product. Instead of throwing money down the rat hole of high speed rails, the President could spur economic growth with minimal government spending by making the country business friendly. Eliminating the corporate income tax, reining in the EPA, eliminating the capital gains tax and a reduction in the regulatory burdens of business will do more to stimulate economic growth than all the additional billions in "investments".
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com