Understanding the Importance of Investment: The Ill Fate Without Public Investments By Benedict Smythe At Isnare.com Ezine Articles

Perhaps no other critic in the history of political economy has been more debated than Francis Fukuyama, who wrote the seminal work The End of History. Fukuyama theorized that the United States economy was the veritable “end of history”, meaning, it was the final frontier. There were no alternatives, no other meaningful channels of social transformation.

The dynamism that is implicit in US political economy we owe of course to the never-ending cycle of capital and production, including public investments. Brad Pearson of Leithold Financial Strategies states:

“No one can really tell just how important public investments are in the over-all schemata of things. In the end, investments dictate the ebb and flow of whole national economies. Everything is pegged to investments, from the dollar economies to the euro economies ruled by supranational administrations of the European Union.”

Public investments translate to a robust economy

According to Dean Baker, an economic analyst for The American Prospect:

“Economists agree that what has contributed significantly to economic growth over the last half century is public investment. Some studies suggest that expenditures on public investment actually affect productivity more than private investments do.”

Baker continues with:

“But even if the impact of public and private investment on productivity is roughly comparable, recent trends are alarming because the decline in public investment has not been offset by increases in the private sector.”

Kill public investment, and one kills the national economy. Public investments have more far-ranging consequences because the returns of these investments can be seen only after a period of time.

While private investments are important to stimulate the market into spending, public investments protect a country from degeneration. There is a need to further train workers in hundreds of industries around the United States. There is also a need to upgrade and improve existing infrastructures, including the healthcare and educational systems. Without the necessary changes pushed forth by the erosion of existing infrastructure, a downward spiral will result.

Productive capacity

How does one affect change in the general productive capacity of a national economy? There must be sufficient outlay of public investments in early childhood needs and education.

Education should involve the whole chain, from primary school to subsidies in the university. While it is true that the partially redistributive nature of US economics allows many students to borrow money, it is still not enough. Many Americans stop at high school, to be underemployed for the rest of their lives.

Is the US government doing its part in making sure that productive capacity is high in the future? The answer is a discouraging no. Since 1976, investments in fields such as education have fallen more than 50%- a large figure considering we are talking about more than 100 million Americans.

Sustenance of the national economy can only happen if physical capital is high. Physical capital includes roads, bridges, hospitals and similar infrastructure. The human capital can only be supported by outright physical capital.

Lack of physical capital can force large sections of the population to migrate to other countries, or to saturate specific regions of the country where private investments have produced better physical capital for the state.

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