Trends In Public Investment (Taken From : Google Ebook)

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The great increase in federal deficits in recent years has given rise to
fears that federal borrowing may be financed from private savings
that would otherwise be available for business investment. In
response, some analysts have suggested that much federal spending
represents productive investment that adds to the nation’s wealth. If
so, the deficits have not represented as large a drain on domestic
saving as their numerical size would suggest. The decline in net
private domestic investment in the 1980s may, in this view, have been
partly offset by the investments made by the federal government.
Some analysts also argue that federal investment contributes to the
long-run strength of the economy by stimulating private investment
in certain areas that would otherwise be neglected.
The extent to which federal spending has added to the nation’s
wealth depends on the answers to two questions:
o Which forms of federal spending are investment?
o How is the value of these federal investments to be assessed?

WHAT IS INVESTMENT?

Investment may be broadly defined as activity that creates assets
having value because they produce future output and income. The
National Income and Product Accounts (NIPA) of the Department of
Commerce treat as fixed investment all expenditures on new business
plant and equipment, and purchases of new dwellings by homeowners.
Both of these yield future income or output: firms use their plant and
equipment in the production of goods or services; and households
owning their houses receive a flow of services from the use of their
dwellings (imputed by NIPA as a rental income).
The NIPA view is a restrictive one. In current NIPA accounting,
government purchases of long-lived fixed facilities are not considered
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x TRENDS IN PUBLIC INVESTMENT December 1987
as investment even when they are made by such industrial entities as
the power marketing authorities. This is because the purchases cannot
clearly be shown to produce income (as officially measured). The
only correction now made to deficits or surpluses in public-sector
accounts in the NIPA is for federal lending and land transactions
(both representing asset exchanges, not investment), which are netted
from total federal expenditures. All other expenditures—whether to
construct federal buildings, pay employees, provide funds to states or
grants to individuals, or to promote scientific, military, or commercial
goals—are treated as consumption. The difference between government
revenues and expenditures thus represents public saving or dissaving.
National saving is the sum of public and private saving.
But some federal expenditures could be seen as investment without
violating the spirit of the NIPA approach—that investment produces
future income or benefits. Government saving would then be
increased by the value of gross federal investment in any year, and
decreased by the annual depreciation of past investments (capital
consumption). Such public investment would then become a component
of net national fixed investment.
If the NIPA rules for private investment were applied to federal
activities, the following might be counted as federal investment: purchases
of physical assets used to produce economic services such as
irrigation water, electric power, or office space; purchases of equipment
operated by federal agencies (such as vehicles and computers);
and construction of long-lived structures that are not used directly in
economic activity but that have counterparts in private firms, such as
airplane hangars used by the military forces.
The NIPA concept of investment might also be extended to include
other long-lived assets that produce income or other benefits in the
future, although these inclusions would require parallel changes in
the treatment of nonfederal activities as well. Such extensions could
include:
o Defense Weaponry. Major defense systems are long-lived
and produce a stream of future benefits in the form of deterrence
even if these benefits are not reflected in national
income accounting.

SUMMARY

o Research and Development Activity. Scientific findings
create future income. Research and development activity
(under both federal and private financing) could therefore be
deemed a form of investment. Comparable expenditures in
the private sector are now accounted as operating expenses,
so the NEPA data would have to be adjusted to maintain
consistent national income and investment totals.
o Investment Grants to Other Sectors. Federal policies subsidize
investment by other sectors. Federal assistance, for
example, defrays much of the cost of building highways and
other infrastructure. The federal “share” of these investments
could be credited to national investment totals, but
would be treated as a part of state and local government
investment.
o Human Capital. Some economists view workers’ stocks of
knowledge and skill as capital, comparable with plant and
equipment. Expenditures to build these stocks, such as those
for education and training, could be viewed as investment.
Again, comparable private expenditures would have to be
similarly adjusted, and federal aid might be considered as
adding to investment totals in the sectors where education
expenditures are made…..

For More Of It Refer To Google Books For THhe Same Title.

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