Public Investment: Facts and Fantasies Dean Croushore Professor of Economics and Rigsby Fellow Robert C. Dolan Professor of Economics Annual Meeting of the GIC Global Society of Fellows April 9, 2013 Richmond, Virginia
Gross Government Investment as a Percent of GDP Gross Government Investment/GDP (percent)
7 6 5 4 3 2 1 0 1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
7
70
6
60
5
50
Government
4
40
3
30
2
20 Private
1
10
0 1960
0 1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Gross Private Domestic Investment/GDP (percent)
Gross Government Investment/GDP (percent)
Gross Private and Government Investment as a Percent of GDP
Government Capital Stock as a Percent of GDP 120
Gross Capital Stock/GDP (percent)
100
80
60
40
20
0 1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Government and Private Capital Stock as a Percent of GDP 120
290
280
270
Government
80
260
60
Private
250
240
40 230
20 220
0
210
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Private Capital Stock/GDP (percent)
Government Capital Stock/GDP (percent)
100
Government Net Worth as a Percent of GDP 60
Government Net Worth/GDP (percent)
50 40 30 20 10 0 -10 -20 -30 1970
1975
1980
1985
1990
1995
2000
2005
2010
14%
Actual and Forecasted Interest Rate Movements
12% Fed Funds Rate 3 Month Treasury
10%
10-Year Treasury Forecast 3 Month
8%
Forecast 10 Year
6%
4%
2%
0% 1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
Federal Budget Surplus/Deficit as a Percent of GDP 4% 3% 2%
2.1% 1.5%
1% 0%
-0.3%
-1.2%
-1%
-2%
-2.1%
-3% -4%
-3.8%
-5% -6% -7% -8% -9% -10% -11% 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024
Federal Debt Held by the Public as a Percent of GDP: 1970-2023
90% 80%
77% 73%
Debt Held by the Public CBO Forecast Federal Reserve
70% 60% 50% 40% 30% 20%
10.5%
10% 0% 1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
Federal Spending Components as a Percent of GDP 18% 16%
Projected
14%
Interest
12% 10% 8%
Income Security Social Security
6% 4%
Medicaid
2% Medicare 0% 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
120%
Federal Debt Holdings as Percent of GDP: 1970-2012 104%
Gross Public Debt
100%
Debt Held by the Public Foreign Holders of Debt
80%
Federal Reserve
73%
60%
40% 35% 20% 10.5% 0% 1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
60%
Foreign Share of Federal Debt Held by the Public: 1970-2012
50%
48%
40%
10.5% held by China 30%
9.6% held by Japan
20%
10%
0% 1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Interest Payments on Foreign Borrowing Economic Growth
Gross Domestic Product
Interest Payments on Foreign Borrowing
Gross Domestic Product
Projected Federal Spending Components to 2021: 30% 25.8%
Health Care
25% 21.3% 20%
22.9%
21.2%
Social Security
Pressure from Trust Fund Asset Sales beyond 2020? 15% Interest Payments 11.9% 10% 6.9% 5%
0% 2013
2015
2017
2019
2021
2023
Federal Revenue and Spending as Percent of GDP Revenue Less Interest
Mandatory Spending
Discretionary Spending
Budget Deficit
20% 15% 11%
10% 10%
13% 12% 8%
9% 5%
0% -5% -7% -10%
-10%
-15% 1972
1977
1982
1987
1992
1997
2002
2007
2012
Federal Spending Components as a Percent of Total 100% Projected
90%
Other
80%
Defense 70%
70% 62%
60% 50%
Interest Income Security
40%
28% 30% 20%
10% 0% 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Social Security Medicaid
Medicare
Prodigious Fruits of Public Investment! • Internet, Micro chip, GPS, Bar code • "There's no such thing as shovel-ready" President Obama, October. 13, 2010 New York Times
"ARRA’s long-run impact on the economy will stem primarily from the resulting increase in government debt." "In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital." "Some of ARRA’s provisions, including its funding for roads and highways, may add to the economy’s potential…Others, including its funding of education, may raise long-term productivity by enhancing people’s skills. Still other provisions create incentives for increased private investment." Estimated Impact of the American Recovery and Reinvestment Act Congressional Budget Office, November 2012, pp. 8-9