Missing Side of the Budget Debate (written in 2005)
Every year, all year, we hear about the United States federal deficit (this was written only three years ago and, although happily the yearly budgetary deficit is gone, the exclusive focus on the yearly budget is still a flaw). The federal budget is worth serious and sober discussion, but we should expand the discussion to include the net worth of the US for proper understanding of the direction of the wealth of our country.
If we spend $50 billion on highways, what is the benefit year-over-year of the increased productivity from ease of movement for both people and goods? That is, how is the net worth of the United States affected by the yearly expenditures? When President Clinton came into office, he argued that we should spend for investment. His critics responded that spending was spending - but that ignores a significant difference.
- If the spending is consumed immediately, then it is an expense.
- If it gives lasting value of years, then it is an investment.
What are some components of the US net worth? Assets like roads, bridges, wealth in the ground, government buildings, research and findings, education of its people, the Internet, etc. The first liability that comes to my mind is the cost to cleanup the environment. Other liabilities are in the future and those ongoing that continue past the current year. Some examples are space programs, health research, social security and medicare commitments, etc.
The true value of a net worth statement is looking at what happens to it year-over-year. In a family's personal finances, when a house is purchased, because of transaction costs, the effect on the net worth might be negative for a couple of years, but then a continual gain in net worth kicks in. Where is the discussion of these issues on the federal level?
Has the value of our road stock increase? Have we discovered new wealth in mineral deposits? How much did we lose in petroleum reserves and habitat damage to boost the GDP by a per cent?
I'm certainly not saying that calculating the net worth of the US will be easy or that we'll get it perfectly right from the start, but the value is undeniable. We need to know the long-term effects as well as the short-term.