Jonathan asks how budget policy could be changed to get investment and consumption spending sorted out. The most important reform would be a separate federal capital budget. With a unified budget, completely different kinds of expenditure, some with immediate payoff, like welfare payments and hiring park rangers, and others whose benefits keep flowing in for years and decades, like infrastructure projects, compete with each other in a deeply uncomprehending and dysfunctional debate. Nobody compares the full price of a house purchased this year with the full price of a week’s groceries.
I haven’t heard anything about this for years, but it still sounds like a good idea both for better use of public funds and for improving the quality of public discourse. The federal government should have two separate budgets, one for operations and one for capital investments, and the capital budget needs to be able to commit a stream of expenditures for most projects over several budget cycles. The separation isn’t airtight, of course; many capital investments entail ongoing maintenance and operation costs, and these should in principle be funded with the initial investment. But the basic distinction between consumption and investment deserves explicit recognition at the top of the budgeting process.
UPDATE: Eric Patashnik points us at a CBO report on this from May; i’m pleased to see the idea is on the table (though CBO pours some cold water on it).