Steven Pearlstein
Columnist January 25, 2011

When talking about the federal government and its budget deficit, Republican politicians love to score points by noting that "you'd never run your household or your business that way."

Then again, you'd never run your household or your business by ignoring investment. Yet now that President Obama has proposed stepped-up public investment in infrastructure, energy, education and basic research, Republicans have suddenly decided their favorite analogy no longer applies.

Steven Pearlstein is a business and economics columnist who writes about local, national and international topics. View Archive

Asked about investment on the television talk shows Sunday, House Republican leader Eric Cantor (R-Va.) and Senate Republican leader Mitch McConnell (R-Ky.) each declared it was just another Democratic ploy to spend more money. Instead of Obama's "invest-and-grow," Republicans now offer "cut-and-grow," which will take its place beside "government ownership of the means of production" and "tax cuts that pay for themselves" in the Pantheon of Economic Nonsense.

Republicans, it turns out, have no public investment strategy, just as they have no health-care strategy and no agreed-upon blueprint for reducing federal spending. What they have are poll-tested talking points, economic delusions and an overwhelming partisan instinct to say "no" to anything Barack Obama proposes. In their response to the president's State of the Union message, they remind us once again that they are not serious about economic policy and not ready to govern.

In framing his retooled economic and political strategy, the president emphasized using public money to leverage private investment and innovation, once a popular Republican theme.

In the short term, administration officials expect the bigger boost to the economy is likely to come not from jobs directly funded but from additional private investments spurred by increased confidence and a renewed sense of national purpose - "our Sputnik moment," as Obama called it.

There is a similar emphasis on the private sector in the president's proposal for a National Infrastructure Bank, which will not only help to insulate the government's investment decisions from the political process but will focus on projects with demonstrable financial returns. Toll roads, smart grids, wind farms, freight lines and air-traffic control systems would compete for funding on the basis of their ability to generate user fees to repay the bank's bondholders.

In the energy sector, Obama expects to untap tens of billions of dollars in private investment with modest amounts of seed money and the right regulatory incentive - in this case a requirement that 80 percent of electricity comes from environmentally clean sources by 2035.

While high-speed or new transit projects may never generate enough revenue to cover the original investment, the president cited the experience with the transcontinental railroads and the interstate highway system - both started during Republican administrations - which showed that such projects could more than pay for themselves indirectly as a result of the private development they stimulated.

You don't have to be Republican to question whether more education spending will be a worthwhile investment in human capital or just more money poured into an inefficient and unaccountable educational establishment. Through the Education Department's "Race to the Top" grants, the administration has already demonstrated its determination to use additional funding to leverage needed reforms. One would hope a similar strategy could now be used with these new investments in higher education, getting schools to improve productivity through creative use of technology and new teaching and learning techniques.

Even with the proposed increases, of course, federal investment still will amount to a small slice of the budget. Other than interest on the national debt, all the rest is consumption: Social Security, Medicare, Medicaid, veterans benefits, fighting wars, protecting the safety of workers and consumers, national parks, food stamps, farm subsidies, housing vouchers. Most Americans, I suspect, would consider some of that spending pretty vital, which is why Republican plans for across-the-board cuts are just plain dumb.

As it happens, a bipartisan deficit commission has just finished laying out a plan for reducing the government's consumption spending, reforming the tax code and modestly increasing tax revenues. While Obama acknowledged the necessity of painful cuts in domestic spending, it was disappointing that he didn't use Tuesday's nationally televised speech to embrace the broad outlines and deficit reduction targets in the commission's report. White House officials are concerned that if the president "laid all his cards on the table," it would weaken his bargaining position in upcoming budget negotiations with Republicans.

However, as the president should have learned from health-care reform, the danger in tailoring his strategy to the partisan back and forth on Capitol Hill is that he risks losing the more important battle for broad popular support. By endorsing the markers laid down by his own commission, Obama could have taken the the deficit issue away from Republicans and gained the political credibility he needs to push through his investment agenda. To use the president's phrase, that would have been doing "big things."