Budget Categories

While I was working out this morning, I was watching the supercommittee hearings on CSPAN (pretty lame, huh). And Doug Elmendorf was explaining all the categories that the committee had to be conscious of…discretionary vs nondiscretionary,  defense vs nondefense, security vs nonsecurity.

And it struck me that we were missing the most important budget categories: investment vs consumption.  Yes, I know that this is an age-old debate, whether the federal government needs a capital budget. But it would really clarify a lot of the debate.

The investment budget would of course include physical capital such as infrastructure; human capital such as education and training; and knowledge capital such as R&D.


I think that the main thing that the committee should do is protect the federal investment budget. We don’t want federal investment going back to the low levels of the 1980s and 1990s.


  1. Mike, I discovered your blog on Real Time Economics and am truly glad I’ve found it. I teach economics, behavioral economics and public finance at Seattle U and you’re blog is a great educational tool. Your comments on college grade earnings were excellent and the discussion on investment versus consumption was pretty profound. I convened a group of more cutting edge business leaders a few years ago, leading up to budget cut talks, and they pretty much confirmed the hypothesis. Think about long term investments when you make cuts. nice work!

  2. How about taking the graph back a few more decades. Before buying into your thesis I think it would be useful to see more data. I’m also struck by the seeming lack of correlation between GDP growth and federal investment. Did you plot those data points? Given that the 80’s and 90’s represented the most buoyant economic periods in the years your data spans perhaps we might consider ratcheting back down to that level.

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