This will free up trillions in the hands of private investors who will be able to lend the money to businesses for investment in new plant and equipment. It is with some trepidation that I challenge this logic, because the sponsors include distinguished economists and close friends. But this letter is incomplete economics and worse long-term politics. First, the letter literally endorses the claim that private spending improves productivity and public spending does not. Ironically, outside the current context of President Clinton's campaign to resist a tax cut, many of the proposed signatories have spent careers debunking that canard.
Productivity depends on both public and private investment.
Public spending that raises productivity includes research and development, infrastructure, and human capital, notably education and training. Without quite appreciating that they are doing, these ostensibly liberal economists are promoting a wholly conservative view of the worthlessness of public investment. If anything, there is a strong case that public spending on human capital and research should be increased, precisely to increase productivity and growth. Secondly, the letter embraces virtual elimination of public debt as an end in itself. Since World War II, public debt has fluctuated from a peak of 120 percent of one year's GDP to a low of about 26 percent in the 1970s to over 50 percent after the Reagan-Bush fiscal excess.