View From a Height

While reading the section on foreign trade in the Economics study session, I came across this unfortunate paragraph:

In 2005, we borrowed almost $800 billion from abroad. In that year, private investment in buildings, plant, and equipment was $2270 billion and government investment in defense equipment and social projects was $430 billion. All this investment added to the nation's capital, and much of it increased productivity. Government also spends on education and health care services, which increased human capital. Our international borrowing is financing private and public investment, not consumption.

This is as untrue as it is is comforting.

Let's grant for the moment that everything they list here can be classified as investment. There's still roughly $10 trillion of other spending that took place that year, much of which was consumption. One can't simply assume that the $800 billion was borrowed solely to finance these projects.

But of course, even these projects aren't all investment. Social projects may or may not simply be money down a hole. Education? To a point, but it's hard to see how another couple of hundred thousand sociology majors are going to materially contribute to the well-being of the country. Health care services? Certainly, except that the overwhelming majority of health care spending takes place in the last year of life. This isn't to say that those lives have no moral value - of course they do - only that their economic value is diminished. (Watch this, by the way, when the Democrats start arguing this summer that we can't afford health care for the old and sick, but count all health care spending as, "investment.")

No, in addition to buying things we no longer make ourselves, a lot of the spending cited above really is just consumption. It's a shame that an organization devoted to clear anbalytics can't get that right.