"(O)ur state must make major investments to compete for the jobs of the 21st century ..." (One of 15 appearances of the words "invest" and "investment" in the report of the Emergency Financial Advisory Panel appointed by Gov. Jennifer Granholm, Feb. 2, 2007.)
"That investment - in education, in health care, in training, in revitalizing our communities, in diversification - will grow our economy and create jobs." (Gov. Jennifer Granholm, 2007 State of the State address, in which she repeated the words "invest," "investment" or "investing" 28 times.)
Significantly, the first sentence of the Wikipedia.com article on investment begins with a statement about spending less: "Investing is a term with several closely-related meanings related to saving or deferring consumption."
Yet whenever we hear public officials use the word "invest," it is virtually certain that "deferred spending" by the government is the last thing on their minds. There is a sly call for reduced consumption in such statements, but it refers to taxpayers, who can expect their own discretionary spending to take a hit when the inevitable demand for higher taxes follows the invocation of the term "invest."
Back in the real world – as opposed to the world of mystification created by politicians seeking to legitimize reaching deeper into our pockets – what are the characteristics of "investment" that distinguish it from plain old spending?
First off, as the Wikipedia entry suggests, one cannot invest money that has not been saved first by choosing to defer spending. Second, investment is voluntary; nobody makes you put money in a 401(k) account rather than spending it on a party. Third, it’s information-driven. While some people do purchase stock shares on a tip from a cab driver, better results are usually provided by serious research into a company’s product, the soundness of its business model and the record of the management team.
Those last two research items point to a fourth characteristic of real world investment: It is conditional on proper management. If the managers of the operation spend far more than is necessary because they ignore obvious efficiencies, and hire lots of employees with rich benefits to do things unrelated to the core business, savvy investors will shy away, no matter how attractive the product may be.
Compare these characteristics to "investing" as defined by politicians. The "voluntary" and "requires savings first" are turned on their heads: Government won’t save a dime, instead it will force others to do so by taking more from taxpayers, and there is nothing voluntary about it.
Next is "information driven." Where is the systematic, scholarly research showing that, on balance, direct government participation in the private economy has ever generated a net gain, or that subsidies for certain kinds of training beyond the essential education required to create literate and numerate citizens have ever paid off? Real-world investment is not driven by puffy press releases, catchy slogans and transparently self-serving theories of how more spending that is undisciplined by market realities will magically yield big gains.
The burden of proof is on the entity seeking the funds – in this case government officials – to provide credible evidence that their proposed use of your money will yield a profit. This is something politicians and bureaucrats cannot do, because the record of such gimmicks shows just the opposite.
Finally, real investing is "conditional on proper management." The record of government in general, and Michigan state government in particular, speaks for itself in this regard. The Mackinac Center has identified almost $2 billion in potential savings from operating state government in a more businesslike manner, and millions more in spending on non-core functions that could be eliminated altogether. Few substantive reforms implementing these savings have been enacted.
Calls for the government to "invest" are coming now because the legislature and governor did (and would like to again) authorize spending in excess of the revenue the state is likely to collect this year and next. The gap is described by Gov. Granholm and the government spending interests as "the deficit crisis." That’s another word worth deconstructing in this context: "The term ‘crisis’ (is an) inducement to acquiesce in deprivation," wrote political scientist Murray Edelman more than 20 years ago. He was prescient.
Jack McHugh is a legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.