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September 26, 2017

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'Public goods' once made America great — and they can do so again

University of Michigan -- All Americans are lucky to live in a country brimming with public resources that everyone can share.

Many are provided by government and funded with our tax dollars, such as the highways that crisscross the country, the 84 million acres of national parks and the roughly 100,000 public schools that give all children access to education.

Others come from nature, like mountains, lakes and rivers, which also depend on a reliable government and meaningful regulations to preserve and protect them.

While the collective value of these "public goods" is probably incalculable, the economic impact of schools, clean air and vast highways has been significant. In fact, I would argue that public goods are what have made America great.

Unfortunately, our stock of public goods has been declining for half a century, particularly those that require the government's purse strings. President Trump's proposed budget would make things even worse by cutting, among many other things, funding for national parks, the cleanup of the Great Lakes and efforts to minimize climate change.

So if Trump is serious about making America as great as it can be, investing in our public goods — as well as those equally vital ones we share with other nations — would be a good place to start.

Nonexcludable and nonrivalrous The formal definition of a public good is that it's something that is nonexcludable and nonrivalrous. That's a fancy way of saying that everyone can take advantage of it and that one person's use doesn't reduce its availability to others.

Setting aside for a moment natural public goods, the ones provided by the government have been on the decline. U.S. public capital investment, net of depreciation, fell to just 0.4 percent of GDP in 2014 from 1.7 percent in 2007 and about 3 percent in the 1960s.

A particularly critical subset of this, research and development spending, has been the bedrock of innovation and growth in our economy. It has dropped from a high of 2.1 percent of GDP in 1964 (during the Cold War and space race) to less than 0.8 percent in recent years.

A history of public goods investment This erosion has persisted through both Republican and Democratic administrations. But it was not always thus, as the bipartisan history of our biggest undertakings attests.

The transcontinental railroads, though privately built in the mid-1800s, were heavily subsidized by generous grants of federal land under several presidents and was vital to 19th-century economic growth. As one illustration, before the railroads, it took almost six months and USUS$1,000 to travel from New York to California. Afterward, it cost just a week and US$150.

Similar gains came after 20th-century presidents invested heavily in public works. Woodrow Wilson, a Democrat, established the National Park Service in 1916, a few years after Republican Theodore Roosevelt greatly expanded their number. U.S. parks are now responsible for more than US$200 billion a year in economic activity.

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