By Donella Meadows

–March 25, 1993–

They play a game in economics classes that might help illuminate the present debate in Washington about budget-cutting and economy-stimulating. It’s a game about public and private investment. Each player starts off with 10 pennies. For each penny you put in the private investment pool, you get back one cent each round. For each penny you put in the public pool, you get back one-fifth of a cent each round, not just for the penny you put in, but for EVERY PENNY THAT EVERYONE PUTS IN.

As the game proceeds, you can move your money back and forth from public to private investment. You can re-invest your earnings in either pool. You are trying, of course, to maximize your own wealth.

If you are a knee-jerk conservative, you would probably keep all your pennies in private investment, period. You wouldn’t believe there could be five suckers out there to make your public investment pay. Even if there were, the government would probably bungle and return nothing, no matter what the supposed rules of the game.

If you are a knee-jerk liberal, you would try to talk everyone into public investment, to guarantee the maximum return for the whole society. You would probably REQUIRE people to put some or all their pennies into the public pool.

If you aren’t a knee-jerk anything, you would say, wait a minute! Who designed this game? To make what point? How is it like the real world, and how is it not?

You might note, for starters, that in the real world everyone doesn’t begin with the same number of pennies. You might also object to the constant, sure payoffs from both investment pools. In the real world there is risk. Because of incompetence or corruption or acts of God or honest mistakes, public investments may not pay off. Private investments might not either, for the same reasons.

Even if investments of either kind are honest and well-managed and successful, real payoffs can be high or low in either sector. One dollar’s worth of vaccinations for kids prevents ten dollars in medical expenses. Few private investments can match that rate of return. Instead of getting doctrinaire about either sector, wouldn’t it make sense to list all investments by potential payoff, and go for the highest returns, wherever they come from?

It would make sense, but it’s very hard to do, because some investments depend on the presence of others — trucking companies and highways, for example — and not all returns, negative or positive, are fully measurable. The tenfold return on the vaccination dollar counts only medical savings, not the uncountable value of preventing anxiety to families or deaths of children. The return on, say, a public nuclear weapons plant or a private pesticide factory doesn’t count the cost of contamination of groundwater. The returns to society of a well-educated populace, or the costs of an ignorant one, are incalculable.

Compounding the measurement problem is the matter of “job creation” and its multiplier effect. What if either a private company or the government cuts costs by eliminating 500 jobs, and the 500 laid-off people buy fewer groceries, stop paying rent, postpone buying cars and appliances, and go on public welfare. What’s the return on that transaction, and to whom? What if those people are hired by government to rebuild crumbling schools, or plant trees, or teach literacy? Is that bad because those are government jobs, or good because they’re jobs that need doing?

Are public-sector jobs — firefighting, monitoring air pollution, examining banks to prevent S&L disasters, descending into a bomb-blast crater to find shreds of evidence — are they inherently better or worse than private-sector jobs? Should we rejoice at any and all government budget-cutting, without asking what has been cut? I know a man who works for the Federal Aviation Administration making sure that airplane instruments are properly tested. He apologizes, “I’m just a federal bureaucrat.” Would you want his job not to be done?

The classroom game models only a few simple aspects of the real economy. Unfortunately, many models carried in peoples’ heads are even simpler. They are substitutes for thinking — every public expenditure is bad; every private one is good. That’s nonsense, of course. The question is, for each specific activity, is it needed? Is it efficient? Does it, in measurable and unmeasurable ways, pay? If we asked those questions, we would find plenty to cut in both the public and the private sectors, and plenty to invest in.

Let’s say it straight out. Much present rhetoric about budget cutting is not only simple-minded; it’s mean-minded. Why should my tax money go to vaccinate someone else’s child? Why should I pay more just because I have more? If I can send my kid to a good school, who cares what school your kid goes to? If the pollution isn’t in my back yard, I don’t want to know about it. This primitive view might have been appropriate in a thinly populated nation of rugged pioneers, but it just doesn’t hold in an interdependent nation of 255 million people in a world of 5.6 billion.

That nation and world have so many complex, interrelated investment opportunities that it’s foolish to distribute your pennies on the basis of ideology or curmudgeonliness. Even if you’re only interested in your own accumulation of wealth, you should be open to where the real payoffs are.

Copyright Sustainability Institute 1993