Economic Report of the President 1994 - The American Presidency ...

fallen markedly since the 1960s (Chart 1-9). Unless the data aregrossly misleading, the principle of diminishing marginal returnsleaves only two possible conclusions: Either America wasoverinvested in public capital in the early 1970s, or it isunderinvested today.Chart 1-9 Ratio of Public to Private Net Nonresidential Capital StockThe ratio of public to private capital stock declined steadily and markedlyin the 1970s and 1980s.0.50 -0.45 -0.40 -0.351947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992Note: Public capital stock is defined as Federal and State and local net stock, excluding military capital.Source: Department of Commerce.Finally, there is the evidence of the senses: America's roads andbridges are badly in need of repair, a number of our airports areovercrowded, and our sewage treatment facilities are overburdened.To many thoughtful observers, America's public infrastructure issimply not commensurate with our bounteous private wealth.INVESTING IN TECHNOLOGYBut physical capital is not the only determinant of productivity,nor even the most important. Over long periods of time, rising productivityand hence advances in living standards depend on the upwardmarch of technology. Indeed, studies of long-term economicgrowth attribute a large share of growth to improvements in knowhow(Table 1-7). The history of progress in the industrial world isworking smarter, not working harder.43