ECONOMIC

vironmental control, leasing of mineral rights, and import restrictions. Inaddition, the development of new energy technologies to some extent involvesexpanding our knowledge of fundamental processes. In such cases, althoughthe research and development provides a large gain to the economy as awhole, there may be little opportunity for any one firm to derive a largeenough part of this gain to warrant undertaking the research. Moreover,private research and development is usually oriented toward projects with arelatively quick payoff, whereas much of the needed expenditure must bedevoted to the development of energy sources that may not be competitive forsome time.SAVING AND PRIVATE INVESTMENTTo keep output per worker rising rapidly, when the labor force is alsorising rapidly, requires a high rate of investment in productive facilities.Our total investment requirements in the years ahead will be greatly increasedby the need to invest in energy development and environmentalimprovements.These energy and environmental investments do not raise productivity asconventionally measured, though the former may prevent a decline in productivityif energy shortages would otherwise continue, and the latter mayalso prevent an ultimate decline in productivity. Both types of investmentthus represent part of the increased resource costs imposed on energy-usingor environment-using industries, in one case by adverse supply developmentsand in the other by social choice. Environmental benefits enhance economicwell-being, and increased reliance on domestic sources of energy adds tosecurity of production. Still, one can probably say, the American peopleexpect rapidly rising output of the ordinary, marketable kind; and thisexpectation will require rapidly rising total investment to accommodaterising energy and environmental investment along with increasing investmentsof other kinds.Part of total investment is provided through the Federal budget, in theform of direct expenditures for capital purposes, loans to private businessesand individuals, or grants and loans to States and localities. The budget forfiscal 1975 includes $19 billion for such outlays, excluding defense and excludingexpenditures for education, training, health, and research and development.The largest single item is expenditures for transportation, primarilyhighways, followed by expenditures for public works.These direct investments in the Federal budget make a useful contributionto economic growth, if they are wisely selected and well managed. Suchdirect investments have numerous advocates in the Federal budget-makingprocess. But attention needs to be called to another way in which the Federalbudget could contribute to investment and growth, although it has fewadvocates: running a budget surplus, or at least avoiding a budget deficitexcept under appropriate conditions.If the Federal Government runs a deficit and borrows under conditionsof strong private investment demand, its borrowing absorbs funds which37