Valuing the Future

I once asked an Assistant Secretary and Chief Financial Executive of a government agency whether he preferred to be in control of all the budget of his agency or to be in control of how the money was counted.  He responded, “If I can control how the money is counted, I don’t need to control the money itself.”  Clearly, how things are counted matters a lot.

How do we count our financial resources as a nation?  We can think about the answer to this question in terms of the national Income Statement and Balance Sheet – two fundamental elements of an enterprise’s financial state.  Right now, the national Income Statement looks pretty grim.  Our expenditures substantially exceed our income by an enormous amount.

How should we think about this situation?  Well, it depends on how the money is being expended.  Are these expenditures increasing the asset values on our national Balance Sheet?  Are we creating assets that will later yield returns that justify the current losses on our Income Statement?

It appears that we are improving the Balance Sheets of the major U.S. banks.  Thus, they may be in better positions to loan money to other enterprises, and they will at least be in positions to provide their senior executives and traders better bonuses.  But, does this improve the national Balance Sheet?

This begs the question of the nature of the national Balance Sheet.  What does it looks like and where is it?  Well, we will not find it in Congress.  They manage using an Income Statement at most and, more realistically, by simply using their checkbook.  They do not think in terms of national assets that will later provide returns.  They do not own the future.

So, who owns the future?  Our children do and, of course, we do too, both in terms of wanting returns on earlier investments and having to pay shortfalls that result from expenditures that do not yield returns.  What kind of assets will best yield returns?  Perhaps it will not surprise you that I think the answer is straightforward – a healthy, educated, and productive population that is competitive in the global marketplace.

Our assets are our people and their abilities to transform expenditures to assets that yield future returns.  We need to invest in fostering these abilities, incentivizing these transformations, and capturing the resulting returns.  We need to keep score on a national Balance Sheet.  Congress will not know what this means, but we will and, as a result, our national Income Statement will look a lot better in the future.

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