The Strange Disappearance of Investment in Human and Physical Capital in the United States

Many scholars have argued that there are strong incentives for states to spend less money on redistributive or consumption programs, such as welfare, and more on developmental or investment programs, such as highways. Yet, over the last few decades, the proportion of state budgets allocated to expenditures intended to develop human and physical capital, specifically education and highways, has declined. In real terms, spending on virtually every government program has increased but expenditure increases to redistributive programs have been much greater than those to investment programs. Why this shift has happened despite theory predicting the contrary has not been adequately examined in a way that considers multiple developmental programs and multiple ways of conceptualizing spending over a substantial time period. We undertake this task in the following article using a large, cross-sectional time series data set of state budgeting toward K-12 education, higher education, and highways from 1965 to 2004. We test competing theories of the determinants of state spending using these data and then discuss the factors that we believe have led to the relative de-emphasis on developmental programs. We find that the most consistent predictors of state developmental spending patterns are federal grants, the state of the economy, and interstate and intrastate competition.