Robert Reich knows what he is talking about.

Over the long term, the only way to improve the living standards of most Americans is to invest in our people - especially their educations, skills and the communications and transportation systems linking them together and with the rest of the world.

In the global economy, the only "asset" that's unique to any nation - and that determines its living standards - is the people who make it up. Everything else - money, equipment, factories, supplies - moves across global boundaries at the flick of a computer key.

Get it? Spending on education, infrastructure and basic R&D is fundamentally different from other categories of government spending. These outlays are really investments in the future productivity of our people.

But you'd never know it from the way the federal budget operates.

If the budget were organized sanely, it would be divided into three parts: past obligations, current needs and future investments.

Past obligations are those that the federal government has made to retirees - the availability of Social Security and Medicare - in return for their payments into these programs during their working lives. These past obligations must be honored no matter how big the budget deficit, because Americans have relied on them. They're based on an implicit contract between the public and their government. Pay payroll taxes, and you'll get Social Security and Medicare. If this contract is to be altered, it should be altered only for future generations who haven't yet - or have barely - entered into them.

Current needs include everything we rely on today in order to remain safe and healthy. Within this category are national defense, homeland security, Medicaid and much of the rest of what government does that keeps us going year by year. This "current needs" budget should be balanced each year. It's appropriate that we pay for all our current needs through our current taxes.

But future investments are qualitatively different. There's no problem with borrowing from the future in order to finance investments in the future. Families do it all the time. While it might be irresponsible for a family to go into debt in order to finance a worldwide cruise, it would be highly responsible for the same family to borrow money in order to help finance the kids' college educations.

Businesses also borrow in order to increase future productivity. If they didn't, they'd be out of business. Such borrowing makes sense as long as the return on the investment is higher than the cost (principal plus interest) of the borrowing.

This is why America needs an "investment budget" that allows us to see how much we're investing in education, infrastructure and basic R&D, how much we're paying to borrow the money to finance these investments and what sort of "return" we're getting. It won't be an easy call in every case, of course, but the Congressional Budget Office and the Office of Management and Budget take on much harder ones.

Past, present and future. A sensible federal budget would draw the distinctions and thereby lift some of the fog.

The private sector doesn't invest in education for the general population because the return on investment is too far into the future, and they have no way of ensuring that people they educate will work for them in the future. Every economist no matter what their leanings agree that infrastructure is in the domain of government, since the free rider problem will forever prevent the free market from adequately providing infrastructure. R&D on very large scales, with long range result horizons, are obviously only going to be done by government since private companies need to be concerned with short term profits.