The Two Investments That Actually Move the Needle on Economic Growth
Here's a number that might surprise you: every dollar spent on early childhood education returns somewhere between $4 and $9 to the economy over a person's lifetime. That's not a typo. Meanwhile, the U.S. alone has a $2.6 trillion infrastructure backlog that's costing the average American household thousands in lost productivity each year.
So when someone asks me which investments best build economic growth, I don't hesitate. Plus, there are two clear winners — and no, they're not the flashy tech stocks making headlines or the latest government stimulus package. They're more fundamental than that. They're the boring, proven, can't-ignore-them-any-longer investments that economists across the political spectrum actually agree on And that's really what it comes down to..
Let me walk you through why these two are different, why they matter more than most people realize, and what happens when countries get them right.
What Does It Actually Mean to Invest in Economic Growth?
Before we get into the specifics, let's get on the same page about what we're talking about Turns out it matters..
Economic growth isn't just about the stock market going up or GDP ticking higher on a chart. It's about expanding what an economy can produce — the total value of goods and services, yes, but more importantly, expanding capacity. Can we build more? On the flip side, innovate more? Employ more people at higher wages? That's the real measure.
When I talk about "investments that support economic growth," I'm talking about spending money now that creates compounding returns over decades. Now, not quick fixes or political wins. Actual, durable increases in productive capacity.
The best investments share a few traits: they raise productivity (meaning each worker can produce more), they have spillover effects (benefits that extend beyond the direct recipient), and they create multiplier effects (every dollar spent generates additional economic activity).
This is the lens that separates the winners from the also-rans.
Why These Two Investments Win
Most economic development strategies fail because they try to do too much or chase what's politically convenient rather than what actually works. The two investments I'm talking about win because they check every box: productivity, spillovers, and multipliers.
Investment One: Infrastructure
This is the easy one to list but the hard one to execute Small thing, real impact..
I'm talking about roads and bridges, sure — but also broadband internet, energy grids, water systems, public transit, and modernizing the physical systems that let an economy function. Still, the key word is "modernizing. " Building new is great, but maintaining and upgrading what we have is often where the real returns are.
Here's why infrastructure works. On top of that, every dollar spent on construction creates jobs immediately — that's the short-term boost. But the long-term returns are what matter. Efficient transportation reduces shipping costs, which lowers prices for everything. Reliable electricity keeps businesses running. High-speed internet lets companies compete in a global marketplace.
The multiplier effect is enormous. 00 in economic activity for every dollar invested. Even so, 50 and $2. Studies consistently show that infrastructure spending generates between $1.That's because roads don't just benefit one company — they benefit everyone who uses them, everyone who sells to people who use them, and everyone who builds things that travel on them No workaround needed..
And here's what most people miss: infrastructure is a platform. It enables everything else. You can't have a thriving tech sector without reliable broadband. Also, you can't have competitive manufacturing without functional ports and freight rail. You can't have a modern economy on 1950s infrastructure.
Investment Two: Education and Human Capital
We're talking about where it gets interesting, because the returns are even higher — but the timeline is longer, which is why politicians often prefer flashier options.
I'm specifically talking about early childhood education, K-12 improvements, and workforce development. Because of that, not just building schools, but making them better. Better-trained teachers, better curricula, better support systems for kids who need extra help.
The economics here are brutal in the best way. In practice, when you invest in education, you're investing in people who will be productive for 40+ years. Day to day, a child who gets a quality education earns more, pays more taxes, needs less government assistance, and is more likely to raise children who succeed. The returns compound across generations Worth knowing..
The Harvard economist Raj Chetty has done significant work showing that early childhood investments have the highest returns of any policy intervention. Quality preschool programs don't just prepare kids for kindergarten — they prepare them for careers, entrepreneurship, and civic participation decades later.
And it's not just about the individual. Educated workforces attract employers. Which means companies locate where the talent is. That creates a virtuous cycle: good schools attract businesses, which attract more families, which supports better schools Not complicated — just consistent..
How These Investments Actually Work
Let me get more specific about the mechanisms, because understanding how these investments work helps you evaluate whether a specific project is worth funding.
Infrastructure: The Productivity Multiplier
The most productive infrastructure investments share a common trait: they reduce friction. Because of that, a better road reduces the time and cost of moving goods. Better broadband reduces the friction of information. A modern port reduces the friction of international trade Not complicated — just consistent..
The key is focusing on bottlenecks. Where is the infrastructure actually constraining growth? In the U.S.Practically speaking, , the answer is increasingly digital infrastructure, freight capacity, and energy transmission. Building more highway lanes in a city that's already sprawled might help, but upgrading the power grid to handle renewable energy and electric vehicles will pay off more.
There's also the maintenance question. Also, deferred maintenance is like debt — it compounds against you. A bridge that's been "needing repair" for a decade isn't just an eyesore; it's a risk to public safety and a daily drag on economic efficiency Not complicated — just consistent..
Smart infrastructure investment means:
- Prioritizing projects with high benefit-to-cost ratios
- Maintaining existing systems before building new ones
- Investing in future-proof infrastructure (think renewable energy grids, not coal plants)
- Using public investment to enable private development
Education: Building the Workforce of Tomorrow
Education investment works differently. It's slower, harder to measure in the short term, and more vulnerable to political shifts. But the returns are undeniable.
The most impactful investments tend to be early childhood programs. The first five years of life are when the brain develops most rapidly. Kids who fall behind early tend to stay behind. Kids who get strong starts tend to compound that advantage That's the part that actually makes a difference..
But it's not just about starting early. Workforce development — helping adults retrain for new economic realities — is equally important. Worth adding: the economy is shifting toward automation, digital tools, and new industries. Workers who can't adapt get left behind, and that costs everyone.
The best education investments:
- Focus on quality, not just access (more classrooms with worse teachers doesn't help)
- Align with economic needs (skills that employers actually need)
- Include pathways from education to employment
- Support lifelong learning, not just initial schooling
What Most People Get Wrong
Here's where I see well-intentioned people go off track That's the part that actually makes a difference..
First, they chase shiny objects. Every few years, there's a new "growth" initiative — subsidies for specific industries, tax breaks for companies, venture capital for startups. Some of these work, but they tend to be less effective than the basics. You can't tech-bro your way to sustained growth. You need foundations.
Second, they underestimate the timeline. Infrastructure takes years to plan and build. Education takes decades to show full returns. Voters and politicians want wins before the next election cycle, which leads to underinvestment in the things that actually matter most Simple, but easy to overlook..
Third, they ignore maintenance. A new stadium generates headlines. Replacing pipes doesn't. But the pipes matter more.
Fourth, they treat education as a local issue. When workers can move anywhere, education investments in one state often benefit other states. This creates a coordination problem — why should a state invest in education if the workers just move to California? The answer is that some stay, and the overall economy benefits. But it's easier to see the local costs than the diffuse benefits.
Practical Tips for Evaluating Growth Investments
Whether you're a policy maker, a business leader, or just someone who wants to understand what actually works, here are the questions to ask:
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What's the time horizon? Investments with longer horizons often have higher returns but require more political will to sustain Small thing, real impact. That's the whole idea..
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Who benefits? The best investments have broad benefits, not just concentrated gains for politically connected groups.
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What's the failure mode? Every investment can go wrong. Infrastructure can be boondoggles. Education programs can be ineffective. Knowing what could go wrong helps you design better programs.
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Are we maintaining what we have? New is exciting, but deferred maintenance is a silent killer of productivity.
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Is this a platform or a product? Infrastructure is a platform — it enables other things. A specific subsidy is a product — it benefits one thing. Platforms generally have higher returns.
FAQ
Why not invest in technology or R&D instead?
Technology and R&D are important, but they're often built on top of infrastructure and education. You need educated workers to innovate and reliable infrastructure to bring innovations to market. These two investments create the foundation that makes everything else possible.
What about housing? Doesn't housing scarcity hurt growth?
Housing is important, and in some regions (think major coastal cities), housing costs are absolutely constraining growth. But housing is more of a regional growth factor. The two investments I'm discussing — infrastructure and education — have national-level returns.
Can't private investment handle this?
Private investment handles a lot, but it systematically underinvests in things with high social returns but diffuse private returns. So infrastructure and education benefit everyone, which means no single company captures enough of the benefit to justify the full investment. That's why public investment is necessary Not complicated — just consistent..
It sounds simple, but the gap is usually here.
What if the government is inefficient at spending?
It's a real concern, and some government projects are disasters. But the answer isn't to stop investing — it's to invest better. Means-tested, well-designed programs with clear metrics can work. The alternative — not investing — has costs too, and often larger ones.
How do I know if my city or country is investing enough?
Look at the basics: Are roads and bridges in good condition? Even so, is broadband reliable and affordable? Are schools competitive? That said, are workers able to adapt to changing economic conditions? If the answer to any of these is "no," there's likely an investment gap That's the part that actually makes a difference. Practical, not theoretical..
The Bottom Line
Here's what I've learned after years of following this topic: the boring stuff works. Now, they don't generate viral headlines or make for dramatic political ads. Plus, infrastructure and education aren't sexy. But they're the foundation everything else is built on.
Every time a country has managed sustained economic growth — from post-war America to modern China to smaller success stories — it's because they invested in these basics. Not instead of other things, but as the foundation for other things.
The two best investments for economic growth are the ones nobody wants to talk about at dinner parties. And that's exactly why they work The details matter here. Worth knowing..
