Skeptics argue that the United States’ mounting budget deficits are a reason to put off public investments and reign in ambitious reforms. They’re wrong.

It is more imperative than ever to make targeted public investments that will yield high returns and lay the foundation for 21st century growth.

One set of savvy investments is in education, which recent research suggests would grow the economy and earn the government significant positive returns.

With investors around the world scrambling for a safe haven for their money, U.S. treasury bills are in high demand, meaning low yields for investors, but cheap money for the U.S. government.

At the same time, too many of America’s students are stuck in failing schools without quality teachers, test scores in key subject areas are woefully behind the rest of the world, huge gaps persist between students of different races and incomes, and more and more high schoolers are finding college out of reach.

This isn’t just a tragedy for young people and their families, it represents a huge missed opportunity.

High quality universal pre-school, improved efficiency, accountability and funding for grades K-12, and broader access to college, would address these festering educational problems and earn dividends on the taxpayer’s dime.

The fiscal benefits of these reforms aren’t abstract or aspirational. Conservative projections on the real fiscal rate of return on public educational investments are high: 10% for high quality preschool programs, 15% for innovative K-12 reforms like First Things First, and 10.3% for investments to encourage college access and graduation.

By contrast, the CBO’s projected real 10-year treasury bond yield (the cost of borrowing by the United States government) over the next decade is just 3.2% (after inflation).

The source of these potential returns isn’t complicated: better educated people are more productive, get sick less often, are less likely to require public assistance, commit fewer crimes, make more money, and pay more in taxes. Creating more of them is a good idea.

Of course, as a group of researchers at Columbia Teachers College write, “a society that provides fairer access to opportunities, that is more productive and with higher employment, and that has better health and less crime is a better society in itself. It is simply an added incentive that the attainment of such a society is also profoundly good economics.”

Read CAP’s education plans here.

As the Wonk Room has documented, Treasury Secretary Henry Paulson has repeatedly called the the banking system “safe and sound,” only to see those statements followed by the collapse of the banking system. Now, Paulson has added one more instance to the list.

In an appearance on NPR last week, Paulson announced that, due to the effects of the $700 billion Troubled Assets Relief Program (TARP), the banking system “has been stabilized“:

I believe the banking system has been stabilized. No one is asking themselves anymore, is there some major institution that might fail and that we would not be able to do anything about it.

As the LA Times noted, “So, after Bear Stearns, IndyMac Bank, Fannie Mae, Freddie Mac, Lehman Bros., Washington Mutual and American International Group — no more major surprises. Write it down, folks.”

Paulson must be stunned, then, to see the news that the major bank Citigroup is not stable at all. As the New York Times reported, Citigroup’s “precipitous stock-market plunge accelerated on Thursday, sending shock waves through the financial world.” In the last four days, Citigroup has lost half of its value.

Throughout the implementation of the TARP program, Paulson has been content to throw money at the banking system, provide assurances that everything is going as planned, and refuse to use TARP funds for addressing anything outside of the financial sector. On NPR today, Sen. Chris Dodd (D-CT) called Paulson’s refusal to help homeowners facing foreclosure the “most frustrating” aspect of the bailout process:

Here was a condition we actually wrote in…to provide at least the option of providing a guarantee in the area of foreclosure mitigation. And I say this respectfully, but the Treasury’s refusal to move on this is maybe the most frustrating piece of all, Steve. And yet we’re still dragging our feet on whether or not the government ought to be more aggressive.

Just yesterday, Paulson said that Treasury has been “proactively addressing the problems we saw coming.” But he is not proactively addressing the housing crisis, instead choosing to offer false assurances that the bailout has effectively muted the country’s economic woes.