Wednesday, 14 September 2016

If you build it .......

Spending on infrastructure is an idea that you often hear put forward as a way the government can help the economy. In the Summer 2016 issue of the City Journal economist (he is a professor of economics at Harvard University) Edward L. Glaeser takes a look at the costs and benefits of infrastructure spending in the USA. He notes that
The progressive romance with infrastructure spending is based on three beliefs. First is that it supercharges economic growth. As President Obama put it in his 2015 State of the Union address: “Twenty-first century businesses need twenty-first century infrastructure.” Further, by putting people to work building needed things, infrastructure spending is an ideal government tool for fighting unemployment during recessions. Infrastructure should also be a national responsibility, progressives believe, led by Washington and financed by federal tax revenues.
None of this is right. While infrastructure investment is often needed when cities or regions are already expanding, too often it goes to declining areas that don’t require it and winds up having little long-term economic benefit. As for fighting recessions, which require rapid response, it’s dauntingly hard in today’s regulatory environment to get infrastructure projects under way quickly and wisely. Centralized federal tax funding of these projects makes inefficiencies and waste even likelier, as Washington, driven by political calculations, gives the green light to bridges to nowhere, ill-considered high-speed rail projects, and other boondoggles. America needs an infrastructure renaissance, but we won’t get it by the federal government simply writing big checks. A far better model would be for infrastructure to be managed by independent but focused local public and private entities and funded primarily by user fees, not federal tax dollars.
Glaseser looks at the myths and realities of infrastructure spending noting that the realities do not live up to the myths. The whole article, while not short, is well worth the time needed to read.

Glaeser concludes by making a basic but important point,
Economics teaches two basic truths: people make wise choices when they are forced to weigh benefits against costs; and competition produces good results. Large-scale federal involvement in transportation means that the people who benefit aren’t the people who pay the costs. The result is too many white-elephant projects and too little innovation and maintenance.

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