Opinion Editorial | |
| Wednesday, July 8, 1998 | |
Highway Bill Won't Stimulate Growth |
On June 9, President Bill Clinton signed into law the Transportation
Equity Act, which will spend $217 billion over the next five years for highways
and other transportation projects. He hailed the legislation as necessary
to sustain economic growth into the 21st century. However, a new study
from the Congressional Budget Office (CBO) suggests that the benefits may
actually be quite modest. The economic virtue of public infrastructure -- roads, bridges and the
like -- has always been a major Clinton theme. During the 1992 campaign
he argued that the interstate highway system built during the 1950s was
a major stimulus to economic growth in the U.S., and that heavy infrastructure
spending by Germany and Japan was a major reason for their prosperity.
Clinton's advisers cited research by economist David Aschauer in support
of their program. In a number of articles in the 1980s, he found a close
connection between public infrastructure investment and productivity growth. Of course, all economists recognize that public capital can increase
productivity. Obviously, it is more efficient for a truck driver to deliver
his goods on a modern superhighway than on traffic-clogged back roads.
And there is no question that labor productivity grew sharply during the
period when the interstate highway system was being built. But it doesn't
necessarily follow that all highway spending is equally productive, that
the high productivity growth of the 1950s and 1960s was caused by highway
spending, or that future spending would yield the same benefits. A number of economists have reviewed the Aschauer thesis and found it
to be very weak. A key question is one of causation. Did increased highway
spending cause higher productivity or did higher productivity lead to more
highway spending? High productivity may have increased incomes and demands
for new highways. It may also be that productivity rose for reasons unrelated
to highway spending at the same time such spending was rising. In other
words, even though there may be a statistical correlation between the two
-- in that they both rose simultaneously -- it was simply coincidence, with
no underlying relationship between highways and productivity. There are other problems as well with the notion that federal highway
spending is a major stimulus to growth. One is that federal spending often
displaces or substitutes for spending state and local governments would
have done anyway. Such displacement can be as high as 100 percent. Thus
if the federal government gives a state $1 for highway building the state
may simply spend $1 less. For this reason, the net effect of the highway
bill will not be to add $217 billion to the nation's highway stock, but
only some fraction of that amount. Another problem is measuring the marginal effect of additional spending.
It may be that the benefits of building a particular highway are quite
high, but the additional benefit of doubling the number of lanes will not
be twice the initial benefit, but only a fraction of it. The CBO found
that 30 percent of highway projects yield 70 percent of the economic benefits. Finally, there is the problem of political influences on decisionmaking.
As is well-known, Congress earmarked much of the money in the highway bill
to special projects in particular states and congressional districts at
the behest of individual congressmen and senators. Such projects, often
referred to as pork-barrel projects, are not likely to yield the same economic
benefits as a project built on its own merits. For these reasons, the CBO concluded that "additional federal investment
spending is unlikely to have a perceptible effect on economic growth."
It is a conclusion neither the White House nor Congress will want to hear. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis,
July 8, 1998. For
text of the June 1998 CBO report, "The Economic Effects of Federal
Spending on Infrastructure and Other Investments." Home | Support Us | All Issues | Social Security Debate Central | Contact Us |