Highway Bill Won't Stimulate Growth
July 8, 1998
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. A new study from the Congressional Budget Office (CBO) suggests the economic benefits of the bill may be quite modest.
All economists recognize that public capital can increase productivity. 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.
- Even though there may be a statistical correlation between highway spending and growth, it is simply coincidence, with no underlying relationship between highways and productivity.
- Furthermore, federal spending often displaces or substitutes for spending that state and local governments would have done anyway; so 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.
- And while the benefits of building a particular highway may be quite high, the additional benefit of doubling the number of lanes will not be twice the initial benefit; thus the CBO found that 30 percent of highway projects yield 70 percent of the economic benefits.
Finally, Congress earmarked much of the money in the highway bill to pork-barrel projects, which 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."
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 8, 1998.
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