NCPA - National Center for Policy Analysis

Public Works and Pyramids

October 15, 2010

When New Jersey Governor Chris Christie recently pulled out of the proposed Hudson River rail tunnel, angst gripped the editorial pages of the New York Times and elsewhere, says William L. Anderson, an associate professor of economics at Frostburg State University.  

If there were ever a "not so fast" moment, this is it.  

  • A public-works project such as the proposed tunnel makes sense if over time the marginal benefits outweigh the marginal costs.
  • If they do not, then it provides a benefit to some at the expense of others, something the ancients might have called "unjust."
  • Since the output of public works is not priced in the market, how would we know if costs exceed benefits?

In contrast, the existing rail tunnel under the Hudson was built by the Pennsylvania Railroad a century ago, and despite the modern declarations that government must provide such things, the company did it because it was good business, says Anderson.

Today, we see economic analysis turned on its head.  Projected cost overruns are suddenly justified because "they provide jobs," as though higher costs mean more wealth created.

Source: William L. Anderson, "Public Works and Pyramids," Freeman Online, October 13, 2010.

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