NCPA - National Center for Policy Analysis

Road to Nowhere

November 21, 2011

Economists have long recognized the value of infrastructure.  Highways, bridges, airports and canals are the conduits through which almost all goods are transported.  But the kind of infrastructure spending the government has been indulging in since 2008 is unlikely to produce much of a stimulus as it is not timely, targeted or temporary -- three requirements recognized by Larry Summers, former Obama advisor, for effective stimulus, says Veronique de Rugy, a senior research fellow at the Mercatus Center.

With regard to timeliness, infrastructure improvement is difficult to make happen quickly because it is notorious for being a multistage process.

  • Each project requires money to be made available, and only after that time can the process of planning, bidding, contracting, construction and evaluation get underway.
  • Famous projects, such as the Big Dig in Boston and the Capitol Hill Visitor Center in Washington, D.C., are almost always plagued with delays and are completed several years later than the initial projections.
  • Of course the process of updating infrastructure can only begin when the money has been designated -- according to the Government Accountability Office, as of June 2011 only 62 percent ($28 billion) of Department of Transportation infrastructure money from the 2009 stimulus had actually been spent.

Furthermore, even when the spending is finally allocated, it is often targeted such that its stimulative effects are minimized.  Inherent in needs for updated infrastructure is that those cities and regions that use commercial pathways the most are the most productive.  Thus, infrastructure needs are greatest in areas where unemployment is above average, meaning that well-targeted infrastructure updates will avoid low-income, high-unemployment areas.  However, according to Keynesian economics, these poor areas are those where stimulus is most needed and most effective.

Finally, infrastructure stimulus is rarely temporary, as it creates a self-perpetuating commitment on the part of the government to maintain and repair in future years what it builds now.  The stimulus was layered on top of the $265 billion average annual expenditure on infrastructure -- projects that are famous for fraud and cost overruns that are so consistent, they ought to be predictable.

Source: Veronique de Rugy, "Road to Nowhere," Reason Magazine, December 2011.

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