autonomous vehicles, budget deficits, Countercyclical Fiscal Policy, crowding out, economic stimulus, Holman Jenkins, infrastructure, John Cochrane, Obama budget, transportation infrastructure, Warren Meyer
Politicians may be rightly convinced that to utter the phrase “investment in infrastructure” is to goose the dopamine levels of voters and political reporters. It is an hypnotic mantra, especially if it can be paired with “economic stimulus”. And it seemingly matters not whether the benefits of an actual project exceed costs. The time-lines involved in infrastructure investment, legislative, planning, and construction, almost guarantee an absence of political accountability for projects that end badly.
Apparently, it doesn’t even matter whether an infrastructure project actually gets underway. President Obama knows that the promised spending can go to any pet initiative. This is driven home in “Infrastructure Bait and Switch” by Warren Meyer. He distinguishes between two types of this “B&S”:
“The first time around [Obama] sold the stimulus bill as mainly an infrastructure spending bill — remember all that talk of shovel-ready projects? Only a trivial percentage of that bill was infrastructure. At most 6% was infrastructure, and in practice a lot less since Obama admitted later there were no shovel-ready projects. … The rest of it was mainly stuff like salary support for state government officials. Do you think he would have as easily sold the ‘wage support for state government officials’ bill in the depth of a recession? No way, so he called it, falsely, an infrastructure bill.
The other bait and switch that occurs is within the infrastructure category. We have seen this at the state level in AZ several times. Politicians love light rail, for some reason I do not understand, perhaps because it increases their personal power in a way that individual driving does not. Anyway, they always want money for light rail projects, but bills to fund light rail almost always fail. So they tack on a few highway projects, that people really want, call it a highway bill and pass it that way. But it turns out most of the money is for non-highway stuff.”
Meyer links to this post in support of his “6%-was-infrastructure” claim, and he is right.
Holman Jenkins makes the same basic point in “The Infrastructure Medicine Show“, noting that the temptation to misallocate resources into boondoggles is made worse by the perception that “free money” is available by virtue of the Federal Reserves’s zero interest rates policy:
“In the U.S., why does top-down infrastructure enthusiasm always seem to turn to California-style bullet trains—i.e., projects certain to lose money but beloved by politicians and pork-barreling interest groups?”
I disagree with Jenkins’ assertion that public infrastructure investment should only follow economic growth. Rather, it should occur on an ongoing basis to meet important needs as they arise, and the threshold for any project’s benefits should match the opportunity cost of private capital investment. To some approximation, this might help protect against crowding out of the sort decried by John Cochrane.
The supposed infrastructure crisis, so often invoked by politicians, appeals to any motorist who has ever encountered a pothole. But in terms of basic transportation infrastructure, the “crisis” is something of a myth. In fact, if the widely anticipated revolution in autonomous vehicles transpires, it will greatly diminish needs for expanded transportation infrastructure of all kinds.
President Obama touts infrastructure investment in his new budget proposal using the Keynesian language of economic stimulus. But in another interesting post, Warren Meyer points out that a proposal to run budget deficits of $500+ billion going forward, in the middle of an economic expansion, is not exactly sensible as countercyclical fiscal policy. When might the U.S. government run a budget surplus? In a mild fit of sarcasm, Meyer highlights an irony:
“While those evil private short-term-focused private actors have used the improving economy to de-leverage back below 2007 levels, governments have increased their debt as a percentage of GDP by just over 50% since just before the last recession.”
P.S.: Jerry Brown wasn’t the focus here, but I love the cartoon above. It’s a nice depiction of the boondoggling impulse common to so many politicians.