5 Bad Arguments For Public Infrastructure Spending

With healthcare reform stalling, President Trump’s administration seems ready to shift focus to infrastructure.

Good infrastructure, especially highways, bridges, and airports, can certainly improve economic mobility and lower costs by reducing travel time between locations. This, however, says nothing about the kinds of institutions most likely to produce good infrastructure or who should fund it.

Here’s a handy guide to some of the bad economic reasoning you will likely hear as the debate about infrastructure spending heats up.

1. Past benefits don’t mean future benefits

In his joint address to Congress, President Trump declared that “the time has come for a new program of national rebuilding.” The implication was clear: building new infrastructure was a success in the past, so it would be good for the economy today.

Past experience and the experience of other countries lead to mixed conclusions about the value of public infrastructure project. Highway construction can substantially boost productivity for industries associated with road use, but the same research finds those benefits to be largely one-offs. More recent research has found that too many new highways were built between 1983 and 2003. It has also found that marginal extensions to the highway system are unlikely to increase social welfare because the cost savings from reduced travel times are relatively small.

We should judge new projects on their own merits, not against old examples or countries in different circumstances.

2. Don’t ignore opportunity costs

“Traffic Congestion Costs Americans $124 Billion A Year” is a headline from 2014. As legislation for infrastructure is pushed, we will hear plenty about the costs of delays to the economy.

These costs are undoubtedly very real, but so are the costs of building new infrastructure, and that money can’t then be spent on other things that we might have preferred to spend them on. Without the aid of clear market signals, it’s very difficult and maybe impossible for governments to determine the optimal amount and nature of infrastructure spending. It would obviously be prohibitively expensive to eliminate all congestion by expanding every freeway to 15 lanes but building no new highways would also be problematic. How far should a road expansion go? How often should it be repaired? How much transportation should go by train? How much money should be spent on research and development for completely new ways of meeting transportation demand? Markets are good at finding the optimal mix over time and rewarding those who are better at satisfying demand. Governments, even with the best of intentions, lack the necessary knowledge about each of our individual opportunity costs to find that mix. They certainly lack the incentive structure to improve over time.