The Trouble With Infrastructure Spending

Although some Americans romanticize the New Deal infrastructure spending programs and their attendant work programs, the WPA and the CCC, the facts of those programs is a bit more problematic, as this article by Allison Schrager at City Journal points out:

Almost 27 percent of New Deal grants went to work programs, specifically for out-of-work Americans, who completed small-scale construction projects at a set wage with limited hours. Another 17.8 percent of spending involved large-scale projects, like roads and dams, that paid market wages and hired from the broader labor market. But the New Deal’s success in these areas was mixed. The public-works projects, for example, had a multiplier of about one—that is, for every $1 the government spent, it translated into about $1 of income. Though New Deal public-works programs did reduce deaths and crime, it’s important to remember that they preexisted large-scale unemployment insurance. So, while they saved people from dire poverty, they’d be less beneficial today because we have a better safety net. Evidence also suggests that the projects didn’t lead to job growth in the private sector and may have hindered it, since the government jobs paid more and were considered more stable.

We have good reason to expect even less success from similar-type efforts today. Economists estimate that states with big New Deal projects didn’t experience much growth because 50 percent of the materials used in construction came from other states. Today, those materials would probably come from abroad and therefore have even less economic benefit to America’s economy (and Buy America provisions won’t help, either). Regulation and red tape have grown substantially since FDR’s time, too, and that would slow the process and make building less efficient. In addition, construction jobs have become more skilled and technical since the Depression era. It’s hard to imagine unemployed hotel concierges making an easy transition to a job building a railway to LaGuardia.

In addition much of the benefit that people attribute through the glow of hindsight to those infrastructure spending programs actually resulted from the increase in savings during World War II:

There are some other factors unmentioned by Dr. Schrager. Our country and economy have changed enormously since the 1930s. Then we were a country in which most people lived in rural areas, many of them farmers, and we didn’t have a nationwide system of highway. Instead we had a patchwork of local roads, subsidized for some of their length by the federal government. Much of the country didn’t have electricity or telephones and the power transmission system was strictly a local affair.

Now those rural areas are underpopulated although that may change soon. If anything we’re overbuilt in roads and bridges. Neither repairing unused roads and bridges nor building new ones are good investments. If they were, state and local governments would be making them. Private companies would be demanding them.

If we are bound and determined to begin a large infrastructure spending program, by all means let’s do it in areas that will provide the most bang for the buck. Let’s not build roads that will be useless in a few years or high speed rail to airports that will never be used. I’m thinking of things like a more resilient, distributed power system or closing the “digital divide” with a cheaper, better Internet access available to more people (something local and state governments as well as private companies are investing in). And let’s insist on a “Buy American” component to it as well, especially with respect to the raw materials used. More about that later.

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