Boondoggles?

It takes economist Michael J. Boskin a while to get to his point in his analysis of Joe Biden’s spending plans in a piece at Project Syndicate:

The Biden administration claims that this spending will dramatically spur growth, raising employment and incomes. The reasoning is that because government borrowing rates are low and below output growth, deficit financing amounts to a free lunch (which makes one wonder about the real motive for the tax hikes).

But this argument is nonsensical four times over. First, as Valerie Ramey of the University of California, San Diego and Edward Glaeser of Harvard University each note, infrastructure spending does not make for good short-run economic stimulus. Planning and approvals take time, and construction is often plagued by delays and budget overruns. As Obama himself admitted in 2010, “there’s no such thing as shovel-ready projects.” The New Deal did not end the Great Depression, nor did Japan’s massive ongoing infrastructure expenditures spare it from its “lost decades.” Most of the unemployed do not have the skills or experience to operate giant excavators and tower cranes.

Second, large public infrastructure projects (highways, bridges, dams, ports, and major repairs) are designed to last many decades, which will pose problems when interest rates on government debt eventually rise. The Congressional Budget Office estimates that by 2051, the ten-year Treasury rate will triple, and the federal government’s interest costs will sextuple, exceeding even rapidly growing spending on Social Security, and dwarfing all discretionary spending, including on defense.

Third, the economy is recovering rapidly from the pandemic and is projected to reach its output potential without additional spending. The accelerating vaccine rollout on its own will allow for a return to in-person schooling, dining, and shopping, as well as travel, which will sharply reduce unemployment in the sectors hit hardest by the pandemic. As such, a recent analysis from the respected Penn Wharton Budget Model finds that the package will actually shrink the economy over time, because of the harm from its tax hikes.

So, if infrastructure spending is not efficient economic stimulus, the period over which new infrastructure will need to be maintained far exceeds the period over which it will be funded, and it will cause spending on interest to increase to painful levels, and it may actually cause the economy to contract, why do it? I think there is one certain explanation and one possible explanation.

The certain explanation is that President Biden feels a significant need to do something. The possible explanation is that the boondoggles are the point. One is certainly tempted to speculate along those lines.

“Boondoggle” is an interesting word. It’s been around for at least a century but, perhaps not coincidentally, it came into common usage during the New Deal.