The “Infrastructure Plan”

The editors of the Washington Post remark on the Biden Administration’s “infrastructure plan”:

PRESIDENT BIDEN bills his eight-year, $2 trillion American Jobs Plan as an “infrastructure” proposal, but its notion of infrastructure encompasses far more than the traditional definition of that term. Along with $621 billion for highways, bridges, water systems, ports and the like, the bill would provide $400 billion for the “care economy” — home- and community-based services for the disabled and elderly — and $50 billion to subsidize semiconductor manufacturing. And the list goes on, to be paid for over 15 years by significantly higher taxes on U.S. corporations. Mr. Biden’s plan represents an unapologetic commitment to a bigger federal government, with bigger responsibilities, for the foreseeable future.

concluding:

The caveat — and it’s a significant one — is that there is a reason Mr. Biden’s predecessor Bill Clinton once felt constrained to declare “the era of big government is over.” And that is that the public grew disenchanted with Democratic policies of the 1960s and 1970s, sometimes justifiably. The enduring lesson from that experience is that government should do more — of what it does best. Government has a comparative advantage in providing public goods — education, training, roads, ports, basic research — which indeed figure largely in Mr. Biden’s plan. When it comes to allocating investment capital, however — picking winners among alternative industries, companies, technologies and locations — the private sector ordinarily performs better.

At its heart, Mr. Biden’s plan shifts hundreds of billions of dollars from the private sector to the public sector on the theory that the latter can put them to better use than the former. It’s a bold and potentially historic move whose results could shape the country’s future, political and economic, for generations.

There’s so much there to comment on it’s hard to know where to start. “Public good” does not mean “a good for the public” or “good for the public”. It is a term of art in economics meaning a good that is non-rivalrous (my using it does not conflict with your using it) and non-excludable (you can’t be prevented from using it or benefiting from it). Going to college is a private good; an educated workforce is a public good. A road is a private good; a transportation network is a public good. Healthcare is a private good; a sanitary sewer system is a public good. National defense is a public good; so are legal systems and fire departments.

I agree with them that government should focus on public goods. A good guide for that is the U. S. Constitution in which the responsibilities of the federal government enumerated are overwhelmingly public goods. Most of what they list as public goods are in fact private goods. Defense, the judicial system, a sound currency. You will search in vain for healthcare, education, or housing. The “general welfare” is cited with an understanding lacking today. General welfare is not the same as individual benefit.

Believing that the government is able to make better use of resources places you in the ranks of science deniers. There is copious research illustrating that government’s substituting its own judgment for private judgments on how resources should be allocated results in less overall benefit than would otherwise be the case. Not too many years ago a Nobel prize was awarded for just such research. That’s what I’m talking about when I harp on deadweight loss. There are occasions when there is no other choice—that’s what’s meant by a “market failure”.

What I think we’re seeing emerge is an unholy chimera of what I’ve called “folk Keynesianism” with what I’ve called “folk Modern Monetary theory (MMT)”. Keynesianism does not claim that all government spending will stimulate the economy. MMT does not claim that a monetary sovereign can issue itself credit indefinitely with impunity. But those are precisely the beliefs of their folk variants and they’re wrong, disastrously wrong. What is missing from the folk variants is any notion of expanding aggregate product and that’s where our grave economic problem is today.

One more observation. When you enact an infrastructure plan you get more or improved infrastructure. When you enact an “infrastructure plan” you get more “infrastructure”. That’s what we should be afraid of.