The Political and Social Costs of Economic Stagnation
This view may be surprising given the usual rhetoric that infrastructure spending is a good thing because roads, bridges, airports, and the like significantly contribute to America’s prosperity by facilitating our access to the workplace, shopping, and leisure activities, as well as giving employers easy access to labor, capital, and potential consumers.
October 2015 | by David Delaney
But in practice, transportation policy is so inefficient that infrastructure spending fails to generate the large promised benefits. Suppose the government wants to spend a large sum of money to increase employment and spur economic growth — a “stimulus.” The guiding principle for that use of taxpayer dollars should be to maximize the benefits to society per job created. Unfortunately, that won’t be the case if government seeks to create jobs by increasing spending on transportation infrastructure.
There are clear ways to know what new infrastructure is actually needed. Every time Americans use a road, airport, or even cross a bridge, we don’t actually pay for the congestion we cause. That gives policy makers the misleading impression that it is necessary to build new roads, airports, urban transit — and even a high-speed rail system! — to reduce delays. But public officials would likely arrive at a different conclusion if we users were charged congestion tolls, especially during peak travel periods. Demand would fall, transmitting a more accurate signal. Supply and demand would then do its job nicely.
Politics rears its ugly head in at least two ways. First, transportation funds are allocated to the states through a politically devised formula and then within states to satisfy metropolitan planning organizations’ wish lists. Thus “bridges to nowhere” get built, and roads and airports with little traffic get a large share of federal transportation dollars. Second, so-called demonstration projects really only demonstrate the ability of elected officials to garner pork-barrel spending for their home districts.
Moreover, infrastructure costs are inflated by inefficient investments and burdensome regulations. For example, if roads were built with thicker pavement to better withstand the damage inflicted by heavy trucks, both highway authorities and motorists could save billions of dollars annually on maintenance and repair costs.
An 80-year-old labor law (“Davis-Bacon” — the same law that undoubtedly contributed to Boston’s Big Dig coming in at four times over projections) stipulates that prevailing wages, interpreted in practice as “union wages,” be paid on any construction project receiving federal funds. And the cost of constructing runways — at Boston’s Logan Airport, for one — has turned into a task measured in billions of dollars because it takes decades to meet regulations, especially environmental impact standards.
The United States has been extremely slow to implement the latest technological advances in infrastructure. In recent testimony before Congress, the Inspector General of the US Department of Transportation reported the latest tale of woe: the Federal Aviation Administration’s completion of the advanced satellite-based air traffic control system could be delayed by at least a decade, and its cost could triple.
As my own peer-reviewed research shows, this myriad of policy inefficiencies is reflected in returns to highway investments during the past decade of a mere 1 percent. And for every $1 in government highway spending, motorists have saved a measly three cents in travel time and operating costs. Other research indicates that the transportation spending component of the American Recovery and Reinvestment Act of 2009 — the stimulus — did little to either improve the highway system or add highway worker jobs.
Fortunately, transportation has continued to advance with the help of private sector throughout history. Recent developments, such as driver-less cars and aircraft that rely on on-board navigation equipment, raise the possibility of an entirely new era of highway and air transportation. Such innovations, all driven by private sector innovation, provide another compelling reason for public policy makers to think twice before significantly increasing infrastructure spending.
If the government does want to spend a large sum to raise employment levels, it should encourage industries and corporations to hire additional workers through direct subsidies, targeting especially those industries with high social returns and that would easily absorb more workers. Yes, this risks political concerns by forcing the government to pick winners. But this route is far preferable to the more politically expedient route — continuing to sink taxpayer money into scattered projects that lead the greater economy nowhere.