Over at National Review's Corner blog, Reason economics columnist and Mercatus Center researcher Veronique de Rugy lays out the case against President Obama's impending speechifying about creating prosperity via massive infrastructure spending.
Moody's analyst Mark Zandi, who missed his real calling when he stopped writing press releases for the record number of aglets produced this year by Oceania, will tell you that every government dollar spent building a road or bike path or rail line will yield precisely $1.44 in economic activity. But that's just his opinion, notes de Rugy, who cites a recent IMF study on the effect of infrastructure spending:
The reality is that economists are far from having reached a consensus on what the actual return on infrastructure spending is. As economists Eric Leeper, Todd Walker, and Shu-Chum Yang put it in a recent paper for the IMF: "Economists have offered an embarrassingly wide range of estimated multipliers." Among respected economists, some find larger multipliers and some find negative ones.
As important, says de Rugy, infrastructure spending should not be confused with stimulus spending, especially of the Keynesian variety:
According to Keynesian economists, for spending to be stimulative, it has to be timely, targeted, and temporary. Infrastructure spending isn't any of that. That's because infrastructure projects involve planning, bidding, contracting, construction, and evaluation. Only $28 billion of the $45 billion in DOT money included in the stimulus has been spent so far.
And there's this to consider as well:
Infrastructure spending tends to suffer from massive cost overruns, waste, fraud, and abuse. A comprehensive study examining 20 nations on five continents ("Underestimating Costs in Public Works Projects: Error or Lie?" by Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl) found that nine out of ten public-works projects come in over budget. Cost overruns routinely range from 50 to 100 percent of the original estimate. For rail, the average cost is 44.7 percent greater than the estimated cost at the time the decision was made. For bridges and tunnels, the equivalent figure is 33.8 percent, for roads 20.4 percent.
In following the example set by Dean Wormer in Animal House—he tells the slob Kent Dorfman that fat, drunk, and stupid is no way to go through life—I'll stop with three reasons to be wary of the Great Infrastructure Grift of 2011.
But I'll let de Rugy add a fourth:
I should also add that I think it's a mistake to assume that it is the role of the federal government to pay for roads and highway expansions. With very few exceptions, most roads, bridges, and even highways are local projects (state projects at most) by nature. The federal governmentshouldn't have anything to do with them.
Yesterday I explored some other reasons why much of what goes under the name of Keynesian stimuli is neither stimulative nor Keynesian. Check it out here. What does the world need now (beyond love, sweet love)? A government that stops acting so frenetically that it can't create any sort of sense of a stable future by which businessess and individuals can start planning.
In August, Reason.tv showed how private capital could help many urban areas build their way out of economy-killing congestion—at no cost to taxpayers. If you've ever sat in a traffic jam, watch this documentary: