Is Obama Wrong About Infrastructure Creating Growth?
Last week I rounded up a partial timeline of President Barack Obama claiming that infrastructure spending will magically create jobs, an act he's been taking on the road during Congress's summer break. Writing in the Wall Street Journal, history professors Larry Schweikart, Jr., and Burton W. Folsom, Jr., argue that, to the contrary,
building infrastructure was never the engine of growth, but rather a lagging indicator of growth that had already occurred in the private sector. And when the infrastructure was built, it was often best done privately, at least until the market grew so large as to demand a wider public role, as with the need for an interstate-highway system in the mid 1950s.
Railroads are another example of the infrastructure-follows-entrepreneurship rule. Before the 1860s, almost all railroads were privately financed and built. One exception was in Michigan, where the state tried to build two railroads but lost money doing so, and thus happily sold both to private owners in 1846. When the federal government decided to do infrastructure in the 1860s, and build the transcontinental railroads (or "intercontinental railroad," as Mr. Obama called it in 2011), the laying of track followed the huge and successful private investments in railroads.
In fact, when the government built the transcontinentals, they were politically corrupt and often—especially in the case of the Union Pacific and the Northern Pacific—went broke. One cause of the failure: Track was laid ahead of settlements. Mr. Obama wants to do something similar with high-speed rail. The Great Northern Railroad, privately built by Canadian immigrant James J. Hill, was the only transcontinental to be consistently profitable. It was also the only transcontinental to receive no federal aid. In railroads, then, infrastructure not only followed the major capital investment, it was done better privately than by government.
Whole thing here. Thanks to Manny Klausner for the tip.
The president is often at his rhetorical and economic worst when talking about infrastructure. How many times, after all, can the man claim federal-government responsibility for building the Golden Gate Bridge?