Is Infrastructure Spending a Good Investment?

Hillary Clinton says yes, but it's complicated.


Hillary Clinton

Democratic presidential candidate Hillary Clinton has a plan to jump-start the economy. It would require an additional $250 billion in federal infrastructure spending over five years—on top of the $250 billion over the next five years that Congress already wants to spend—along with the creation of a $25 billion federal infrastructure bank.

Yet the plan is still vague and lacks specific details. For instance, no one knows how this new spending would be paid for—or who would pay for it. Clinton floated the idea that it would be paid for with business tax reform, but there aren't any specifics on what those reforms would entail. We can speculate that she would most likely propose a repatriation scheme to put her hands on U.S. corporations' foreign profits exiled overseas to avoid double taxation at the oppressive U.S. corporate tax rate.

Leaving aside the fact that—like most of Clinton's ideas—this is a tired proposal, it wouldn't do much for the economy. First, there's a debate about whether our infrastructure is in such bad shape or whether a massive investment in fixing it would really be such a bone for the economy.

Every year, the American Society of Civil Engineers gives America's infrastructure a terrible grade, which it thinks can only be improved with more spending. It would be easier to take the ASCE seriously if it weren't one of the biggest beneficiaries of the extra infrastructure cash. Second, the data suggest that things aren't that grim. In fact, the number of bridges labeled deficient and the highway congestion index are declining, and highway pavement and airport runway conditions have improved.

In addition, there's ample literature to show that although infrastructure spending may be a good long-term investment—depending on who is investing whose money—it is a particularly bad vehicle for stimulus and does not boost short-term job growth.

According to Keynesian economics, fiscal stimulus can be counterproductive if it is not timely, targeted and temporary. But by nature, infrastructure spending is not timely and very hard to target. That's because infrastructure projects involve planning, bidding, contracting, construction and evaluation. In other words, even when money is available, it can be months or even years before it's spent.

The data also show that government-funded infrastructure projects often aren't good investments, either, and tend to suffer from massive cost overruns, waste, fraud and abuse. Research shows that the political process encourages a systematic tendency to overestimate the benefit and underestimate the cost of infrastructure projects. In other words, it's not the best projects that get implemented but the ones that look the best on paper.

It is also a mistake to assume that it's 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 government shouldn't have anything to do with them.

A better alternative to federally funded projects could be private-public partnerships, privatization or simply devolution to the states.

So how about Clinton's infrastructure bank? It is unlikely that such a bank would deliver on its promises. First, like all other infrastructure spending, the investments would be driven by politics or would give priority to the pet project of the day (for instance, green investment). It's no surprise that the idea is cheered by the unions that would be guaranteed to win big under the proposal. Taxpayers, on the other hand, who would be underwriting the whole thing, should be wary of it.

Ultimately, taxpayers and consumers would be better off if these activities were privatized. And if states aren't ready for privatization, they can do what Indiana did a few years back when it leased its main highways to a private company for almost $4 billion. The state became $4 billion richer, and it still owns the highway. Consumers in Indiana are better off because the deal saved money.

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  1. I would like to see more of the Indiana deal.

    But aside from that, the feds got involved to maintain the interstate highways in rural areas. After all, 16 farmers with an interstate nearby aren’t going to be able to pay for the maintenance. I still believe in this because the interstates are a fairly useful public service good. It’s one of the few infrastructure projects that yields public savings 100 years later.

    The math is complex, but if you think about a basic supermarket, it’s much easier to distribute their goods across the US and especially into rural areas when you have a reliable roadway to do it on. This makes it cheaper for those goods on the shelf. And a well-built roadway is fairly cheap in the long run, even including refacing every 5 years and rebasing every 20.

    Beyond that interstate infrastructure, however, I do agree that they shouldn’t be involved. The states need to take care of their roads. Unfortunately, the states tend to not bother and use any taxes collected for road construction for other things – until the citizenry get angry about losing an axle every 28 feet, at least. Then it’s always the same old story. “We don’t have the funds to fix all of this, we need to raise taxes!”

    1. By “see more of the Indiana deal” I meant that I’d want to see more details. It seems suspicious that a company will pay the state 4 billion to “lease” (I assume that means “maintain”) the roadways. How are they getting revenue to pay for the roadways? Tolls?

      1. Okay. I found detail on it. They leased the existing toll road to a company that handles the tolling and maintenance separate from the state.….._lease.pdf

        The problem with that is that we can’t make every road a toll road. Want to get charged $5 a day going to your work place? Toll roads can be strategically used, but they are a limited recourse.

        1. Why not? Why shouldn’t the people who use the road be the primary financiers of the thing they use?

          1. Ideally it would also be weighted by, um, weight. My biggest concern about toll roads isn’t the classic libertarian pant shitting about tracking. It’s more a concern about the deadweight losses of that monitoring. Poole likes to handwaive that away, but I’m not so sure without seeing a better underpinned argument.

            1. My biggest concern about toll roads isn’t the classic libertarian pant shitting about tracking.
              That’s really a moot point. Do you have a cell phone? They know where you’ve been. (Yes, yes. I know. You don’t have a cell phone so you can shake your fist at the sky and claim to fight ‘the man. Don’t worry, they still know where you’ve been via 100 other methods that aren’t toll roads.)

              Here in Colorado, the toll roads are monitored via plate cameras (you can’t even throw money into machines anymore) and you get a bill in the mail for an entire month of transit. There is very little overhead in the day to day operation of the toll collection itself or even the monitoring as your transit simply gets logged to a database for the monthly bill. In fact, they cover the most common toll overhead (non-payment) by charging you more if you don’t carry a pre-paid account with them.

              But, then, I have no real issue with toll roads, per se. I have an issue with everything being a toll road mainly because the gasoline taxes will still be there, and I won’t get a rebate on my state taxes for the costs I incurred on the toll roads. After all, they “are voluntary.” I “could always walk or ride a bike or take public transit for” the 32 miles to my workplace every day, despite all of the ways those aren’t good answers.

              1. You need to improve your reading comprehension. “My biggest concern about toll roads isn’t the classic libertarian pant shitting about tracking.” Are was that more a rhetorical “you?”

                Yes, I’ve driven the toll bypass from the airport to I-25 plenty of times, both after it was automated and when you had to stop at a booth. That is still added tolling infrastructure that simply isn’t that much more precise than a gas tax and periodic sampling of traffic.

          2. Limiting government is a good goal. But that should be focused on places where government doesn’t make sense to have a presence or where the presence is oversized.

            Roads are a social good, especially in places where users can’t pay for them – just like police officers, military, fire fighters, and so forth. Government should be paying for these things from the pool of tax money, instead of things like healthcare, electric car credits, or solar panels.

  2. Every year, the American Society of Civil Engineers gives America’s infrastructure a terrible grade, which it thinks can only be improved with more spending. It would be easier to take the ASCE seriously if it weren’t one of the biggest beneficiaries of the extra infrastructure cash.

    Odd how that works. I believe it was Dr. Vero who wrote the article a few weeks back about how much of the “crumbling infrastructure” of the US was a bunch of century-old, rarely traveled rural bridges deep in the heart of flyover country.

  3. I turned to an automated system where I can manage my leads. This autopilot system is working for me now, but I didn’t start this way. I think it’s worth a try when you get to the point of wanting some automation.[][]
    Here’s a link for anyone interested in this strategy, and it’s free

  4. Is infrastructure good? No, it’s a good. Just like education is a good. I just happen to think that private infrastructure, like private education, provides better value. It still amazes me that people don’t realize how transportation and location affect market pricing, or that things like roads can actually have their own markets that integrate into the larger economy. Food prices are obviously affected to some degree by how much it costs to transport that food from the farm to the grocery store. Does that mean that taxpayers should subsidize interstate highways to rural farmers? Not at all. Ultimately, it’s the end-consumer who bears the burden of all costs of food production, but how that burden is delivered can make a big difference in what’s profitable and what is not, and in the incentives for efficient production of food.

    Government interference messes up the market incentives involved, and skews the playing field towards political favors instead of towards consumers. It makes food production more expensive, even if those costs are hidden through taxpayer funded subsidies. And that’s just one industry that infrastructure impacts.

    1. ^This.

      What in the hell makes folks believe that road socialism is magically efficient? Oh, only top men know how to build the RoADZ!!

  5. Without federal infrastructure spending, how will states like New Mexico pay for their $400,000 welcome signs?

  6. Whether or not infrastructure spending is “good for the economy” (whatever that means) is the wrong question. The question is whether the spending is the best use of resources versus alternative uses, including what taxpayers would do with the money if they kept it.

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