Infrastructure as stimulus

Many advocates of the recently passed stimulus bill argue that it will help generate jobs through the construction and repair of existing infrastructure. The logic behind this argument seems to be two fold.

The first element is that it will generate employment by helping to put people back to work. I am highly dubious of such thinking given that government only transfers resources rather than creating them. A dollar spent hiring someone by the government is a dollar less that someone in the private sector has to hire someone.

The second, and more persuasive, element is that better infrastructure will help support business and drive additional commerce.

As Vice President Joe Biden said in his eloquent response to a question about the stimulus:

QUESTIONER: What I'm looking for are real clear details about how is the stimulus package really going to help small businesses.

JOE BIDEN: Well, there's a number of ways. It depends on what your business is...For example, it may very well be that she is in a circumstance where she is not able...her customers aren't able to get to her. There's no transit capability. The bridge going across the crick to get to her business needs repair.

It's a line of thinking that hold some allure. But we also have to realize that not all infrastructure improvements generate the same amount of benefit. For example, imagine there were no bridges leading into Manhattan. The construction of a bridge would likely prove hugely beneficial and generate new commerce. A second bridge would also like have a significant impact. The 10th, however, probably not so much.

Japan, for example, is a highly developed country. Therefore when the government decided to spend trillions of yen on building infrastructure in the country during the 1990s in a bid to jumpstart the economy it didn't have nearly the impact that was hoped for. Because the country already had fairly good infrastructure it was reduced to building bridges to nowhere that now go little used. Not only are they unused, but now they were require maintenance funds to prevent them from falling apart.

So it really depends on where you are on that curve before you start hitting rapidly diminishing returns. While President Obama has decried the state of infrastructure in this country Jack Shafer points out that this may be at least a bit overstated.

If bridges are falling apart and in need of urgent maintence then by all means repair them (or privatize them). But this notion that we are going to spend money on infrastructure and the economy will suddenly boom strikes me as a bit farfetched.