It’s this Myth that Should be Crumbling

by Don Boudreaux on September 7, 2011

in Myths and Fallacies, Other People's Money, State of Macro, Stimulus

Here’s a letter to Quinn Klinefelter, a reporter for Marketplace:

Dear Mr. Klinefelter:

On today’s Marketplace Morning Report, you told how “Teacher Robert Brown likes President Obama’s call to … create new jobs by rebuilding America’s crumbling infrastructure” (“Detroit hopeful for jobs action from Obama“).

If America’s infrastructure truly is crumbling, the culprit isn’t reduced, or even stagnant, government spending on infrastructure.  As the New York Times reported on November 19, 2008 about infrastructure (see here) “money isn’t the main problem.”  We learn why elsewhere in the report: “Government spending on infrastructure fell after the construction of the Interstate highway system, but has risen gradually over the past 25 years.”  Indeed, such spending – not only absolutely, but also as a percent of GDP – was higher in 2008 than it had been at any time since 1981.

And note also: these facts combined with the economic crash of 2008 should caution you and other business reporters against accepting so gullibly, and without ample qualification, the commonplace assertion that government spending on infrastructure is an economic stimulant.

Sincerely,
Donald J. Boudreaux

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{ 38 comments }

Tom E. Snyder September 7, 2011 at 11:48 pm

Spending on infrastructure may not be an economic stimulant but it is a legally addictive stimulant.

Chucklehead September 8, 2011 at 12:58 am

Aren’t you at all curious what it was that Robert Brown was teaching? I, for one, am glad he is not teaching my kids.
Roads wouldn’t crumble as fast if the contractor was given a economic incentive. Pay for construction with a 15 year bond, and every year the road lasts past that, the contractor gets to keep the bond payment.

mightymouse September 8, 2011 at 2:46 am

“Roads wouldn’t crumble as fast if the contractor was given a economic incentive. Pay for construction with a 15 year bond, and every year the road lasts past that, the contractor gets to keep the bond payment.”
Some roads crumble because they are over-utilized, period.
We can always engineer and construct better roads with higher capacity to accommodate projected growth, but the money is just NOT THERE!!!
Hence this is why money becomes no 1 priority when I design highway, roads and bridges.

Dan J September 8, 2011 at 2:59 am

Princeton’s Dr Laurie Bassi was interviewed and said she was disappointed but that a few hundred billion this time would work because it would be more directed at job creation and that extensions of unemployment insurance is just as important.

Jo Egelhoff September 8, 2011 at 7:05 am

Mr. Boudreaux, is there any minute possibility that the feds would suspend Davis-Bacon for states and municipalities? If Mr. Obama wants to throw around more stimulus $s, suspending Davis-Bacon would make that money go so much further, would put how many more people to work(?) and may even gain GOP support for throwing money around.

JS September 8, 2011 at 8:38 am

Be careful, unless you want to receive one of his ‘open letters’.

And besides, he’s an economist. not a soothsayer.

redneek24 September 8, 2011 at 9:16 am

The Federal takes in around 604 million a year in taxes from gas. Does anyone know how much is spent on highways?

indianajim September 8, 2011 at 9:32 am

Brilliant Don! And perfectly timed; just before the big push for massive infrastructure spending tonight that is anticipated in O’s big speech this evening (based on the premises that you debunk: 1) that somehow spending on infrastructure has been falling; and 2) that government spending on anything called “infrastructure” will stimulate economic growth).

Bravo, Bravo!!!!

vikingvista September 8, 2011 at 3:09 pm

It will be interesting to see of the Republican rebuttal makes this point. Somehow, I doubt it will.

Economiser September 8, 2011 at 9:46 am

Infrastructure spending does not cause economic growth. My favorite illustration of the concept is this photo of a highway in North Korea:

http://www.flickr.com/photos/mytripsmypics/2467321340/

indianajim September 8, 2011 at 12:10 pm

**LIKED**

ChrisN September 8, 2011 at 12:13 pm

very nice visual.

jorod September 8, 2011 at 10:20 am

Infrastructure spending is just maintenance unless it leads to new factories and offices with jobs..

Invisible Backhand September 8, 2011 at 10:48 am

“The second principle is that we could indeed stand to spend more on infrastructure. Spending may be at a 27-year high, but it’s still far from the levels of the 1950s, ’60s and ’70s, when the Interstate Highway System was being built. As a percentage of gross domestic product, it is below current levels in many European countries.”

2008 – 27 = 1981. What happened in 1981? Reagan. We’re paying the price now for Reaganomics.

EG September 8, 2011 at 12:08 pm

“many European countries”. Which “European countries”? The ones that got out of communism and have to catch up to 50 years of lag time? Well yes, but we don’t need to be at their levels of spending. Infrastructure has a diminishing return curve.

But of course, it makes sense to compare Romania’s level of infrastructure spending with Americas, if you want to make a point, until you realize that Romania barely had electricity and running water in half of its country.

What “price” are you paying? The US’s infrastructure compared to the rest of the world, ranks only behind Germany’s and Japan’s (as far as large, high population countries are concerned…not tiny countries/populations)….according to the LPI (logistics performance index) What “suffering” are we enduring?

Methinks1776 September 8, 2011 at 12:17 pm

No no no, EG. Don’t be sillyyyyy! He’s talking about the Western European countries that are blowing up right now. You know the ones where, despite enormous government spending, infrastructure is completely falling apart. Actually, pretty much everything is crumbling. So badly that they gave into privatization.

EG September 8, 2011 at 1:10 pm

I don’t know any “western european country” where infrastructure is “completely falling apart”. Western Europe does quite well, and a lot of it is privately operated. Thats not to say that most of it isn’t beyond the point of diminishing returns, or that most investment in “infrastructure” over the past decade or more have not been completely wasted money (I think, most of it has been…like all the grandiose and ridiculously useless projects one will find all around Greece or Portugal)

Infrastructure is one of those subjects where people tend to exaggerate completely out of proportion. And thats the problem…we waste so much money now because now we’re just getting diminishing returns. A higher longer bridge over a pointless canyon, or a suspended airport over a beach…are useless for anything other than photo ops.

but you know…boys with toys.

Methinks1776 September 8, 2011 at 4:53 pm

I’m exaggerating a little in response to the moaning about our “crumbling infrastructure” and the suggestion that the Europe imploding before our eyes has it all figured out. Depends on the country, but travel around – especially to rural areas in Southern Europe and you will see a level of decrepitude uncommon in the United States.

EG September 8, 2011 at 6:02 pm

I’ve never witnessed that myself in Southern Europe. I’ve witnessed incredible monuments to waste in infrastructure in S. Europe

EG September 8, 2011 at 12:09 pm

PS: Most European countries also privately run infrastructure which here in the US is government run…like highways. Are you advocating we privatize roads? ;)

Economic Freedom September 8, 2011 at 3:30 pm

Are you advocating we privatize roads?

Yes. John Stossel even had a special on that very topic. The few US cities that have contracted out to private road builders and road maintenance apparently love them — no traffic and always in good condition.

Government roads incur about 55,000 traffic-related deaths per year. Imagine such a death toll in a private industry! Imagine if Steve Jobs were to say something like “The consumer electronics industry is great! Only 55,000 consumers per year die from electrocution and electrical fires by using our products.” Would people actually find that number acceptable or comforting? I don’t think so. Yet we are told that we ought to accept 55,000 deaths per year using the government’s product — road space.

EG September 8, 2011 at 6:00 pm

I do advocate that we privatize as many roads as possible. Europe does it, Asia does it. Should be no problem. However I do have a problem with the approach John Stossel takes…especially when he brings that CATO roads “economist” (I forgot his name), because his arguments are paper thin and full of holes. The “deaths on highways are due to gov. ownership” stuff is pretty silly…for example. But even his more fundamental model for how such a system would work is full oh holes (listen to him debate Epstein for example on this issue). IE the Stossel/CATO argument for privatizing roads is poorly articulated and highly unrealistic.

EG September 8, 2011 at 6:08 pm

The deaths on highways is due to gov. argument is paper thin because…well…people don’t die on highways because of poor highway design or poor highway maintenance. They die because of speeding, distraction, or alcohol. Does this mean that the private market automakers and alcoholic beverage makers are the reason for 55,000 deaths a year, and therefore the gov. should make cars instead? No.

Its arguments like these that have people rolling their eyes when they accidentally tune into John Stossel’s program.

Economic Freedom September 8, 2011 at 7:04 pm

The deaths on highways is due to gov. argument is paper thin because…well…people don’t die on highways because of poor highway design or poor highway maintenance.

Nice straw man! I never claimed that the mere fact of government road ownership causes drivers to have accidents. Driver error — the main cause of motor vehicle accidents — occurs more frequently on government roads than on private roads because government roads are overcrowded. They are overcrowded because roadspace is essentially offered for “free”, despite the fact that it is actually a scarce good that needs to be economized.

No doubt diners in a restaurant will always have a certain risk of accidentally stabbing themselves with a fork. That risk is caused by “diner error.” But the risk of a diner committing such an error goes up in an extremely crowded restaurant, with each diner competing against the other for the waitstaff’s attention, or just trying to exit. If government owned and operated restaurants the way they own and operate highways, we’d see lots more “dining-related accidents.” Lucky for us, private owners of restaurants find various ways of limiting the use of their floor space and table space.

Its arguments like these that have people rolling their eyes when they accidentally tune into John Stossel’s program.

Stossel didn’t make those arguments. In the meantime, you might want to read: The Not So Wild, Wild West: Property Rights on the Frontier (Stanford Economics and Finance) by Terry L. Anderson and Peter J. Hill (May 4, 2004) . See:

http://www.amazon.com/s/ref=nb_sb_ss_i_1_15?field-keywords=the+not+so+wild.+wild+west+property+rights+on+the+frontier&url=search-alias%3Dstripbooks&sprefix=The+Not+so+Wild

Roads were originally private, the owners sometimes charging a graduated toll based on wheel-width (narrow wheel-widths tended to make deep grooves in early roads, which maintenance workers had to smooth over). The idea that roads, for some reason, are unique amongst scarce goods, and therefore must be constructed and maintained by government is historically incorrect and theoretically indefensible.

EG September 9, 2011 at 12:25 am

You said the gov roads kill 55,000 people per year. Imagine if they were privately owned. This implies that if roads were privately owned, these deaths would have been decreased. And this is based on what…exactly? On the assumption that deaths are caused because of “overcrowding”. And this assumption is based on what? Overcrowded roads lead to slower traffic…slower traffic leads to less energy during collisions…which leads to a smaller likelihood of a fatality. (see I can make up assumptions too!)

This is a really silly road to go down, and I’ve heard this repeated by several “libertarian” “experts” in various places. Italy, for example, is infamous for its massive multiple-fatality 100+ car pileups on its…privately operated…highways. The reason? Cocaine, alcohol, you name it. They usually happen on Friday nights.

EG September 9, 2011 at 1:05 am

As for private ownership and operation, I am all for it. I’m not against it. However, it isn’t as much of a simplistic process as Walter Block or Stossel or others like him make it sound. Yes roads…USED…to be privately owned. And then what happened? What was the reason there was further complications in terms of roads? These are not simplistic problems with simplistic answers.

Of course, “libertarians” don’t ask the question, what caused that system to collapse? Does the addition of complexity to such a system…affect it in any way? In cowboy days a dirt road may have been “privately owned”…but how does that model translate to an interstate highway that traverses 100,000 people’s private property. What are the coordination problems of such an arrangement, and do they get increasingly more complex with scale?

The argument about roads is not one that they are somehow “unique” from other goods. They are not unique. But the problems associated with such a good become greater with scale. And the issues with them are not new, but are issues which have been identified centuries ago; issues like the holdout problem and exclusivity.

“Libertarianism” hasn’t provided suitable answers to some of these problems. People like Walter Block and the types of “libertarians” which typically appear on Stossel’s program have to come up with increasingly complex schemes which ignore basic realities. Block will say that the holdout problem can be overcome by digging under or building over, or by purchasing options. None of these are realistic…and are precisely the kind of coordination problems which impose prohibitive costs in the real world. And they are the problems which killed the “private road” concept of the earlier eras.

And it becomes a problem similar to fisheries and fishing rights. While it is true that some form of government “coercion” is necessary to impose a limit on the amount of resources which can be extracted from the common pool…thats not the only question we need to ask. The other question is whether the participants in this transaction are net recipients of benefits; ie are we all better off because of this? While in the case of, say grassland, the market has an easily applicable solution which requires no government “coercion”, the case of seas isn’t so simple, and no market solution exists. Same with some forms of pollution.

Its the same problem “libertarians” run into when it comes to military or police “goods”. They do have certain characteristics and problems to which no satisfactory answer has been provided by the “libertarians”. Until you do…

PS: The Chunnel tunnel isn’t an example which disproves the above. It suffers from neither holdout problems nor exclusivity.

vikingvista September 8, 2011 at 6:22 pm

Case in point: the Chunnel.

Of course the pervasiveness of socialism/cronyism makes examples of any such privately created public works projects questionable.

Economic Freedom September 8, 2011 at 3:40 pm

Meaning that infrastructure spending was high during the end of the Carter era. Did we have a fine, vibrant economy from all that infrastructure spending at the end of the Carter era? No. Did the economy improve during the Reagan era — despite (perhaps, because of) decreased infrastructure spending? Yes. QED.

Additionally, it’s ridiculous to claim that we ought to spend as much on Interstate Highway System maintenance as we did to build it from scratch. But that’s what happens when government tries to “maintain” something.

“Infrastructure spending” are just buzz-words. They simply mean “more government.”

Invisible Backhand September 8, 2011 at 7:30 pm

Did we have a fine, vibrant economy from all that infrastructure spending at the end of the Carter era? No. Did the economy improve during the Reagan era — despite (perhaps, because of) decreased infrastructure spending? Yes. QED.

The Arabs quadrupled the price of oil and then doubled it again. The vietnam war to pay for.

Because of the collapse of the concession era and the beginning of the market share era in oil (which had nothing to do with Carter or Reagan and is not repeatable) oil dropped from $28 a barrel to $8. Plus Reagan borrowed a trillion and a half or so to throw a party for his friends. QED.

Polly September 9, 2011 at 6:41 pm

Hmmm, I wonder how Reagan convinced his Democrat-controlled Congress (both houses) to borrow “a trillion and a half or so to throw a party for his friends.”

EG September 8, 2011 at 12:00 pm

“Infrastructure” is the magic bullet of government spending. It is one of those things that the big government types can always rely on to gain support for spending. And almost everyone, left or right, libertarian or statist, can get behind. (yes I said libertarians too)

And yet it is incomprehensible. America’s infrastructure is ranked somewhere in the top 10 in the world, by international standards, with most of the countries which surpass it being tiny little countries or tiny populations (like Singapore, or Norway). And yet we have a lobby like the ASCE which every year published their grading of US infrastructures, and always gives it a near failing grade. And everyone, from CATO to leftist groups, love to cite ASCE grading reports for their respective agendas, either to point to why we need more gov. spending on “infrastructure”, or why gov. spending on infrastructure doesn’t work. Both are completely wrong. ASCE is a lobby. its job is to create jobs for its members. Its reports reflect that reality.

From an economic perspective, infrastructure has a diminishing return curve. At some point you get no additional benefit from additional roads, railways, airports, etc etc. Of course there’s no way for gov. to know this without proper market prices for infrastructure use…but even by the crude statistics we can gather, the US is beyond the point of diminishing returns (overall. that doesn’t mean that certain geographical areas couldn’t use more development, and certain areas far less. But gov. money isn’t spend where it is needed by the market)

Repair and maintenance work are not “infrastructure” projects that create any economic value. Maintenance is included in the original cost of any project. It adds no additional capacity or ability to support economic activity that the original project didn’t already capture.

Someone needs to point out these realities of “infrastructure” work. Of course, I’m not looking at CATO anymore for this, since their report on infrastructure was simply a regurgitation of the ASCE report and without taking into consideration the fact that infrastructure has a diminishing returns curve.

Everyone always wants more more more (even CATO). Well, I for one don’t think we need more toll-free highways crossing North Dakota, or more tiny airports in the middle of nowhere servicing 3 villages.

whotrustedus September 8, 2011 at 12:53 pm

I’m having a mental image of EG saying “Bridges? Bridges? We don’t need no stinking bridges!”

(2 points for anyone who can name both of the movies that popularized this line…)

vikingvista September 8, 2011 at 2:42 pm

Do I get 1 point for “Treasure of the Sierra Madre”?

whotrustedus September 8, 2011 at 4:34 pm

That’s 1 point and usually the more difficult of the two. the other one is more modern…

Dan J September 8, 2011 at 6:25 pm

Just goes to show, muirgeo, is the leading ‘beep-beep’ in the state.
Maybe, if the townsfolk would have blown up their real town, they would have all been so much better off, with the ensuing rebuilding efforts that would have sparked an economic boom in RockRidge.
Army Of Rustlers, Cut Throats, Murderers, Bounty Hunters, Desperados, Mugs, Pugs, Thugs, Nitwits, Halfwits, Dimwits, Vipers, Snipers, Con Men, Indian Agents, Mexican Bandits, Muggers, Buggerers, Bushwhackers, Hornswagglers, Horse Thieves, Bull Dykes, Train Robbers, Bank Robbers, Ass-Kickers, Shit-Kickers, and Methodists!!! This is James Hoffas union thugs.

T Rich September 8, 2011 at 6:53 pm

Dan J,
You made me LOL with your answer, but you forgot to say “Blazing Saddles.” But, I think your reply was better for the inclusion of the list of groups in Heddy (“that’s Hedley”) LaMar’s army. I want to share that movie with my 12 year old son, but I am afraid it will make him politically incorrect – well, for the public school system.

T Rich September 8, 2011 at 6:57 pm

For those who are (regrettably) unfamiliar with Blazing Saddles, here is a taste of the scene that Dan J referred to.

http://www.youtube.com/watch?v=a3BRI7WFYVU

brotio September 9, 2011 at 12:31 am

I can just hear that idiot, Biden, saying after tonight’s speech, “Gol-durnit, Mr Obama, you use yer tongue purtier than a twenny-dollar whore!”

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