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Holland Tunnel Vision

Here’s a letter sent last night to news-radio station WTOP:

A Politico pundit, during the 10pm hour on your station today, favorably quoted President Obama’s recent remark – from the Oct. 17th edition of the New York Times Magazine – that “Infrastructure has the benefit of for every dollar you spend on infrastructure, you get a dollar and a half in stimulus because there are ripple effects from building roads or bridges or sewer lines.”

History counsels caution before accepting such an assertion.  First, in the cradle of the industrial revolution, Great Britain, infrastructure was funded and managed largely by private sources rather than by the state.  Second – and more to the point – is this sobering conclusion from economic historian John Wallis: “There were many reasons why the eighteenth-century Dutch economy failed to become a full-blown industrial economy, but one of them was the fiscal burden of maintaining the infrastructure investment that had fueled the growth in the first place.”*

Had the 17th-century Dutch relied as heavily as did the 18th-century British on private entrepreneurs to fund, build, and manage their infrastructure, perhaps Manhattan would still be New Amsterdam and we’d all be celebrating, in Dutch, The Netherlands rather than England as the first industrial nation.

Either way, history shows that today’s stimulating infrastructure expenditures by government can be tomorrow’s debilitating national burden.

Donald J. Boudreaux

* John J. Wallis, “Government Growth, Income Growth, and Economic Growth,” Chapter 13 in Capitalism in Context: Essays on Economic Development and Cultural Change in Honor of R. M. Hartwell, John A. James & Mark Thomas, eds., (Chicago: University of Chicago Press, 1994), p. 283.