This post is part of an ongoing series featured on Market Urbanism called Urbanism Legends. The Urbanism Legends series is intended to expose many of the myths about development and Urban Economics. (it’s a play on the term: “Urban Legends” in case you didn’t catch that)
Last week President-elect Obama announced some details of his economic stimulus package:
Second, we will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We’ll invest your precious tax dollars in new and smarter ways
This further taxpayer subsidization, beyond currently insufficient highway revenue sources, of sprawl and auto-dependency seems to contradict Obama’s promise of “green jobs”. As Tyler Cowen remarks, “for better or worse you can consider the opposite of a carbon tax.” Furthermore, the Obama plan intends to fund the stimulus directly to states, as opposed to metro areas, which have historically received almost two-thirds of the funds directly.
Certainly, Obama’s plan is not an urbanism-friendly plan, yet I consistently hear urbanists subscribing to and spreading the myth that jobs can be created by spending on infrastructure, and that these jobs will lead to economic recovery. Even if the job creation myth were true, and could stimulate the economy immediately, you would think urbanists would not sacrifice urbanist ideals for the sake of short-term recovery through their commitment to so-called progressive ideology.
In his enduring 1961 classic, Economics in One Lesson
A bridge is built. If it is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money had it had not been taxed away from them, there can be no objection. But a bridge built primarily “to provide employment” is a different kind of bridge. When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to be invented. Instead of thinking only of where bridges must be built the government spenders begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? It soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries.
Two arguments are put forward for the bridge, one of which is mainly heard before it is built, the other of which is mainly heard after it has been completed. The first argument is that it will provide employment. It will provide, say, 500 jobs for a year. The implication is that these are jobs that would not otherwise have come into existence.
This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.
Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.
But then we come to the second argument. The bridge exists. It is, let us suppose, a beautiful and not an ugly bridge. It has come into being through the magic of government spending. Where would it have been if the obstructionists and the reactionaries had had their way? There would have been no bridge. The country would have been just that much poorer. Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others.
Unfortunately, big spending on infrastructure projects are political chess pieces. As politicians align themselves for the handout, Governors are sure to push for spending that will allow them to funnel federal tax dollars into vanity projects that will do the most to boost visibility and popularity. I wouldn’t expect any wise long-term planning on the part of the spenders.
From an economic recovery point-of-view, it will be years before the money spent on infrastructure trickles back into the overall economy, and even longer for any productivity gains to be realized by the newly constructed infrastructure. This pervasive myth is a dangerous enabler of one of the least effective strategies for recovery (in the short-run), and a harmful disservice the the environment and living patterns (in the long-run).
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I was hoping you would weigh in on this.
I’m also nervous about the prospect of the federal government spending billions on new infrastructure. But maybe it’s at least possible that the Obama administration will forgo more Interstates and instead opt for transit projects that could help cities. I don’t know if the special interests will let that happen, but there are groups pushing for this kinds of change(esp. T4America that you link to).
I guess I’m not sure if the massive Interstate Act, conducted by the federal government, can be transitioned away from with anything less powerful than another federal government endeavor. I do recognize the risk though.
I was hoping you would weigh in on this.
I’m also nervous about the prospect of the federal government spending billions on new infrastructure. But maybe it’s at least possible that the Obama administration will forgo more Interstates and instead opt for transit projects that could help cities. I don’t know if the special interests will let that happen, but there are groups pushing for this kinds of change(esp. T4America that you link to).
I guess I’m not sure if the massive Interstate Act, conducted by the federal government, can be transitioned away from with anything less powerful than another federal government endeavor. I do recognize the risk though.
I’m sure the people who lost their lives in Minneapolis would have felt better after reading this.
Finally addressing deferred maintenance is a *good* idea. It should have been done under Bush, when “things were good”.
I’m sure the people who lost their lives in Minneapolis would have felt better after reading this.
Finally addressing deferred maintenance is a *good* idea. It should have been done under Bush, when “things were good”.
Anonymous,
Unfortunately, politicians regularly defer maintenance. It’s not politically expedient to maintain a bridge, when you can use those funds to gain political support by building new roads and bridges. The problem isn’t the funding, its the political incentives.
The first project I worked on as a Structural Engineer was repair work on the Chicago Skyway, which is a huge bridge built in the 70s between Chicago and Northwest Indiana. Investigating the bridge, I realized it had NEVER been maintained. Had it been painted every few years, as proper maintenance would require, it would have been in great shape. However, it had fallen in such disrepair that you could put your entire torso through the webs of rusted out plate girders.
Now, is this a symptom of not enough “stimulus” through spending? Or is it a result of reckless spending decisions of politicians? During the 30 years span before I designed repairs for those plate girders, the City of Chicago and State of Illinois had spent billions of taxpayer dollars on building new highways, but barely a cent on the Skyway. Spending a few millions every few years to give the Skyway a fresh coat of paint would have been worth every penny for the safety of drivers and life-cycle of the bridge. However, politicians had no incentive to spend a few bucks on the low-visibility maintenance of the bridge, and spent on the vote-earning, new projects that future politicians could neglect and rebuild 30 years later.
I would expect nothing less from today’s politicians when they cash their “stimulus” checks. The cycle perpetuates itself.
Maintenance of bridges is a good thing for public safety and fiscal responsibility, and agencies should prioritize it as a prudent move, not as “economic stimulus”.
Anonymous,
Unfortunately, politicians regularly defer maintenance. It’s not politically expedient to maintain a bridge, when you can use those funds to gain political support by building new roads and bridges. The problem isn’t the funding, its the political incentives.
The first project I worked on as a Structural Engineer was repair work on the Chicago Skyway, which is a huge bridge built in the 70s between Chicago and Northwest Indiana. Investigating the bridge, I realized it had NEVER been maintained. Had it been painted every few years, as proper maintenance would require, it would have been in great shape. However, it had fallen in such disrepair that you could put your entire torso through the webs of rusted out plate girders.
Now, is this a symptom of not enough “stimulus” through spending? Or is it a result of reckless spending decisions of politicians? During the 30 years span before I designed repairs for those plate girders, the City of Chicago and State of Illinois had spent billions of taxpayer dollars on building new highways, but barely a cent on the Skyway. Spending a few millions every few years to give the Skyway a fresh coat of paint would have been worth every penny for the safety of drivers and life-cycle of the bridge. However, politicians had no incentive to spend a few bucks on the low-visibility maintenance of the bridge, and spent on the vote-earning, new projects that future politicians could neglect and rebuild 30 years later.
I would expect nothing less from today’s politicians when they cash their “stimulus” checks. The cycle perpetuates itself.
Maintenance of bridges is a good thing for public safety and fiscal responsibility, and agencies should prioritize it as a prudent move, not as “economic stimulus”.
Daniel,
It doesn’t look like a fair portion will go to cities under the current Obama plan.
http://www.chicagobusiness.com/cgi-bin/news.pl?id=32113
Daniel,
It doesn’t look like a fair portion will go to cities under the current Obama plan.
http://www.chicagobusiness.com/cgi-bin/news.pl?id=32113
I find this phrasing kind of interesting, because to me a bridge is a durable good, and as the writer goes through these other unbuilt goods, they seem to get more consumable, and less lasting or valuable. The other thing this analysis ignores is the time value of money. Over its entire life cycle this bridge may (or may not) gain in value, whereas the unmade dresses, had they been made would have been consumed and possibly end up in a landfill in a year or two. Also what if they are made in china, then the value is not captured locally anyways. I always go back to the great transit systems of Europe, that are expensive to maintain, but would be economically impossible to build from scratch.
I find this phrasing kind of interesting, because to me a bridge is a durable good, and as the writer goes through these other unbuilt goods, they seem to get more consumable, and less lasting or valuable. The other thing this analysis ignores is the time value of money. Over its entire life cycle this bridge may (or may not) gain in value, whereas the unmade dresses, had they been made would have been consumed and possibly end up in a landfill in a year or two. Also what if they are made in china, then the value is not captured locally anyways. I always go back to the great transit systems of Europe, that are expensive to maintain, but would be economically impossible to build from scratch.
Marcotico,
Hazlitt is not distinguishing among goods to assert whether one is better than another, but it does seem that as he lists goods they are more essential to human existence in order to make a point. He is simply stating that there are opportunity costs to the construction of the bridge. The private production of many goods and services was sacrificed for the construction of the bridge. Whether they are more durable or less durable is irrelevant in my opinion. To argue that a durable bridge is inherently more valuable than consumable human necessities such as food, shelter, and clothing would be a tough argument to make in a less abundant society.
I don’t see how the time value of money works in favor of the bridge. According to the time value of money, the future value of an investment is discounted over the years of its useful life. Basically, it means you’d rather have something today than something tomorrow, and the the future value of something like a bridge is more uncertain the further into the future you look. If anything, the time value of money argument works against long-term investments such as infrastructure, in favor of shorter-term returns on capital. (especially when trying to recover from a recession)
The anti-foreign argument goes into a whole other discussion on trade and economic fundamentals such as competitive advantage. It is beyond the scope of this blog, but I’d be happy to refer you to some resources on that subject, starting with the Hazlitt book in the post.
However, one who favors locally produced products and services should reconsider supporting over-investment in infrastructure that subsidizes transport of things not produced locally.
Marcotico,
Hazlitt is not distinguishing among goods to assert whether one is better than another, but it does seem that as he lists goods they are more essential to human existence in order to make a point. He is simply stating that there are opportunity costs to the construction of the bridge. The private production of many goods and services was sacrificed for the construction of the bridge. Whether they are more durable or less durable is irrelevant in my opinion. To argue that a durable bridge is inherently more valuable than consumable human necessities such as food, shelter, and clothing would be a tough argument to make in a less abundant society.
I don’t see how the time value of money works in favor of the bridge. According to the time value of money, the future value of an investment is discounted over the years of its useful life. Basically, it means you’d rather have something today than something tomorrow, and the the future value of something like a bridge is more uncertain the further into the future you look. If anything, the time value of money argument works against long-term investments such as infrastructure, in favor of shorter-term returns on capital. (especially when trying to recover from a recession)
The anti-foreign argument goes into a whole other discussion on trade and economic fundamentals such as competitive advantage. It is beyond the scope of this blog, but I’d be happy to refer you to some resources on that subject, starting with the Hazlitt book in the post.
However, one who favors locally produced products and services should reconsider supporting over-investment in infrastructure that subsidizes transport of things not produced locally.
I’m not sure what Obama is thinking about yet, but spending on infrastructure doesn’t have to mean spending on new infrastructure. America’s states and localities have enormous backlogs of repair projects, enough to suck up whatever the federal government decides to spend. I sure would like to have the streets and sidewalks repaired in my neighborhood, for example. Spending on simple repair projects like that has the advantage of not throwing money at things of questionable value. My streets and sidewalks have definite utility, now and in the future. The same goes for the sewage treatment plant upgrade that is desperately needed in my city. It would not be difficult to do such projects; the only thing missing is money.
If we just focus on repairing the infrastructure we already have that everyone can agree is worth keeping, we can avoid waste, create jobs quickly, and in the end be proud of the results. Moreover, with their repair backlogs reduced, states and localities can focus their own nonfederal resources on more innovative and potentially transformational projects like transit starts.
I’m not sure what Obama is thinking about yet, but spending on infrastructure doesn’t have to mean spending on new infrastructure. America’s states and localities have enormous backlogs of repair projects, enough to suck up whatever the federal government decides to spend. I sure would like to have the streets and sidewalks repaired in my neighborhood, for example. Spending on simple repair projects like that has the advantage of not throwing money at things of questionable value. My streets and sidewalks have definite utility, now and in the future. The same goes for the sewage treatment plant upgrade that is desperately needed in my city. It would not be difficult to do such projects; the only thing missing is money.
If we just focus on repairing the infrastructure we already have that everyone can agree is worth keeping, we can avoid waste, create jobs quickly, and in the end be proud of the results. Moreover, with their repair backlogs reduced, states and localities can focus their own nonfederal resources on more innovative and potentially transformational projects like transit starts.
Thanks Matt.
I would actually be fairly relieved if the money was spent on needed repairs, as it wouldn’t be fueling the infrastructure/sprawl feedback loop by creating more infrastructure that would need repair in the future.
It’s almost like there’s an infrastructure bubble. (maybe I should write on that) There’s so much infrastructure, it cannot sustain itself without massive infusions of cash for repairs, which politicians have little incentive to spend. If I could, I would tell states, no new infrastructure money until your existing infrastructure is in good shape.
Unfortunately, the political forces are too strong to be overcome by rational people like you. Politicians will always favor new projects, and Obama’s trillion dollar plan will attract pork like Kermit the Frog in a tuxedo. (sorry, that’s the best analogy I could think of)
Worst of all, I don’t think repairing infrastructure will spur a recovery or many create jobs, except in certain sectors. Sure, engineers and contractors will do well, but how will they spur a recovery? (Interestingly, those are all male-dominated jobs. What about the ladies?)
And the repairs won’t improve productivity, which would bring a sustainable recovery. For that reason, if I believed in stimulus, I’d spend on technology, research, and education that would enable a more robust recovery that doesn’t shift as much burden to future generations.
Thanks Matt.
I would actually be fairly relieved if the money was spent on needed repairs, as it wouldn’t be fueling the infrastructure/sprawl feedback loop by creating more infrastructure that would need repair in the future.
It’s almost like there’s an infrastructure bubble. (maybe I should write on that) There’s so much infrastructure, it cannot sustain itself without massive infusions of cash for repairs, which politicians have little incentive to spend. If I could, I would tell states, no new infrastructure money until your existing infrastructure is in good shape.
Unfortunately, the political forces are too strong to be overcome by rational people like you. Politicians will always favor new projects, and Obama’s trillion dollar plan will attract pork like Kermit the Frog in a tuxedo. (sorry, that’s the best analogy I could think of)
Worst of all, I don’t think repairing infrastructure will spur a recovery or many create jobs, except in certain sectors. Sure, engineers and contractors will do well, but how will they spur a recovery? (Interestingly, those are all male-dominated jobs. What about the ladies?)
And the repairs won’t improve productivity, which would bring a sustainable recovery. For that reason, if I believed in stimulus, I’d spend on technology, research, and education that would enable a more robust recovery that doesn’t shift as much burden to future generations.
Your idea looks interesting. All the best .
http://www.staffinpower.com
Lets just hope that the billions of dollars they are spending are really for infrastructure not for the pockets or wallets of corrupt officials