Why infrastructure is a bad stimulus
December 23, 2008| By David Talbot
Aiming to create jobs, raise incomes and set the economy on a steady recovery path, President-elect Obama is proposing a massive infrastructure spending programs. His program is backed by left-wing pundits and special interests.
The rub, Heritage Foundation expert Utt explains, is that "past infrastructure spending – especially related to transportation – has little to show in terms of countercyclical stimulus or job creation." In short, massive spending on roads and the like doesn't work as advertised.
From studying other large stimulus programs, we can learn that "much of this lackluster impact stems from the long lag time involved in getting such spending programs up and running, as well as the propensity of the state and local governments to substitute federal money for already-committed state and local money."
In the 1990s, for example, Japan "squandered vast sums of national wealth in a vain attempt at stimulus."
So why do so many in Congress, the media and the business community persist in these arguments? It is a "nostalgic embrace of President Franklin Delano Roosevelt's New Deal," Utt argues.
There's nothing wrong with infrastructure investment as such. "It is important to recognize that our infrastructure and the continued investment in it are important underpinnings of future economic growth," explains Utt. But since such investment takes so long to bear fruit, "a stimulus scheme based on spending is ill-suited to the short-term stimulus needs that are the concern of policy-makers."
