Sunday, October 28, 2012

Do we Need More Infrastructure Spending?

I was having a debate with a friend about a post my wife made on Facebook.  In response to the wild claims about “creating X number of jobs” by both presidential candidates, she posted: “Entrepreneurs and innovators create jobs, not presidents.”  In response to her post, my friend commented that FDR’s New Deal and Eisenhower’s highway jobs programs created many jobs, which in turn benefited entrepreneurs and innovators.  After a little back and forth between us, he then posted this:

“Anyway the American Society of Civil Engineers claim America needs to invest between 1&2 trillion on infrastructure in the next 10 years just to replace the outdated roads, potable water, sanitary sewer, electrical grid, etc., such investment would save and create many jobs and better our society. As far as Japan I'm not sure but I'll guarantee that in the 90s money was not as cheap as today's historical rates at which the gov. can borrow today. I pay no attention to any evidence provided by the Cato Inst., Heritage Foundation, Tea Party or any other think tank funded by the Koch brothers and their agenda based opinions. Thom Hartmann has debated top officers of the Cato Inst.several times about the theory of FDRs' policies and lengthening the recovery of the first Republican Depression and clearly showed their attempt to rewrite history. "

Here are my thoughts on the matter:

1.       It should come as no surprise that a group like the American Society of Civil Engineers claim we need to spend up to $2 trillion on infrastructure.  Who would benefit more from such a spending spree than the ASCE?  I don’t want to call into doubt their objectivity, but I’m somewhat skeptical about following the advice of a group that would richly benefit from spending more tax money on roads.  It would be like Boeing saying America’s military needs 500 new aerial tankers.  I suspect some rent-seeking here.
2.       We have a process for repairing roads and infrastructure already.  If our infrastructure is in tatters, why aren’t funding requests being submitted in the regular process?  I fail to see why $1 - 2 trillion in additional spending is immediately necessary. 
3.       The “Japan reference”.  I mentioned Japan spent about $1 trillion on infrastructure spending during the 1990s to alleviate their economic quagmire to no avail (Frank & Bernanke, 2009, p. 325).  My friend suggests that current low interest rates, at least in part, are reason enough to undertake additional spending.  I’m skeptical.  Much of Japan’s spending was later thought to be wasteful (i.e. building new roads that paralleled existing ones, etc.)
4.       My friend’s bias leads him to completely ignore the likes of Cato and Heritage.  Fine, but do so at your own peril.  Both of these organizations are full of experts who regularly publish on matters such as infrastructure spending, and ignoring their work doesn’t invalidate their findings.  I would encourage my friend to resist his confirmation bias and read published works by other organizations.  Then, refute their findings.  Choosing to completely discount entire think tanks because of their funding source doesn’t nullify their findings.

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