Is Infrastructure Spending Good for the Economy? It’s Complicated.

Kentucky and Indiana just spent $1 billion on a big new bridge over the Ohio River. It's the kind of high-cost, low-benefit infrastructure spending that makes America worse off. Photo via City Observatory
Kentucky and Indiana just spent $1 billion on a big new bridge over the Ohio River. It's the kind of high-cost, low-benefit infrastructure spending that makes America worse off. Photo via City Observatory

If there’s one policy that both parties — or at least elements within both parties — seem to agree on right now, it’s that “infrastructure spending” is good. If not for the chaos of the Trump presidency, some sort of big infrastructure package would probably be taking shape in Washington right now.

But the assumption that any type of infrastructure spending will boost the economy and provide public benefits deserves more scrutiny.

David Levinson, a civil engineering professor at the University of Minnesota, recently wrote a piece for the Van Alen Institute about why we should approach infrastructure spending with caution. He shared an excerpt about  on his blog, the Transportist. Here are a couple of big takeaways.

Job creation is no slam dunk

Setting job creation as an objective of infrastructure spending can also undermine the economic value of projects. At the time of the 2009 stimulus, unemployment was around 10%. With more workers looking for jobs, spending on infrastructure during a recession may arguably bring labor off the sidelines, while also taking advantage of the temporary wage drop due to the joblessness spike. In short, the state can get more infrastructure built for less, and put people to work who would have been otherwise unemployed. Today, however, unemployment is around 4.7%. Competition for labor is up, and with it construction wages. And without slack in the labor market, new projects are more likely to shift employed workers around, not add new jobs to the economy.

Spending on infrastructure can easily be wasted

Our current surface transportation system is not just in need of repair. In most parts of the U.S., our system connects everything worth connecting, and does so as cost-effectively as possible. There’s little need for new infrastructure, but great urgency to rehabilitate the infrastructure we already have.

Local and state governments are largely responsible for preserving existing infrastructure. They can use additional federal support. But we should be sure that any support is pushed toward maintenance, not new infrastructure which largely serves as a distraction. We all know that maintenance, repair, and reconstruction are not sexy. They do not result in ribbon cuttings with smiling politicians getting their pictures taken and posted in the local news. Yet on a per-dollar basis, fine-grained maintenance work employs more people than large-scale greenfield construction.

For economic impact, Levinson says the best approach is to target metro areas and focus on maintenance. But that’s not where the Trump administration’s transportation policies are pointing.

25 thoughts on Is Infrastructure Spending Good for the Economy? It’s Complicated.

  1. Your headline is extremely misleading. Public “infrastructure” includes water, electricity and public buildings, and state and local govt spend far more than the federal govt. Levinson’s piece is an argument for fix it first federal transportation spending. He is rightly concerned about wasteful and destructive spending on new highways. Your headline should reflect that and not lump spending on municipal clean water systems — which has a very high ROI as a public investment — in with highway expansions.

  2. I think it would be helpful to talk to more than one source on a topic like this.

    I seriously doubt there is a major issue with lack of “slack in the labor market.” Unemployment, a terrible metric to begin with, may be hovering near where the state thinks it should be, but wages are still far below where most people need them to be.

    Not all jobs are created equal. To shift employed workers to better jobs could have two major positives: circulate more money through the economy, and encourage higher wages in other industries as those fields compete for workers.

    There’s a huge need for more infrastructure, but it’s not the infrastructure elected officials want. The transportation infrastructure that is needed is urban transit infrastructure and intercity rail. The infrastructure they want is mostly suburban and rural highways, but most attention roads actually need has more to do with moving freight efficiently. Other things like water mains and sewers obviously need TLC too. Improving pedestrian and cyclist infrastructure would be nice too, though localities usually at least have the resources to do that without help from above.

  3. Except maintenance is expensive. And no matter how well buses are maintained, low-income residents living off Blue Hill Ave. in Roxbury and Mattapan will still be standing and packed like sardines and stuck in Blue Hill Ave traffic on the 28 bus, for example. Maintenance doesn’t add capacity or reduce operating costs, which are important for legacy systems. Maintenance also doesn’t add connections that make travel easier and more predictable. Maintenance, in other words, only goes so far.

  4. Don’t forget the electrical grid. Compared to a lot of the world, the US electrical grid is third world. Most other places have their power lines largely buried. We put them up on poles which get knocked down every time there’s a big storm.

  5. Amazingly, there are people who don’t believe this.

    Here’s something else though: If the government pays for the infrastructure, and it doesn’t result in an increase in revenues to the government that is high enough to pay for the construction and upkeep, the government will have to go broke, raise taxes or let it crumble.

  6. Another major issue in America is the need to reduce the negative impact of existing infrastructure, or remove it altogether. Basically, if you are traveling down a road at 50 mph, and you can see buildings beside the street, you are reducing the value of those buildings.

    So this

    Needs to look like this

  7. I’ve been to third world countries where the power lines are largely buried. Don’t besmirch the third world 😛

  8. I like your points about labor (since I’d agree). Infrastructure hires hard hats at a livable wage. Suggesting this is NOT a good idea is totally silly and crazy.

  9. By comparison, China is making Yuge investments in transit and renewable energy (for example) in a way that makes the U.S. look like a 3rd world country.

    Our sluggish GDP growth goes substantially to underinvestment in infrastructure at least from what the gov’t could help with. In addition to what has been already mentioned I’d add airports, ports, internet access and all manner of water management investments. It’s NOT just about roads.

    Lack of productivity also goes to, in too many cases, way too much red tape. Too many lawyers looking for work to create delay after delay after delay. Doesn’t happen in China.

  10. China has to make investments in renewable energy because air quality in many of their cities is abysmal. Part of that is the development first, regulation second (or even not at all) attitude they have. I’m not going to make a case that all regulation is positive or that the US/California does it right, but there needs to be a balance.

  11. Bernard,

    You Rhinelanders are so moderate and mellow.

    I’d push a bit more on your reccomendations.

    For example, the Santa Monica Freeway should be privatized entirely ( including land ) with zero regulatory oversight. Market clearing tolls will solve a lot.

    Use the billions raised from the sale of Santa Monica Freeway to install traffic calming measures and PBLs in all of West LA.

    Beziehungsweise LA ist dicht. Schau mahl hier

  12. I ‘m not interested in another one of these absurd arguments about how heavily populated Los Angeles is. The city is mostly empty, as the huge blue areas show. The places where you see dense population are single use zoned housing tracts, mostly filled with single family houses, and devoid of parks stores and other amenities. So the investment per acre, public and private, is quite low compared to a European city of comparable size.

    So places like this could clearly be improved by removing the stupid fence and erecting a sound barrier.,-118.3612767,3a,60y,276.88h,85.74t/data=!3m6!1e1!3m4!1sdQn5yijWzND0ZMpo1Tv7KQ!2e0!7i13312!8i6656

    But there simply isn’t as much stuff there as there is here,11.5783477,365a,35y,204.27h,44.92t/data=!3m1!1e3!4m5!3m4!1s0x479e75f9a38c5fd9:0x10cb84a7db1987d!8m2!3d48.1351253!4d11.5819805

    Or here is Essen, where they really should build a roof.,7.0472597,3a,60y,14.86h,91.49t/data=!3m6!1e1!3m4!1sKYwZIzu1nZ_TmwZx2Y2rRw!2e0!7i13312!8i6656

    BTW in Cologne they did build a roof over the highway.,6.8470135,209a,35y,128.87h,44.95t/data=!3m1!1e3!4m5!3m4!1s0x47bf259169ab2fe5:0x42760fc4a2a77f0!8m2!3d50.937531!4d6.9602786

  13. Dude,

    Take the vast area of Long Beach in pink. You really trying to suggest there are no amenities within walking distance of the housing and jobs ? Google map Broadway, 4th, 7th, Anaheim, and PCH in the pink areas.

    Take the area around Lincoln Blvd from MDR past Santa Monica – ditto

    Take Crenshaw -ditto

    Take Fairfax -ditto

    Take Whilshire from DTLA to Bev Hills – triple ditto

    I’ll take you on a walking – cycling tour of any of these areas, if you are in SoCal at the same time I am.

  14. Yeah, I’m sure you are right. Also, it’s best to focus on those spots, since the rest is hard to deal with. But you are confusing spots of potential walkability with total density.

  15. The example in Brooklyn would be a great place to put a bike path. You would have to have underpasses at the highway entrances and exits but in general it could function as a non-stop bike highway. There are probably lots of places like that in cities which could be repurposed.

    When highways or railways are elevated, you could hang a bike path off them. Taking advantage of all this existing grade-separated infrastructure could result in lots on nice, continuous, non-stop bike routes suitable for travel or recreation.

  16. If only private companies built roads for their own benefit you figure that they would allow freeloaders to use them?

    Would you rather that Interstate highway bridges fall down rather than paying to fix them? How much do bicycle riders pay to fix our roads & bridges anyway?

    I am afraid that I-64/I-65 is a major national artery connecting Chicago on the north to Indianapolis, Louisville, Nashville, Birmingham, Montgomery, and the port of Mobile, AL, while I-64 connects St. Louis to Louisville, Lexington, Charleston, WV, Beckley, WV, and then into I-81 in Virginia. It is a primary route to reach both Washington, DC and Richmond, VA as well as the docks at Norfolk and Newport News.

    In my time in the trucking business we paid an average of $10,000/year to register a single vehicle and then anywhere from 50-75 cents per-gallon in road use tax getting 6 miles per-gallon hauling your food and freight. Have you ever been worried about a creaky old bridge collapsing underneath you? I have, plenty of times.

    Just so you know that there is a whole lot more to building and maintaining a national-scale economy as well as supplying and maintaining a national-scale food supply than just piddling around with bicycle infrastructure which you don’t even pay to build or ride on.

    Imagine if we had to close a bunch of major bridges across rivers because some people didn’t want to pay to maintain or replace them? Then you would be whining about a lack of jobs and quite possibly a lack of food too.

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