Thursday, February 21, 2013

Spend Now! It'll Save Us Money.

Fiscal prudence, I argue in Bloomberg, would have us borrow for and build almost every infrastructure project on our "to-do" list right now. (As a reminder, I am a big fan of making an independent-agency "infrastructure bank" which would make that list and budget all expenses, taking it largely out of the democratic process except for the decision of how much to allocate to infrastructure spending in aggregate.)
Here's something completely wrong in the argument that the U.S. government can't afford to keep spending: Spending now will actually save the taxpayer a whole lot of money.

The logic is simple. Our government has a big list of projects that are deferrable but inevitable. Bridges must be repaired. Airports must be renovated. Electric grids require maintenance. Few of these are urgent. All of them, however, must receive funding sooner or later. And it's cheaper to do that now, with negative inflation-adjusted interest rates on federal debt and idle resources in construction, than it is later.

Deficit hawks arguing against infrastructure spending are making an error straight out of Economics 101. They're confusing accounting cost with opportunity cost.


  1. The advantage of creating an 'infrastructure bank' is that it takes infrastructure decisions out of the hands of venal politicians, who might want to spend the infrastructure money on shiny high-speed rail networks and boondoggles to appease interest groups. Politicians are less interested in the boring, gritty, more important stuff like repairing roads and electricity grids.

    There is a corollary to this, however. If politicians can't hand out infrastructure funding as bargaining chips and favours, there's going to be a powerful incentive to defund the infrastructure bank and put the money somewhere lobbyists will give them credit for.

    Right now virtually every interest group is arguing that their funds are too important to be sequestered. If the people who benefit from infrastructure projects are shut out of the political process, cutting infrastructure funding pleases everyone.

    Thus, your infrastructure bank might lead to even more underinvestment.

    1. I'm not sure I buy your story. But even if we do, there is at least a trade-off in your story between the efficiency of infrastructure spending and the amount of it. I think moving towards the former is better.