Infrastructure-Spending Benefits Questioned

By Mark Magnier of the WSJ. Excerpts:

"“When you flip the infrastructure switch, the light doesn’t necessarily turn on,” said Andrew M. Warner, an economist at the International Monetary Fund. “The returns are a long way from being automatic.”"

"Washington-based Progressive Policy Institute concludes that every dollar spent on U.S. roads, bridges and public transport spurs $1.50 to $2 of growth."

"In the 1980s, research by economist David A. Aschauer concluded infrastructure spending produced sizable benefits, sparking others to posit that projects could pay for themselves nearly three times over through added tax revenue. Later research using more refined models that factored in the impact of higher taxes needed to pay for building programs, for example, pared these estimates.

Mr. Warner, in an August paper, found little evidence that infrastructure projects spark economic booms. While big projects are often credited with spurring growth, he says, many are initiated after an economy is gearing up and may be a result, rather than the cause, of expansion."

"He cites the cases of South Korea and Taiwan, which saw high growth for decades without evidence of an infrastructure-led boost, and Bolivia, Mexico and the Philippines, which saw low growth despite high infrastructure spending.

Another potential problem is the reliability of data used to justify many projects, much of which comes from government agencies and groups with a vested interest in approval.

Politicians often prefer dams, long-distance highways and bullet trains that make the news, critics add, rather than schools, hospitals and smaller projects that may be more economically productive."

"A more recent IMF report hit a cheerier note. Conditions for ramped-up investment are ideal, it said, provided projects are well chosen and structured, address a pressing need, are financed through efficient public investment systems and pass a vigorous risk-benefit analysis." (that is a pretty tough list of requirements)