Why a Massive Infrastructure Stimulus Bill Is a Bad Idea

By Robert Poole of Reason.

"Pressure from state departments of transportation (DOTs) and construction interests is encouraging many in Congress to enact yet another massive coronavirus stimulus bill, this one focused largely on infrastructure. The idea that there is as much as $2 trillion (President Trump’s figure) in worthwhile infrastructure improvements that could be carried out in the next year or two (to put people back to work) is fanciful. History tells us that another massive stimulus, already being pitched by the president as a jobs bill, is far more likely to waste taxpayers’ money on pet projects than actually fix and modernize America’s infrastructure.

Many advocates of infrastructure-as-stimulus point to the Great Depression and Franklin Delano Roosevelt’s (FDR’s) massive public works program that built highways, bridges, irrigation projects, Hoover Dam, and numerous public buildings. But there are major differences between the 1930s and today.

First, construction in those days employed huge numbers of unskilled laborers, rather than today’s skilled trades using high-tech machinery. Second, mega-projects back then did not have to go through five-to-10 years of environmental studies before construction could start. Hoover Dam, for example, was designed and built in just five years. Nothing like that could happen today.

How much new construction or rebuilding of crumbling infrastructure was accomplished by the American Recovery and Reinvestment Act of 2009 (ARRA)? It doled out $26.7 billion to states for highway projects. Jeff Davis of the Eno Center for Transportation analyzed this and earlier efforts in an excellent overview piece published in March. He shows that “ARRA spending largely replaced—not supplemented—regular Highway Trust Fund spending.”

Moreover, there were very few shovel-ready projects able to begin on short notice, so much of the ARRA highway money was spent on resurfacing existing roads—hardly “rebuilding America’s crumbling infrastructure.” Davis also notes that, “There are only so many highway contractors in each state, and only so many state DOT engineers to supervise the projects,” which is likewise the case today. A study by the St. Louis Fed in 2017 found that the ARRA highway money had no significant impact on highway or bridge conditions or jobs.

In 2018, the Congressional Budget Office released a working paper that reviewed economic literature on how federal grants affect state DOT spending. It found that “in most of the literature, researchers studying federal grants for highways have found that state and local governments reduce highway spending from their own funds as federal grants increase.” The range of this impact is wide, however; each $1 increase in federal grants reduced state own-funds spending from 20 cents to 80 cents. In his Eno article, Davis also reviews previous examples of federal highway stimulus in 1958, 1975, 1983, and 1991.

Davis makes a larger point that is worth repeating here: “The slowness of capital spending makes it a poor fit to counter any short-term downturn in the business cycle…But increasing capital spending in general, and infrastructure spending in particular, is something that all levels of government should probably need to be doing anyway (if well-targeted to the projects that provide the greatest long-term benefits).” (emphasis added)"