Why More Highway Spending Won’t Rev Up the Economy

The U.S. road network is already big—and adding to it won’t boost GDP growth in the long term, economists say

By David Harrison of The WSJ. Excerpts: 

"One of the few things that Democrats and Republicans agree on is that spending billions of dollars on America’s roads would boost productivity and the U.S. economy’s growth prospects.

Economists aren’t so sure. A wide body of research focused on the effects of highway spending suggests that major new investment in U.S. roads would generate little, if any, long-term economic gain.

While the projects would spur hiring and spending temporarily, both when they are announced and under way, they aren’t likely to raise the economy’s productivity and, in turn, its overall growth potential in a lasting way, many researchers find.

That is because the U.S. already has an extensive system of roads, so building more wouldn’t add much to productivity, economists say."

"Development of the U.S. interstate highway system between the 1950s and 1970s—currently 47,000 miles of multilane highways stretching coast to coast—did make the economy much more productive, John Fernald, an economist at the Federal Reserve Bank of San Francisco, wrote in a 1999 paper.

The system meant a cross-country trip that used to take months could be accomplished in days. Businesses gained access to new suppliers and new customers. Cities were able to specialize in certain industries. International trade opened up. By one estimate, the U.S. economy would be 3.9% smaller today without the interstate highway system.

But those gains all came about when the highways were built. By now, the gains have been reaped."

"Charles Hulten, an economist at the University of Maryland, found that infrastructure investment in developing countries like India resulted in increased productivity and higher growth rates. In developed countries with vast road networks, such as the U.S., new investment resulted in no change in overall productivity and growth.

A group of economists in Spain studying that country’s infrastructure spending between 1964 and 1991 concluded that the investment earlier in the period produced greater economic gains than investments later, when much of the infrastructure was already in place."

"in developed countries, whatever local benefits come from highway improvements come at the expense of other locations. In other words, road spending reallocates the pie but doesn’t make it bigger."

"new investments “lead to a displacement of economic activity while net growth effects are limited.”"

"In a 2012 paper, San Francisco Fed economists Sylvain Leduc and Daniel Wilson found that new spending on roads can boost an area’s economy at two specific times: immediately after the new spending has been announced, and six to eight years later, when construction is under way. Beyond 10 years, there were no economic benefits to infrastructure spending, they found.

Moreover, the immediate effect applies only during recessions, they wrote. It’s unclear whether the U.S. would see that short-term boost now that the economy is expanding rapidly.

Some of the spending lawmakers are considering could ease congestion. But those improvements would also be temporary. Adding more highway lanes to ease congestion tends to encourage more people to use those lanes, making them congested once more, a phenomenon known as “induced demand.”"

"areas that added road miles saw a proportional increase in driving, resulting in the same overall traffic levels."