Sunday, June 29, 2008

Why is there so little infrastructure investment?

Mark Thoma wonders why fiscal stimulus packages don't include infrastructure spending -- or infrastructure spending does not seem to be part of any stimulus package:

If we had included, say, infrastructure spending as part of the initial stimulus package, then the effects would kick in on a sustained basis over time rather than as a one-time hit as with the tax cuts. Thus, this type of spending could have provided the continuous stimulus Shiller is calling for. And if we are wrong and there is no recession, how big a problem is that? Well, what's so bad about building new infrastructure repairing what we already have, don't we need to do that anyway? With a stronger economy, wouldn't it be easier to pay for it? Insurance that also has investment value seems like a good bet to me. But we didn't include infrastructure spending, or any other type of sustained stimulus in the initial package, and while I'd like to see more infrastructure investment in any case, short of an obvious and sharp downturn in the outlook, there doesn't appear to be much chance of any new tax rebates, or spending on infrastructure or anything else anytime soon.

Can pork barrel projects be considered fiscal stimulus? Or what about my wild plan for telco competition? Particularly interesting would be to consider the whether an increase in maintenance and repair such as McGrattan and Schmitz in a DGE models can generate sustained growth and whether this view can be supported by the data. This is identical to the argument on whether public capital is productive. See for instance, early work by Aschauer, Mary Finn who argues that some spending such as highway spending is productive, and Evans and Karras who find that only educational inputs are productive.

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