Wednesday, November 19, 2008

"That is, if you really want to boost growth, then the infrastructure spending does actually have to be a good investment"

Here's an interesting idea which combines three things:

1) Fighting Urban Sprawl
2) The Current Stimulus Plan
3) What To Spend It On

"David Altig, research director at the Atlanta Fed and a blogger at macroblog, has a post up on the question of infrastructure spending as stimulus. He agrees that timing issues are not, at this point, important, but after examining the impact of public works spending on growth he concludes:

More than most of the currently popular stimulus ideas, the benefits of increased infrastructure spending really do seem to depend critically on the specifics. Best to think about those specifics sooner rather than later.

That is, if you really want to boost growth, then the infrastructure spending does actually have to be a good investment, rather than building for the sake of building (which would be consumption). In the Times, David Leonhardt agrees, writing:

And yet when it comes to the nation’s infrastructure, money isn’t the main problem.

A lack of adequate financing is part of the problem, without doubt. But the bigger problem has been an utter lack of seriousness in deciding how that money gets spent. And as long as we’re going to stimulate the economy by spending money on roads, bridges and the like, we may as well do it right."

Here's my comment on Paul Krugman's blog on Nov. 12th:

"I mean, surely on what and where you spend the money is as relevant as the total number? Or are you simply assuming that the money goes out and that’s it? Is this organic or mechanical?"

The post continues:

"We do a pitiful job of determining how to spend our money. Leonhardt suggests that we need to take a broad view of the contributions of any given project. Planners should have to prove that road construction will reduce traffic (good luck!), and transit projects should take into account things like emissions and energy consumption. He gets points for mentioning that congestion pricing is a useful tool to limit congestion and provide information about transportation demand (and demerits for excessiving lauding of Ma Pete). But what he doesn’t mention, but what is pretty critical, is that infrastructure projects ought to take into account their effect on land-use."

This seems correct.

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