By the Editor
Our country is suffering from a massive economic shock due to the coronavirus pandemic. Over 20 million people have been added to the unemployment rolls in a matter of weeks and thousands of businesses have been forced to close. The crisis has motivated a broad range of government responses focused on supporting those in need. Now a massive federal infrastructure bill is being floated. Proponents claim this will provide jobs for the recently unemployed and add needed stimulus to the economy. This is the wrong idea at the wrong time.
All around us, we see carnage in the employment market. The desire to alleviate this suffering is understandable. However, infrastructure initiatives are poorly suited to help. Most of the recent job losses are in service industries such as travel, tourism, restaurants, entertainment, and the like. Infrastructure projects tend to generate jobs in more specialized areas such as construction, engineering, and project management. The current wave of unemployed are not well-suited for these types of jobs. They would benefit from more targeted forms of aid.
What about the goal to stimulate the economy? Large infrastructure projects are typically slow to get underway, undermining the potential for boosting the economy anytime soon. Also, due to the nature of the crisis, the impact of stimulus spending is likely to be muted as large numbers of people continue to stay home, either due to government direction or general caution.
We need to prioritize our spending and focus our efforts on initiatives with the most impact. The government response to this crisis thus far has been unprecedented, around $2 trillion dollars (close to 10% of GDP) in federal spending. The resulting increase in national debt has been precipitous, leaving us with limited resources. In this context, infrastructure projects are highly problematic because they are notoriously prone to cost overruns and squandering taxpayer dollars.
As currently practiced, large-scale federal infrastructure projects are inherently wasteful and should not be undertaken at all without fundamental reform. The use of public-private partnerships should be considered as a way to source additional investment capital and leverage valuable project management expertise. The bidding process should be reformed to give a fair opportunity to non-union workers, thereby lowering labor costs and increasing efficiency. The permitting process and environmental reviews should be streamlined to avoid the extensive delays typically seen with large infrastructure projects. Without these reforms, infrastructure projects are likely to waste far too much time and money.
If the federal government does pursue an infrastructure bill, spending should be carefully prioritized to maximize the impact of our limited funds. It is far too easy for politicians to hijack large spending bills and divert funds to special interests or politically favored groups. To guard against this wasteful practice, rigorous and transparent cost-benefit analysis should be an important element of this exercise.
This will help to ensure that any federally-driven capital projects have clear and compelling long-term value propositions with the potential to increase economic productivity. Some examples include modernizing the electrical grid or updating our air traffic control system. We should vigilantly avoid wasteful white elephant projects such as cross-country high-speed rail or alternative energy schemes that cannot be justified on their own economic merits.
A robust cost-benefit analysis process would also have the advantage of giving due consideration to critical maintenance and repair projects. Maintenance can provide an attractive return on investment but is often wrongly overlooked in favor of more grandiose undertakings.
Another strategy to optimize government infrastructure spending is to use block grants to the states. Local governments are well placed to know how to most efficiently allocate scarce resources to achieve the best outcome for their constituents. The effectiveness of these block grants could be increased by requiring recipients to contribute modest co-investments and perform and publish cost-benefit analysis to justify their spending decisions.
As we scramble to overcome this crisis, the suggestion for a massive infrastructure bill is poorly suited to our current challenge. This proposal will not be effective in putting the recently unemployed back to work and the objective of using infrastructure spending to stimulate the economy is unlikely to be very effective in the current circumstances. Our government is currently facing immense demands on its fiscal resources so it is imperative that we wisely allocate our limited firepower for maximum benefit. Without fundamental reform to the process for undertaking infrastructure projects, such an initiative will result in an unacceptable waste of our scarce resources. At the very least, any infrastructure spending should be subject to thorough and transparent cost-benefit analysis to optimize its impact.
The Editor