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Saturday, November 22, 2008

Public Works and Politics

Richard Green is worried about leaving the choice of where to invest in infrastructure to the political process:

Public Works, by Richard Green: I watched President-Elect Obama's weekly address this morning on You-tube, in which he called for a massive public works programs to help us crawl out of recession.

In principle, this is a very good idea. One of the deficiencies of policy over the past eight years (and for 20 or the past 28) has been an ideological denial of the existence and importance of public goods--goods with high fixed costs, close-to-zero marginal costs (i.e., non-rival), and goods where it is difficult to exclude. The Republican throwaway lines--you are always better at spending your own money than the government, and government doesn't solve the problem, it is the problem--represent the contempt Republicans have for public goods.

Many public goods, however, are manifestly beneficial to the economy. Even George Will cites the Interstate Highway System as an unambiguous success. Rural electrification, which has a heavily subsidized enterprise, was almost certainly a positive net present value investment for the country, as were the California aqueducts (or for that matter, the Roman aqueducts). The bridges and tunnels of New York City helped it become the world's leading city. One could go on and on.

When one looks at the long term insufficiency of our roads, our water systems, our power grid, our ports and our airports, it is clear that there are many positive NPV opportunities for government now--particularly in light of the low cost of long-term Treasury debt.

The problem is that government usually allocates investment funds via a political process, rather than a feasibility process. Government officials also often prefer grand, ineffective projects to more pedestrian, effective projects (transit officials here in LA prefer extended light rail to synchronizing the traffic lights). So if we are about to spend a lot on public works, I think we need some sort of non-partisan entity, such as the CBO, that develops a rigorous capital budget process for determining spending priorities. In the absence of such a process, we will spend money on negative NPV bridges to nowhere.

    Posted by on Saturday, November 22, 2008 at 03:33 PM in Economics, Fiscal Policy, Politics | Permalink  TrackBack (0)  Comments (15)


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