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#yn-atlantic-banner img { display:block; }Pros and Cons of Spending $50 Billion on Infrastructure

WASHINGTON, DC – On Labor Day, president Obama rolled out a plan to save jobs that included$50 billion for infrastructure. The Wire already brought you theon the political savviness of the move, and whether such a stimuluswould be likely to pass. But there's also the practical question: whateffect would spending $50 billion on infrastructure actually have? Commentators seem to be divided into three camps: one group endorses the move, one backs the general idea ofinfrastructure spending but thinks this proposal is too little, too late.A third camp is against the proposal entirely, opposing the economictheory behind it and the cost.

'Much Too Small,' complains economist ,adding that "it's a good idea," in theory, and that "it won't passanyway." He accuses the administration of "once again ... strikingright at the capillaries."'Scarcely Worth the Bother,' says ,Australian economist, at Crooked Timber. "Last time I looked at aproposal to spend $50 billion on infrastructure to stimulate theeconomy, I thought it was a great idea ... Why have I changed my mind?"Well, he explains, last time the $50 billion was being spent inAustralia with "population 20 million, GDP (about) 1 trillion, stimulus about 5 per cent of GDP." This time it's being spent in the U.S. with "population 300 million, GDP (about) 15 trillion, stimulus about 0.3 per cent of GDP." It's a drop in a much larger bucket.Finally, the President Stops Relying on the Fed  at The Daily Beast hasn't liked the extent to which the president hasbeen leaning on monetary policy to solve current economic problems. Healso points out that "the last few decades have seen very littleinvestment in infrastructure in the U.S." Though Auerback is one of many to note that $50billion is a small number compared to what could be spent oninfrastructure, this wrinkle seems to bother him less than others:Torepair all the areas of infrastructure to good condition or a grade of"B" would cost $1.6 trillion over five years. Obama's plan yesterdaybarely touches that figure, but it still would be good enough torebuild 150,000 miles of roads, construct and maintain 4,000 miles ofrailways, enough to go coast-to-coast; and rehabilitate or reconstruct150 miles of airport runways, while also installing a new airnavigation system designed to reduce travel times and delays.These are the kind of projects that create long-term prosperity. Even the author of the Wealth of Nations,Adam Smith, long beloved by free-market conservatives, was very much infavor of public works and public institutions that facilitated commerce.

'An Important Step,' agrees The New York Times' ,despite its being "a first step." Though it won't solve all theinfrastructure problems overnight, "it's a smarter approach toinfrastructure investment than the wasteful, haphazard, earmark-ladenpractices that we've become accustomed to, and it will put some peopleto work in jobs that pay decent wages."Not a Fan of the Economics  Cato economist picks apart Keynesian economics at Big Government, saying governmentspending is simply not the answer in a recession. Here's "the best thatcan be said about the new White House proposals," in his view:They'reprobably not as poorly designed as previous stimulus schemes. Federalinfrastructure spending almost surely fails a cost-benefit test, buteven bridges to nowhere carry some traffic. The money would generatemore jobs and more output if left in the private sector, so themacroeconomic impact is still negative, but presumably not as negativeas bailouts for profligate state and local governments or subsidies toencourage unemployment - which were key parts of previous stimulusproposals.

Who Is Going to Pay for This?  Investment professional and economics bloggerdoubts the Obama administration's assertions that theplan is fiscally sound and will be "fully paid for." Absent anexplanation of how, exactly, the plan is being paid for, Shedlockdeclares the president "either disingenuous or a blatant liar. Is therenot even $50 billion in military spending he could cut0othing?"