With a life spread out over ten years, and a $550 price tag that pales in comparison to the spending spree politicians have been on for the last two years, the infrastructure bill passed by the Senate may not be that impactful. Paul Kiernan writes in The Wall Street Journal:
WASHINGTON—The bipartisan infrastructure bill is unlikely to have a big impact on growth in the next few years, economists say. Longer term, though, investments in highways, ports and broadband could make the economy more efficient and productive.
The short-term boost to growth will be relatively limited for two reasons, economists say. For one, the bill represents just $550 billion in new spending—compared with nearly $6 trillion that Congress has approved in the past year-and-a-half to battle the Covid-19 pandemic and its economic fallout.
Second, the infrastructure spending will take place over five to 10 years starting in 2022, a longer timeline than pandemic-era initiatives like stimulus checks, extra unemployment benefits and small-business support programs. That will make its direct effects on employment and demand less noticeable.
Investments that are paid for tend to lift long-term economic output more than those that add to the budget deficit, the CBO said in a report Friday, because more government borrowing crowds out private-sector investment. On Thursday, the agency reported that the infrastructure package would widen the federal deficit by $256 billion over 10 years.
The quality and cost of projects undertaken are also factors.
Research suggests the development of the interstate highway system between the 1950s and 1970s—currently 47,000 miles of multilane highways stretching coast to coast—has made the U.S. economy much more productive. But that doesn’t mean building a second such system would yield similar returns, experts caution.
“We want to avoid the bridges to nowhere,” said James Poterba, an economist at the Massachusetts Institute of Technology who has studied infrastructure. Noting that infrastructure in the U.S. already tends to be far more expensive than in other countries, he added that requirements such as employing unionized workers or using U.S.-made steel and other inputs can also inflate costs.
“We should be looking at the ways in which we can do the spending so that we are getting the most bang for the buck,” he said.
The benefits can also be reduced if federal infrastructure investment merely displaces spending by state and local governments, rather than generating projects that wouldn’t have otherwise have been built. The CBO projected Friday that state and local governments would reduce their spending by 15 cents for each dollar of federal spending.
Read more here.