A popular idea nowadays is to expand infrastructure spending. The view is that this would revive the economy and create jobs that were destroyed by the sub-prime mortgage crisis as it spread throughout the economy.
Both the Barak Obama administration and Prime Minister Stephen Harper accepted that proposal. As a result, the North American governments will increase spending for the construction of roads, sewers, tunnels and similar-works.
Initially, the most powerful criticism of those plans is that they seem to permit our politicians to spend huge sums at their discretion.
While the purpose of those programs primarily is to create jobs, there is a widely acknowledged need to repair our worn out infrastructure, such as the Gardiner Expressway leading to Toronto, and to update Highway 401. Mimicked are the 1930s relief efforts in the United States and their interstate highway expansion in the 1950s.
Our politicians always are eager to spend public money with the hope that it will reinforce their popularity. All but forgotten is history. Major public works often lead to worthwhile improvements, but the central point of this kind of spending is “pump-priming,” to reverse the trajectory of the economy and restore some measure of prosperity. Also, is it sensible to expand road and highway networks rather than improving public transportation?
The spending plans of the U.S. and Canadian administrations will not accomplish as much as expected. The annual outlays of the U.S. stimulus package amount to about 3 or 4 per cent of the U.S. gross domestic product, the same percentage as the Roosevelt program in the 1930s. That did very little to lift that economy out of its quagmire. Only the war expenditures that consumed 29 per cent of GDP led to a real return of full employment there. Certainly, that total far exceeds anything planned in Canada or the United States.
There are other problems with these types of stimulus packages. They necessitate considerable advance planning, and they require years before being implemented. As well, projects always are slow to get going because of the difficulty of putting any government plan into action.
Furthermore, much of the money would be spent on materials provided by imports, not domestic sources of supply.
Infrastructure projects tend to employ architects, engineers, and higher wage construction workers, rather than the poorest, unskilled workers seeking employment. Also, government projects almost invariably mean sloth and a lack of competitive activity.
Acclaimed columnist Walter Lippmann wrote in the 1930s that public works as an instrument of economic recovery “must be put down as worse than a failure.” The amount of net additional employment was negligible.
Thus, we should review the history of that experiment before we jump on the bandwagon of infrastructure spending as the remedy for our economic woes.