November 16, 2011

Federal Infrastructure Spending: Neither a Good Stimulus Nor a Good Investment

Testimony Before the Joint Economic Committee
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In her testimony before the Joint Economic Committee, Veronique de Rugy argues that although infrastructure may be a good long-term investment, it is a particularly bad vehicle for stimulus and will not boost short-term job growth.

According to economic research, fiscal stimulus can be counterproductive if it is not timely, targeted, and temporary. By nature, infrastructure spending is not timely and very hard to target. Even when money is available, it can be months or even years before it’s spent.  

Since the political process encourages a systematic tendency to overestimate the benefits and underestimate the costs of infrastructure projects, the projects that are implemented are typically the ones that look the best on paper.  

This testimony offers better alternatives to federally-funded projects: private-public partnerships, privatization, or simple devolution to the states.