Donald Trump and Hillary Clinton didn't agree on much during the recent campaign, but one thing they agreed on mightily was the need for massive new federal infrastructure spending. Trump's proposal was a $1 trillion spending program (love those huge round numbers!) over ten years. He was as usual light on specifics, but mentioned things like "airports, highways, bridges and pipelines." (Is it now going to be a taxpayer responsibility to pay for building pipelines?) Hillary's proposal, while more complex and mind-numbing, came to essentially the same thing: $500 billion, but over five years, broken into $275 billion of direct spending and another $225 billion that she was supposedly going to "leverage" by creating an "infrastructure bank" and giving it access to federally-backed credit. (How has that kind of scheme worked out with, for example, Fannie and Freddie?)
Elsewhere, it's hard to find anyone to say a bad word for increased infrastructure spending. Hey, our infrastructure is "crumbling"! Infrastructure spending was the supposed linchpin of the Obama "stimulus" of 2009 - 10. (Do you remember "shovel-ready projects"?). Keynesian economists like Paul Krugman have been advocating for greatly increased infrastructure spending for years. (For example, February 27, 2016: "[E]conomics makes a powerful case for (much) more infrastructure spending.") The document containing Hillary's proposal advises that "every $1 billion in infrastructure investment creates 13,000 jobs." Does that mean that $1 trillion in such "investment" will "create" 13 million jobs. Wow, that's almost double the number of people reported by the Labor Department as unemployed! Sounds great!
So let the Manhattan Contrarian be the first to pour a little cold water on the excitement. The chance that a massive federal infrastructure spending initiative can be a net wealth creator rather than a wealth destroyer is just about zero. Paul Krugman is not smart enough to ever figure that out, but you are. Just think about it for a minute. The key to enhancing wealth is using all resources as effectively and efficiently as possible. A huge pile of seemingly free federal infrastructure money will immediately bring forth thousands of projects whose costs cannot be justified ("bridges to nowhere") looking to get in on a cut of the loot. Many of them will then be built -- thereby diverting resources from making millions of the things that the people could have spent their own money on if it had been left up to them. When people spend their own money, they spend it cost-effectively. That's why capitalism works. When the government spends vast sums without cost-effectiveness criteria, the people become poorer, not richer.
Now, I am not at all saying that all federally-funded infrastructure spending is always a net negative. Far from it -- much federally-supported infrastructure has greatly enhanced the wealth of this country. But the key is maintaining the criteria that the idea is to fund only the most necessary and useful projects, and at the lowest possible cost. When those criteria are discarded in favor of "we want to spend as much money as we can and as fast as possible," the outcome cannot be good.
Examples are legion of federal infrastructure money incentivizing the construction of unjustifiable boondoggles. Let's consider a notable example here in my own neck of the woods.
Fifteen years ago, in the emotional aftermath of the 9/11 attacks, the federal government was in a poor position to resist demands from New York for a pile of "rebuilding" money much bigger than the World Trade Center had ever cost to construct in the first place. The next thing you know, the feds had put up $20 billion. Where should we spend all that free money? One thing that had been destroyed in the attacks was the station for the subway trains that come into lower Manhattan from New Jersey. Time to build a new station. The old station at the surface was little more than a big bank of escalators leading down. The ridership at this station has long averaged about 50,000 per weekday (and only about 10,000 on weekend days) -- substantial numbers, but plenty of the other major subway stations in New York have higher ridership. At those other stations -- like Times Square, Grand Central, and Union Square -- the above-ground manifestation of the subway station also consists of nothing more than some stairways or escalators leading down.
Here is what the Union Square subway station looks like at the surface:
But with all that free money lying around, the Port Authority went out and commissioned over-the-top Spanish architect Santiago Calatrava to design the subway station to beat all subway stations. In the early 2000s, Calatrava came up with a design for a huge building, sometimes called the "stegasaurus," that has been under construction literally ever since. It finally opened in August 2016, although small amounts of work continue on finishes. Here are pictures outside and in:
Annual ridership at this station is well less than half that at Union Square. You can see how lonely those few passengers look in the midst of the vast space of the new station. The cost of this station was originally projected to be about $2.3 billion, but of course soared during the near-decade-long process of construction. The curbed website here puts the final cost of this station at about $4.4 billion. Not a penny of it can or will be covered by the fares paid by the passengers. No problem -- it all came from the vast pile of free federal "infrastructure" loot.
Now, if you are coming to New York from points south (like Philadelphia or Washington), and your destination is somewhere in lower Manhattan, I highly recommend this new station as an entry point to the city. Get off the Amtrak train in Newark, walk across the platform, and take the PATH train to the World Trade Center station. You will get an appropriate sense of the significance of entering our nation's business capital. It's quite magnificent. And, since the opening a few months ago, ridership does seem to have ticked up a little, to close to 60,000 per weekday, rather than the previous 50,000.
But really, $4.4 billion? An expenditure like this could only happen when the decision process becomes completely unmoored from any concept of cost-effectiveness. Unfortunately, that's where the "infrastructure" fetish seems to be leading us.