The Political Economy of Infrastructure Stimulus

Economists have long recognized the value of infrastructure. Roads, bridges, airports, canals, and other projects are the conduits through which goods are exchanged. In many circumstances, private firms can and should be allowed to provide this infrastructure. But in other cases, there may be a role for public provision at the local level. But whatever its merits, infrastructure spending is not likely to provide much of a stimulus.

That is my colleague, Veronique de Rugy, and me. In our latest working paper, we examine the macroeconomic literature on infrastructure stimulus. In my view, the most significant problems with stimulus have less to do with macroeconomic theory and more to do with its real-world application. Lawrence Summers, an eminent Keynesian famously noted at a Brookings event a few years ago that:

Fiscal stimulus is critical but could be counterproductive if it is not timely, targeted and temporary.

In the real world, it seems that most stimulus—especially infrastructure-type stimulus—fails one or more of these tests.

The bottom line: even if it did work in theory, the political apparatus seems incapable of implementing Keynesian stimulus in the ways that Keynesians want them to. That seems to explain why Lord Keynes himself grew skeptical of the policy tool. Near the end of his life he wrote:

Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organization (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.

Here is Veronique on our piece.

2 thoughts on “The Political Economy of Infrastructure Stimulus

  1. James Devine

    I am tired of people saying Americans & their government cannot do anything right. https://neighborhoodeffects.mercatus.org/2011/09/21/the-political-economy-of-infrastructure-stimulus/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NeighborhoodEffects+%28Neighborhood+Effects%29

  2. Pingback: Politics Without Romance

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