Infrastructure Spending Is No Cure-All

A lot of people on Wall Street are praising Obama’s infrastructure plan for roads, highways, tunnels, schools, green tech, and other build-outs. But they don’t know that in 2008 alone the U.S. spent $114 billion on infrastructure, following $102 billion in 2007. Didn’t do much for growth did it?

Over the past five years infrastructure spending domestically for non-defense comes to nearly $500 billion, with another $500 billion spent on defense-related infrastructure. But an academic study from the University of Chicago argues that government spending does not stimulate jobs and growth, and in fact crowds out private investment. Infrastructure spending also doesn’t create permanent new businesses, jobs, or incomes.

What Wall Street may be missing is that only a permanent change in tax-rate incentives — such as slashing the corporate tax — will reignite investment and job creation. Governments don’t create new technologies or new risk-taking. For that matter they also don’t create the new profits that are so essential to private enterprise. In the short-run, infrastructure building appears to create jobs. But these are not permanent.

The Obama package is unbalanced by relying on this infrastructure business without any real permanent reductions in tax rates or business cash-expensing for investment. That’s why the Obama plan needs to be changed.