President-elect Obama has announced plans for a new stimulus package containing $500 billion to $700 billion worth of public works projects.
The package would be the single largest new investment in our national infrastructure since the federal highway system, he said.
Americas governors already are scrambling to compose lists of shovel-ready projects so no bridge or highway is left behind.
But while a new New Deal will produce certain visible resultsmore construction materials will be sold, more construction workers will be employed and some of the nations infrastructure may indeed be improvedit is unlikely to give the economy much of a boost.
Most projects qualifying for funding will be selected not because they are urgent national or regional priorities, or because they are likely to produce the greatest benefit at the most reasonable cost, but because they please important political constituencies: organized labor, for example.
Lets be honest: Anybody who has seen a work crew on an Interstate knows full well that the federal highway program is a poster child for pork barrel spending.
Owing to lax oversight, public works projects have always been plagued by delays, corruption, shoddy workmanship and cost overruns. Remember Bostons Big Dig?
Because Congress likely will require contractors to pay union scalethe euphemism is prevailing wagesthe costs of the projects will be bloated, even if the stimulus package doesnt lead to sensational scandals.
While unionized workers may benefit, union wages will price less-skilled workers out of construction jobs, meaning that many of the new hires will replace other workers, producing something significantly less than an employment boom.
In addition, Obamas proposed massive transfer of resources to the construction industry will shift funding away from other potentially more-valuable uses. Americas future is still the knowledge industries, not road building.
The truth is government cannot create jobs or wealth in one sector of the economy without destroying them in others. Look no further than the old New Deal for proof.
Despite all the credit given to Franklin D. Roosevelts bold experimentation in confronting the economic free fall of the Great Depression, prosperity didnt return to the United States until after World War II.
Nearly a decade of then-unprecedented increases in federal spending on public relief and public works projects never managed during the Depression to lower the unemployment rate into single digits or restore our gross domestic product (GDP) to the level it had achieved in 1929.
Attentive students of the New Deal now understand that FDRs willingness to try something and, if that didnt work, try something else, created a climate of uncertainty that discouraged private investment in the factories and equipment that could have put America back to work.
It should not be forgotten that it is Roosevelts Works Progress Administration, the WPA, to which we owe the word boondoggle.
With this years federal budget deficit now being forecast to be north of $1 trillion, perhaps even a spendthrift Congress will hesitate to add a minimum of $500 billion to the burden that will fall on the shoulders of our children and grandchildren.
But dont bet on it. Another election is just two years away, and politicians will be eager to claim credit for bringing Obamas infrastructure largesse to their states.Taxpayer money could be better spent elsewhere than on Obamas infrastructure plan.
|William F. Shughart II is Research Director and Senior Fellow at the Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, Editor-in-Chief of Public Choice, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.|
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