Some economists and politicians are again peddling the idea that billions of dollars in infrastructure spending will lift the U.S. economy out of the doldrums, spurring growth and raising employment and incomes. With government borrowing rates low, the argument goes, deficit finance amounts to a free lunch.
I support the federal government funding all public infrastructure projects that pass rigorous national cost-benefit tests. But here’s the rub. Most federal infrastructure spending is done by sending funds to state and local governments. For highway programs, the ratio is usually 80% federal, 20% state and local. But that means every local district has an incentive to press the federal authorities to fund projects with poor national returns. We all remember Alaska’s infamous “bridge to nowhere.”
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