Economic Perspectives on Infrastructure Investment

"... Honolulu... planners proposed an ambitious rail transit line that would sweep riders 20 miles into downtown. The $4 billion estimate in 2006 was hardly cheap, amounting to $200 million per mile. The launch dates slipped forward and the cost estimates crept upward — at latest count, $11.4 billion, with a target completion date of 2031..... When California voters approved a bond in 2008 for a high-speed rail system from Los Angeles to San Francisco, the project was supposed to cost $33 billion and be completed by 2020. The job is now projected to finish in 2033 for $100 billion, though those estimates are dated..... Lengthy delays have also affected New York’s East Side Access extension of the Long Island Rail Road. That project was supposed to be completed by 2011. Early estimates put the cost at $2.2 billion, then $4.3 billion in 2006 and $6.4 billion in 2008. The Metropolitan Transportation Authority now envisions completion in December 2022 at a cost of $11.1 billion....At the former Hanford nuclear weapons site in Washington State, the Energy Department announced a 17-year delay and estimated the system would become fully operational in 2036.The last cost estimate for the plant was $17 billion, up from $12.3 billion in 2013 and about $4 billion 20 years ago.... tribulations are far from a lone cautionary tale. To the contrary, they signal the kind of cost overruns, engineering challenges and political obstacles that have made it all but impossible to complete a major, multibillion-dollar infrastructure project in the United States on budget and on schedule....Bent Flyvbjerg, a professor at the University of Oxford who has studied scores of projects around the world, found that 92 percent of them overran their original cost and schedule estimates, often by large margins — in part, he said, because cost estimates are “systematically and significantly deceptive.”...Setbacks that resulted in delays... plague nearly all major infrastructure projects; the common mistake is in not planning and budgeting for them, said Joseph Schofer, a Northwestern University civil engineer and originator of the “Infrastructure Show” podcast. "We haven’t gotten honest estimates in a lot of cases.”... In a candid admission of how the political world operates, Willie Brown, the former mayor of San Francisco, once dismissed cost overruns on a transportation hub intended for the bullet train.....“In the world of civic projects, the first budget is really just a down payment,” he wrote in a guest newspaper column in 2013. “If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big there’s no alternative to coming up with the money to fill it in.”..."

Ralph Vartabedian, "Years of Delays, Billions in Overruns: The Dismal History of Big Infrastructure,"New York Times, November 28, 2021, https://www.nytimes.com/2021/11/28/us/infrastructure-megaprojects.html

Years of Delays, Billions in Overruns: The Dismal History of Big Infrastructure

As Honolulu sprawled into new suburbs west of Pearl Harbor over the last two decades, city planners proposed an ambitious rail transit line that would sweep riders 20 miles into downtown. The $4 billion estimate in 2006 was hardly cheap, amounting to $200 million per mile.

The cost escalation since then has been an engineering marvel all its own. Concerns over Native Hawaiian burial grounds stalled early construction, then problems with welding and cracks in the tracks appeared. Earlier this year, engineers realized that in some sections, the wheels were a half-inch narrower than the rails. Order new wheels? Tear up the tracks?

The launch dates slipped forward and the cost estimates crept upward — at latest count, $11.4 billion, with a target completion date of 2031.

Honolulu’s tribulations are far from a lone cautionary tale. To the contrary, they signal the kind of cost overruns, engineering challenges and political obstacles that have made it all but impossible to complete a major, multibillion-dollar infrastructure project in the United States on budget and on schedule over the past decade.

As the nation sets out on a national spending spree fueled by the $1.2 trillion infrastructure bill signed by President Biden this month, the job ahead carries enormous risks that the projects will face the same kind of cost, schedule and technical problems that have hobbled ambitious efforts from New York to Seattle, delaying benefits to the public and driving up the price tag that taxpayers ultimately will bear.

American cities and states were long renowned for some of the greatest bridges, water systems and freeways in the world, but challenges have grown more potent. Agencies have less internal technical talent. Legal challenges have grown stronger under state and federal environmental laws. And spending on infrastructure as a fraction of the economy has shrunk, giving local agencies less experience in modern practices.

The $1.2 trillion package has bold goals, directing the majority of $500 billion to highways, $39 billion to urban transit, $65 billion to broadband projects and $73 billion to electrical grids, among other items. The nation’s busiest passenger rail line, Amtrak’s Boston-to-Washington corridor, would get the biggest slice of a $66 billion rail package. The infrastructure spending plan is unlikely to rescue some existing infrastructure projects that are bogged down with problems.

And even with the new infusion of money, analysts say it will be tough to ramp up infrastructure progress as swiftly as envisioned in the current timetable.

The construction industry is facing sharply growing costs for steel products, up by 142 percent in the last 12 months, and other key materials. Shortages of skilled labor are worsening, exacerbated by Covid-induced retirements.

“A lot of people would like to see the money quickly spent,” said Anirban Basu, chief economist of Associated Builders and Contractors, a construction industry trade group. “They are going to look at the costs they are facing and extend out the projects because of constraints.”

Bent Flyvbjerg, a professor at the University of Oxford who has studied scores of projects around the world, found that 92 percent of them overran their original cost and schedule estimates, often by large margins — in part, he said, because cost estimates are “systematically and significantly deceptive.”

“A lot of projects are not delivering what they promised to deliver,” he said.

In Baltimore this month, Mr. Biden lamented that U.S. infrastructure was once rated the world’s best and now, “You know what we rank in infrastructure? Thirteenth in the world.”

In some cases, U.S. construction costs are higher than those in Western Europe and democratic nations in Asia, according to an upcoming University of California, Berkeley, analysis, said Ethan Elkind, a law professor and director of the school’s climate program.

“It is a lot harder to build projects here, and we are not as skilled at doing it,” he said.

When California voters approved a bond in 2008 for a high-speed rail system from Los Angeles to San Francisco, the project was supposed to cost $33 billion and be completed by 2020. The job is now projected to finish in 2033 for $100 billion, though those estimates are dated and there is an $80 billion funding gap.

The ambitious project, the nation’s most serious effort to build a full-scale bullet train, has encountered serious delays because of land acquisition issues, environmental litigation, permit setbacks, employee turnover and significant design changes. The problems have triggered political infighting even with the Democratic supermajority in California.

Lengthy delays have also affected New York’s East Side Access extension of the Long Island Rail Road, which is supposed to cut up to 40 minutes off commuter time on the last segment, from Queens to Grand Central Terminal, with up to 24 trains per hour at peak times.

Conceived more than a half century ago, with a construction contract awarded in 2006, that project was supposed to be completed by 2011. Early estimates put the cost at $2.2 billion, then $4.3 billion in 2006 and $6.4 billion in 2008. The Metropolitan Transportation Authority now envisions completion in December 2022 at a cost of $11.1 billion. Design changes, underground tunneling problems and coordination with other agencies were some of the factors in the delays and cost increases.

One of the nation’s most important environmental infrastructure projects, and perhaps the most technically difficult one, has been underway in Central Washington State for decades at the former Hanford nuclear weapons site. Since 2013, major construction has been stopped at two partially built plants to treat and vitrify 56 million gallons of radioactive sludge.

When an independent review in 2015 found 362 significant design problems, the Energy Department announced a 17-year delay and estimated the system would become fully operational in 2036.

The problems included the failure to anticipate the potential for an earthquake to damage equipment and the possibility that the chemical processes to separate high-level radioactive materials could cause explosive hydrogen gas to form.

The delays have pushed the Energy Department to adopt an alternative that would start treating low-level waste by the end of 2023, Washington State officials said. The last cost estimate for the plant was $17 billion, up from $12.3 billion in 2013 and about $4 billion 20 years ago.

The rail project in Hawaii was intended to relieve congestion on a par with Los Angeles along the urban band from East Kapolei to the core of Honolulu.

The Honolulu Authority for Rapid Transportation believes it can address the latest track problems by welding certain sections of track and later replacing wheels to match the track size, said a spokesman, Harry Cho.

The setbacks that resulted in delays — archaeological surveys, labor costs, utility relocations and land acquisition — are the kind of challenges that plague nearly all major infrastructure projects; the common mistake is in not planning and budgeting for them, said Joseph Schofer, a Northwestern University civil engineer and originator of the “Infrastructure Show” podcast.

“You can’t say these were an accident,” he said of most cost overruns. “We could do better. We haven’t gotten honest estimates in a lot of cases.”

Mr. Schofer said many projects are justified by estimating that future benefits will exceed costs, but when the costs go up astronomically, no one recalculates the ratio.

In a candid admission of how the political world operates, Willie Brown, the former mayor of San Francisco, once dismissed cost overruns on a transportation hub intended for the bullet train.

“In the world of civic projects, the first budget is really just a down payment,” he wrote in a guest newspaper column in 2013. “If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big there’s no alternative to coming up with the money to fill it in.”

U.S. Transportation Department officials declined to comment for this article, but Biden administration officials have said the new infrastructure package will redress decades of neglect and will boost the efficiency of the American economy, address climate change and provide immediate jobs in construction.

“We’re going to reduce congestion,” Mr. Biden said. “We’re going to address repair and maintenance backlogs, deploy state-of-the-art technologies and make our ports cleaner and more efficient.”

Mr. Flyvbjerg, the Oxford professor, said infrastructure keeps getting more expensive at a time when many products, such as televisions, refrigerators and computers, get cheaper or better each year.

“Big infrastructure is becoming cost prohibitive,” he said, a problem he blames on institutional sclerosis at government agencies that keep repeating mistakes and choose infrastructure projects that are unlikely to succeed.

The mistakes, he said, include a lack of transparency to the public, flawed contracts that put government agencies at the mercy of contractors and a failure to attract enough private investment to bear some of the project’s risk.

The new infrastructure law, he said, does little to change the outlook.

Ronald N. Tutor, chief executive of Tutor Perini, a California firm that is building some of the nation’s largest projects, said the industry has done a good job of advancing and completing projects that by their nature are complex and unpredictable.

“All the major projects have cost and schedule issues,” he acknowledged. “The truth is these are very high-risk and difficult projects. Conditions change. It is impossible to estimate it accurately. That is naïve.”

The infrastructure law takes some initial steps at reforms, including codifying a Trump executive order to name a lead federal agency for each project, reducing the number of chefs in the kitchen, said Diana Furchtgott-Roth, who formerly oversaw Transportation Department research and technology and now is a George Washington University adjunct professor.

A key factor is the amount of time federal agencies spend to review environmental reports and issue records of decision, she said. In many cases, she said, projects are put on hold for years, while agencies review voluminous documents.

Mr. Biden also named a task force to carry out the infrastructure program with an aim to “invest public dollars efficiently, avoid waste and focus on measurable outcomes for the American people.”

The environmental review process has become so complex, in part to defend against inevitable lawsuits, that neither state agencies nor federal departments can write and review the documents without teams of outside consultants.

Most of the spending under the $1.2 trillion infrastructure plan has been previously authorized, but the law includes $550 billion of new money to be spent in as little as five years.

Federal, state and local agencies were working their way through $270 billion a year in authorized spending in 2019, before the pandemic hit. An attempt to bump that up by an additional $100 billion annually, as envisioned, represents a 37 percent jump that may not be possible to achieve, industry analysts warn.

“It is a very big bump,” said Ken Simonson, chief economist at Associated General Contractors of America, which represents major infrastructure builders. “My guess is that we are not going to see $550 billion spent in the first five years.”

Properly trained talent as a potential limiting constraint to infrastructure, “…The issue underscores a perennial challenge for the skilled trades. Not enough young people are entering the sectors, a concern for companies as older workers retire from construction, carpentry and plumbing jobs. And although many skilled trade positions have competitive wages and lower educational barriers to entry, newer generations tend to see a four-year college degree as the default path to success. Infrastructure workers tend to be older than average, raising concerns about workers retiring and leaving behind difficult-to-fill positions. The median age of construction and building inspectors, for instance, is 53, compared with 42.5 for all workers nationwide. Only 10 percent of infrastructure workers are under 25, while 13 percent of all U.S. workers are in that age group, according to a Brookings Institution analysis…. Nicholas Kadavy, a third-generation mason who owns Nebraska Masonry in Lincoln, Neb., has seen his workload triple since April. He said his company had already scheduled out work until June 2022. He wants to hire more skilled masons to finish the projects sooner, but he can’t find enough people to fill the dozen positions he has open, even though he is willing to pay up to $50 an hour — twice what he offered before the pandemic. He checks his email daily, waiting for more applications to come in. “My biggest struggle is finding guys that want to work,” Mr. Kadavy said. Even when he does hear from applicants, Mr. Kadavy said, he is unable to hire many of them because they are not qualified enough. He was already seeing a shortage of skilled masons before the pandemic, he said, and he worries that the craft is “dying” because newer generations are not pursuing the field. The nation’s public transit systems would receive $39 billion under the infrastructure bill, allowing agencies to expand service and upgrade decades-old infrastructure. But transit agencies are dealing with worker shortages of their own, facing a dearth of bus drivers, subway operators and maintenance technicians. Metro Transit in Minneapolis is trying to hire about 100 bus drivers by the end of the year, said Brian Funk, the agency’s acting chief operating officer. The agency had originally aimed to hire 70 workers by the end of June, but it met only about half of that goal….”

Madeleine Ngo, "Skilled Workers Are Scarce, Posing a Challenge for Biden’s Infrastructure Plan,"New York Times, September 12, 2021, https://www.nytimes.com/2021/09/09/us/politics/biden-infrastructure-plan.html

Skilled Workers Are Scarce, Posing a Challenge for Biden’s Infrastructure Plan

WASHINGTON — The infrastructure bill that President Biden hopes to get through Congress is supposed to create jobs and spur projects for companies like Anchor Construction, which specializes in repairing aging bridges and roadways in the nation’s capital.

But with baby boomers aging out of the work force and not enough young people to replace them, John M. Irvine, a senior vice president at Anchor, worries there will not be enough workers to hire for all those new projects.

“I’d be surprised if there’s any firm out there saying they’re ready for this,” said Mr. Irvine, whose company is hiring about a dozen skilled laborers, pipe layers and concrete finishers. If the bill passes Congress, he said, the company will most likely have to double the amount it is hiring.

“We will have to staff up,” Mr. Irvine said. “And no, there are not enough skilled workers to fill these jobs.”

Mr. Biden has hailed the $1 trillion infrastructure bill as a way to create millions of jobs, but as the country faces a dire shortage of skilled workers, researchers and economists say companies may find it difficult to fill all of those positions.

The bill could generate new jobs in industries critical to keeping the nation’s public works systems running, such as construction, transportation and energy. S&P Global Ratings estimated that the bill would lift productivity and economic growth, adding $1.4 trillion to the U.S. economy over eight years. But if there is not enough labor to keep up with the demand, efforts to strengthen the nation’s highways, bridges and public transit could be set back.

“Do we have the work force ready right now to take care of this? Absolutely not,” said Beverly Scott, the vice chair of the President’s National Infrastructure Advisory Council.

A recent U.S. Chamber of Commerce survey found that 88 percent of commercial construction contractors reported moderate-to-high levels of difficulty finding skilled workers, and more than a third had to turn down work because of labor deficiencies. The industry could face a shortage of at least two million workers through 2025, according to an estimate from Construction Industry Resources, a data firm in Kentucky.

The pandemic has compounded labor shortages, as sectors like construction see a boom in home projects with more people teleworking and moving to the suburbs. Contractors have also faced a scarcity of supplies as prices soared for products like lumber and steel.

Job openings in construction have picked up at a rapid clip after the sector lost more than one million jobs at the beginning of the pandemic. According to an Associated Builders and Contractors analysis, construction job openings have increased by 12 percent from prepandemic levels. But the sector is still down about 232,000 jobs from February 2020, according to data from the Bureau of Labor Statistics.

The issue underscores a perennial challenge for the skilled trades. Not enough young people are entering the sectors, a concern for companies as older workers retire from construction, carpentry and plumbing jobs. And although many skilled trade positions have competitive wages and lower educational barriers to entry, newer generations tend to see a four-year college degree as the default path to success.

Infrastructure workers tend to be older than average, raising concerns about workers retiring and leaving behind difficult-to-fill positions. The median age of construction and building inspectors, for instance, is 53, compared with 42.5 for all workers nationwide. Only 10 percent of infrastructure workers are under 25, while 13 percent of all U.S. workers are in that age group, according to a Brookings Institution analysis.

“The challenge is, how are we going to replace — not just grow, but replace — many of the workers who are retiring or leaving jobs?” said Joseph W. Kane, a fellow at the Brookings Institution. “A lot of people, especially younger people, just aren’t even aware that these jobs exist.”

Community colleges, which offer a variety of vocational training programs, have suffered steep declines in enrollment. A recent estimate from the National Student Clearinghouse Research Center found that community colleges were the hardest hit among all colleges, with enrollment declining by 9.5 percent this spring. More than 65 percent of the total undergraduate enrollment losses this spring occurred at community colleges, according to the report.

Nicholas Kadavy, a third-generation mason who owns Nebraska Masonry in Lincoln, Neb., has seen his workload triple since April. He said his company had already scheduled out work until June 2022.

He wants to hire more skilled masons to finish the projects sooner, but he can’t find enough people to fill the dozen positions he has open, even though he is willing to pay up to $50 an hour — twice what he offered before the pandemic. He checks his email daily, waiting for more applications to come in.

“My biggest struggle is finding guys that want to work,” Mr. Kadavy said.

Even when he does hear from applicants, Mr. Kadavy said, he is unable to hire many of them because they are not qualified enough. He was already seeing a shortage of skilled masons before the pandemic, he said, and he worries that the craft is “dying” because newer generations are not pursuing the field.

The nation’s public transit systems would receive $39 billion under the infrastructure bill, allowing agencies to expand service and upgrade decades-old infrastructure. But transit agencies are dealing with worker shortages of their own, facing a dearth of bus drivers, subway operators and maintenance technicians.

Metro Transit in Minneapolis is trying to hire about 100 bus drivers by the end of the year, said Brian Funk, the agency’s acting chief operating officer. The agency had originally aimed to hire 70 workers by the end of June, but it met only about half of that goal.

Although he is optimistic that the agency will be able to fill those remaining positions after ramping up efforts to promote the openings, he said he was still wary about some workers choosing to leave.

“We know that every day that goes by, there’s the potential that somebody else is looking at either retirement or another job,” Mr. Funk said.

Some are optimistic that policymakers will be able to scale up work force development programs to keep up with the demand the infrastructure bill would create. Projects could take several months to get started, economists said, giving the country time to train workers who are not yet qualified.

“These problems are not insurmountable,” said Nicole Smith, the chief economist at the Georgetown University Center on Education and the Workforce. “Not having a sufficiently trained work force is something that can be addressed.”

But others are worried that the bill does not do enough to draw more people into infrastructure fields, especially historically underrepresented groups like women and people of color. Although Mr. Biden originally proposed a $100 billion investment in work force development, that funding was left out in the latest version of the bipartisan infrastructure bill. The funding would have invested in job training for formerly incarcerated people and created millions of registered apprenticeships, among other things.

Last week, the National Skills Coalition and more than 500 other organizations sent a letter to congressional leadership calling on it to include the funding in a separate reconciliation bill.

“President Biden promised that economic recovery was going to be predicated on equity,” said Andy Van Kleunen, the chief executive of the National Skills Coalition. “Work force training has to be part of that answer.”

When states get federal highway dollars they substitute those for their own highway spending. The Recovery act from the last recession, therefore, didn’t improve highways much because the level of spending stayed roughly constant. Bill Dupor reports the 2009 Federal stimulus money had no net impact on highway infrastructure as states used the Federal dollars to offset their own existing highway spending, "...I first show that, despite the tremendous influx of federal funds, the highway system showed little improvement. For example, in 2008, 26.9 percent of the nation’s bridges were classified as either structurally deficient or functionally obsolete. In 2011, this percentage was nearly unchanged at 25.4 percent. In the three years following passage of the Recovery Act, the number of workers on federal-aid highway projects changed only negligibly. Moreover, over 40 percent of the U.S. population lived in states where highway construction spending, from all sources, was lower in 2010 (post-passage) than in 2008 (pre-passage). Over the same time, many of these states increased spending on some non-transportation items. Although the act specified that the highway funds be put to specific use, it is important to recognize that state governments were already spending significant amounts of their own dollars on highways—for example, $50.1 billion in 2008. Upon receipt of new federal funds, states could potentially cut their own contributions to highway capital spending which, in turn, would free up those funds for other uses.Since states were facing budget stress from declining tax revenues resulting from the recession, it stands to reason that states had the incentive to do so. I also explain how the language of the act made it possible for many state government officials to cut states’ own spending on highways upon receipt of Recovery Act dollars. In fact, 15 states cut their total highway capital spending (i.e., from all sources) between 2008 and 2010, freeing up their own funds for other uses. Second, I estimate the grants’ effect on highway spending. That is, how much did the grants increase highway infrastructure investment relative to a no-stimulus baseline? I conduct statistical tests, which deliver results consistent with federal aid “crowding out” state spending. Specifically, I run cross-sectional, state-level regressions of per capita Recovery Act FHWA dollars on the post-enactment change in per capita highway infrastructure spending. If there is no crowding out—that is, fiscal substitution—then one would expect a one-for-one dollar increase in highway spending when a state received FHWA Recovery Act grants. I do not find a one-for-one response. Instead, I find that there is no statistically significant effect of FHWA Recovery Act grants on state highway infrastructure spending. In my benchmark specification, a point estimate indicates that each Recovery Act FHWA grant dollar increased states’ highway spending by 19 cents. This qualitative finding is robust to a large set of alternative specifications. Thus, the fiscal substitution hypothesis is able to explain why there was little impact on the nation’s highways and bridges following the passage of the Recovery Act. Stated simply, highway infrastructure spending without the act would not have been very different relative to what was actually observed in absence of the act...."

"... Table 2 contains my benchmark finding. The coefficient on Recovery Act FHWA obligations equals 0.19 (0.43 standard error; Column 1). The point estimate implies that, in per capita terms, one additional grant dollar to a state causes 19 cents of additional highway infrastructure in that state. This represents substantial crowding out of state contributions to highways. For each grant dollar, the state government cuts its own contribution to highway infrastructure by 81 centsThe log of population is an important predictor of state per capita highway spending. The coefficient is negative, so higher-population states experienced relatively less additional highway spending (per capita) in 2009 and 2010. Moreover, the coefficient is statistically different from zero at a 95 percent confidence level. While I include a population measure in the regression, in a related study, Leduc and Wilson (forthcoming) estimate a similar regression but do not include a population control. They find little evidence of crowding out, with their analogous coefficient greater than 1. The difference between my study and theirs is likely due the absence of a population control in their regression, although there are other differences across the two papers’ specifications as well…”

".. Figure 5 represents the paper’s main finding graphically. It contains a scatter plot where each point corresponds to a state, with the Recovery Act FHWA obligations per capita (after controlling for log population) on the horizontal axis and the accumulated per capita change in highway spending on the vertical axis. Note that there is little discernable positive or negative correlation in the data. If there were no crowding out (i.e., each grant dollar was spent on highways) and no other disturbances, then the points would lie on the 45-degree line. The solid line indicates the best linear fit of the data, with the slope equal to the coefficient a. The shaded region is the 90 percent confidence interval. Since the coefficient is not statistically different from zero, this region contains a flat response of grant obligations to highway infrastructure spending..."

I work for the county out on ninety five, All day I hold a red flag and watch the traffic pass me by, "...One of the few things that Democrats and Republicans agree on is that spending billions of dollars on America’s roads would boost productivity and the U.S. economy’s growth prospects. Economists aren’t so sure. A wide body of research focused on the effects of highway spending suggests that major new investment in U.S. roads would generate little, if any, long-term economic gain....the U.S. already has an extensive system of roads, so building more wouldn’t add much to productivity…That’s not to say that billions of dollars in new government road spending wouldn’t boost growth in the short term. But the gains would come about as the result of the construction, and would dissipate once all the projects are completed. In a 2012 paper, San Francisco Fed economists Sylvain Leduc and Daniel Wilson found that new spending on roads can boost an area’s economy at two specific times: immediately after the new spending has been announced, and six to eight years later, when construction is under way. Beyond 10 years, there were no economic benefits to infrastructure spending, they found. Moreover, the immediate effect applies only during recessions, they wrote. It’s unclear whether the U.S. would see that short-term boost now that the economy is expanding rapidly...."

David Harrison, "Why More Highway Spending Won’t Rev Up the Economy,"Wall Street Journal, July 4, 2021, https://www.wsj.com/articles/why-more-highway-spending-wont-rev-up-the-economy-11625403600

Why More Highway Spending Won’t Rev Up the Economy

One of the few things that Democrats and Republicans agree on is that spending billions of dollars on America’s roads would boost productivity and the U.S. economy’s growth prospects.

Economists aren’t so sure. A wide body of research focused on the effects of highway spending suggests that major new investment in U.S. roads would generate little, if any, long-term economic gain.

While the projects would spur hiring and spending temporarily, both when they are announced and under way, they aren’t likely to raise the economy’s productivity and, in turn, its overall growth potential in a lasting way, many researchers find.

That is because the U.S. already has an extensive system of roads, so building more wouldn’t add much to productivity, economists say.

New spending for roads accounts for the largest single share—roughly 19%—of the $579 billion in new spending that the White House and a group of lawmakers have agreed to. Both Democrats and Republicans say that money would raise the economy’s productivity, defined as the level of output per hour worked.

President Biden last week touted the agreement as delivering “higher productivity and higher growth for our economy over the long run.”

Sen. Rob Portman, an Ohio Republican who helped craft the deal, said last month that the plan would “increase our productivity as a country.”

Development of the U.S. interstate highway system between the 1950s and 1970s—currently 47,000 miles of multilane highways stretching coast to coast—did make the economy much more productive, John Fernald, an economist at the Federal Reserve Bank of San Francisco, wrote in a 1999 paper.

The system meant a cross-country trip that used to take months could be accomplished in days. Businesses gained access to new suppliers and new customers. Cities were able to specialize in certain industries. International trade opened up. By one estimate, the U.S. economy would be 3.9% smaller today without the interstate highway system.

But those gains all came about when the highways were built. By now, the gains have been reaped.

“Building the interstate highway system was enormously productive,” Mr. Fernald said. “That does not imply that building a second one would be equally productive.”

Other research has reached similar conclusions.

A group of economists in Spain studying that country’s infrastructure spending between 1964 and 1991 concluded that the investment earlier in the period produced greater economic gains than investments later, when much of the infrastructure was already in place.

Researchers have also found that in developed countries, whatever local benefits come from highway improvements come at the expense of other locations. In other words, road spending reallocates the pie but doesn’t make it bigger.

Mr. Duranton and two co-authors, Geetika Nagpal and Matthew Turner, both of Brown University, suggested in a paper last year that new investments “lead to a displacement of economic activity while net growth effects are limited.”

That’s not to say that billions of dollars in new government road spending wouldn’t boost growth in the short term. But the gains would come about as the result of the construction, and would dissipate once all the projects are completed.

In a 2012 paper, San Francisco Fed economists Sylvain Leduc and Daniel Wilson found that new spending on roads can boost an area’s economy at two specific times: immediately after the new spending has been announced, and six to eight years later, when construction is under way. Beyond 10 years, there were no economic benefits to infrastructure spending, they found.

Moreover, the immediate effect applies only during recessions, they wrote. It’s unclear whether the U.S. would see that short-term boost now that the economy is expanding rapidly.

Some of the spending lawmakers are considering could ease congestion. But those improvements would also be temporary. Adding more highway lanes to ease congestion tends to encourage more people to use those lanes, making them congested once more, a phenomenon known as “induced demand.”

A 2011 paper by Mr. Duranton and Mr. Turner found that areas that added road miles saw a proportional increase in driving, resulting in the same overall traffic levels.

Even if long-term benefits are limited, there is still a case to be made for spending money on roads, economists say. Filling potholes could provide a more comfortable driving experience, for instance.

“The more comfortable ride is getting you the improved quality of life but it’s not necessarily adding tons of private sector productivity,” Mr. Fernald said.

According to the draft bipartisan infrastructure deal (as of June 24) < than 19% of new spending will go to the category described as “Roads, bridges, major projects.”..." (=110/579)

“Bipartisan Infrastructure New Spending,” Office of Senator Sinema, June 24, 2021, https://www.sinema.senate.gov/sites/default/files/2021-06/bipartisan%20infrastructure_Investment_Finance.WH_.06-24-21.Final__0.pdf

Subway costs per km, in millions of USD

Eric Goldwyn, Alon Levy, Elif Ensari, Marco Chitti, Abdirashid Dahir, Rachel Daniell, Yinan Yao and Anan Maalouf, "Transit Costs Project," New York University Marron Institute, Accessed June 28, 2021, https://transitcosts.com/projects/