Sitting on President-elect Bill Clinton's desk is the U.S. Conference of Mayors' "Ready to Go," two telephone-book sized volumes of public works projects that propose creating 418,415 jobs for a $26.7 billion federal investment.
There has been a lot of talk about investing in infrastructure to end the recession. But before we get carried away, it might be best to take a look at what's really behind the idea.
The popular perception is that contemporary infrastructure spending is a revival of the New Deal's attempts to stimulate demand while offering job training to unemployed workers. The New York Times, for example, has already run a series of articles that compares this era to President Roosevelt's 1930s and ponders whether federal and state governments can create jobs.
In fact, the infrastructure theory that bubbled up out of academia four years ago and ultimately reached Clinton's desk is based on an entirely different premise.
The original paper was written in 1989 by David Aschauer, professor of economics at Bates College. Using the statistical method of regression analysis, Aschauer compared economic growth in the last four decades against three independent variables: the amount of standing public capital from the last 50 years, the amount of standing private capital from the last 50 years, and the amount of hours put in by the entire work force. All other factors were put into a residual constant called "technology."
Aschauer found 40% of the variation in economic growth to be associated with public capital, while private capital and labor input each accounted for only about 30%. Expenditure on public works not only created its own efficiencies, Aschauer concluded. It actually stimulates private capital investment by making it more productive.
"A ~core' infrastructure of streets, highways, airports, mass transit, sewers, water systems, etc., has the most explanatory power for productivity," he wrote.
Aschauer's thesis, obviously a far cry from new Deal theory, has since been criticized, modified, praised, and popularized -- most notably by Reich in a series of articles in The Atlantic.
Alicia Munnell, chief researcher for the Boston Federal Reserve, found similar but smaller coefficients for public capital investment at the state level. Other researchers found national correlations similar to Aschauer's but slightly smaller.
"The consensus now seems to be that Aschauer may have overestimated the benefits of public investment a little bit, but the main point still stands," Munnell said. "The potential for improving national productivity through improvements in our transportation, communication, and waste disposal systems is quite large."
Critics, on the other hand, argued that the causation actually works the other way. Growing national output increases the opportunity for public infrastructure spending, they said, which explains the correlation.
Randall Eberts and Michael S. Fogarty, of the Cleveland Federal Reserve, eventually argued that the causality works both ways. They found public investment leading private investment in cities that experienced most of their growth before the 1950s, while private investment led public investment in southern cities and cities that grew faster after 1950.
Three years later, Aschauer maintains his basic premise still holds. "Since 1965, the growth rate of public capital stock has been below the growth rate of private capital stock," he said.
"The general slowdown in productivity is usually dated to the early 1970s," he continued. "To me, that shows that the decline in infrastructure spending led the decline in productivity."
So does this mean we should be "Ready to Go" with the mayors' proposals? Not quite yet.
Most of the projects in the Conference of Mayors' recommendations are hastily assembled fax transmissions, often written and overwritten in pencil. Although many are worthy projects, there is a huge interlarding of proposals with dubious value.
Los Angeles lists the renovation of 182 buildings damaged during the May riots as an infrastructure investment. Total rehabilitation costs: $15 million, producing 1,930 jobs. Atlanta submits its entire $124 million bill for preparing for the 1996 Olympics. Rancho Cucamonga, Calif., claims that hanging a $150,000 traffic signal at the corner of Arrow and Vineyard would create six new jobs.
Many projects also reveal the growing predilection to spend municipal moneys on recreation and entertainment. Elizabeth, N.J., wants $1 million to promote "affordable boating" in new York Harbor. Downey, Calif., wants to remodel the restaurant at a municipal golf course. Pasadena wants to repave the parking lot at the Rose Bowl.
Writing in The Public Interest this quarter, Heywood T. Sanders, professor of urban studies at Trinity University in San Antonio, argues that the infrastructure crisis has been wildly exaggerated.
"Fully 40% of the deficient bridges on the interstate highway system are in six states," wrote Sanders.
"The worst four states account for more than 31%. What we're actually talking about is preferences in state and local spending. The trend in recent yeas has been to ignore basic infrastructure and bonds for projects that have mainly entertainment and recreational value. That may be worthwhile, but it isn't going to rebuild the economy."
Even infrastructure theorists worry that the new administration may end up putting old wine in new bottles.
"It will be a difficult environment in which to make a calm assessment of the evidence," said Munnell. "Some proponents of expanded infrastructure investment are truly interested in the effect it will have no economic activity. Others are at least as interested in the potential for lucrative contracts coming their way."
Aschauer is equally concerned. "I would urge great caution in trying to equate public expenditure with infrastructure investment," he said. "We shouldn't be plunging ahead merely for the sake of creating jobs. Yet it's going to be difficult to avoid this as the Conference of Mayors throws its telephone book at the new administration."
There's certainly enough to infrastructure theory to hang an argument on. But it would be a shame if it becomes just another pretext for pork-barrel politics.