Wednesday, May 14, 2014

Infrastructure spending and waste

Sen. Sherrod Brown, a man I often criticize for his populist economics, is at it again. In his most recent newsletter he laments that the Federal Highway Trust Fund is running out of money.

"Unfortunately, the Highway Trust Fund, the major source of funding for these programs, is projected to run out of money by late August unless Congress acts. As the 2012 highway bill is set to expire on September, 30th it is critical that Congress, once again, passes a Federal Highway Bill."

He makes the typical democrat remarks about infrastructure spending; it creates construction jobs and encourages economic development. But at what cost? The money for the fund has to come from somewhere, in this case taxes on gas. Driving does create some trace amounts of pollution so there is an externality there and thus some level of tax is efficient, but if the tax is too high it creates an inefficiency (dead-weight loss) and if the tax is too low it doesn't fix the initial externality. I doubt the government gets the tax right, but suppose they do. There are other problems.

The bill raises money from the drivers of each state and then distributes the money to the states. In order for this program to make any sense for at least some states they must think that they are going to get more back than they put in. Otherwise states would be sending X dollars to an inefficient bureaucracy, funneling it through that wasteful system, and then get X - B back, where B is the money spent on transmitting and handling the money by the federal bureaucracy. Those federal workers in DC don't work for free.

When roads in some states are subsidized by money from other states we get too many roads in the subsidized states and this creates a dead-weight loss. And this happens. The money in the Highway Fund is not only spent on highways according to Sen. Brown:

"Every region of the state has large-scale projects—the Brent Spence in Cincinnati, the Portsmouth bypass, Route 8 in Akron—but a reduction in highway funding would also slowdown the replacement of smaller roads and bridges." (my emphasis)

If the local communities do not want to maintain their smaller roads and bridges, maybe they should not exist. It is a marginal benefit, marginal cost decision and the local Ohio communities know the benefits and costs, not the taxpayers in Wyoming. Using money on bridges and roads where the marginal benefit of them existing is less than the marginal cost of maintaining them is wasteful. Resources are scarce, we should not be misusing them. Unfortunately the further away the people who bear the cost are from the people who receive the benefits, the more waste is going to occur.

1 comment:

  1. I think you're misinterpreting Brown's comment. The vast majority of the portion of the Highway Trust Fund allocated to roads (some of it goes to mass transportation) funds interstate highway projects. Further, each state must contribute some portion to each grant it receives through the trust, somewhere between 20-40%. If the Highway Trust Fund goes away, states would have to contribute 100% of the funds to roads instead of the smaller portion. So very few, if any, tax dollars from Wyoming are going to Ohio's local roads.