Sylvain Leduc and Daniel Wilson at the SF Fed have a forthcoming paper that looks at the dynamic effects of public infrastructure spending (namely federal grants to states for highways) on the output of a state. This is really really interesting to me. Estimating multipliers gets extremely tricky because at some points assumptions have to be made (remember the fiscal multiplier saga!) but essentially attempts to construct explanatory models - at least for the most part - point us in a certain direction.
I don't think there's much disagreement on the state of American infrastructure. There was a brilliant column in the NYT a few days ago by Uwe Reinhardt and one in the FT by Ed Luce as well on how public acceptance of sub-par infrastructure has led to a horrible state of things in the present. I'm just surprised there hasn't been a stronger and more forceful consensus (what's the use, nothing would ever be passed!). The best dose of medicine for the US would be massive, forward-thinking infrastructure spending on a grand scale. Anyway, I should get back to this bit.
The problem with thinking along these lines is that generally, during a crisis, quick-fix measures and solutions are most in demand and the ones that are actually good in the medium-long term tend to be brushed side. Nevertheless, one would still think that approval for infrastructure projects could have a significant short-term impact as well, especially in a depressed economy.
The goal is to shift AD and Luc/Wilson conclude with an estimated multiplier of about 2! Think about that for a minute, that's huge. It seems a bit too high from any angle - that for every dollar a state receives in federal highway grants, it's output increases by a couple. Also to be noted is that analytically, there's a variable used (constructed) that captures revisions to forecasts of current and future grants to states (seems sensible because actual spending can be far different in an unfavorable climate thus distorting the causal effects on output). Furthermore, (and there must be more of this in the paper) - spending specially on roads has a significant impact on a state's productive capacity as opposed to other government spending (eg: military).
So what are the conclusions?
- "Based on the results shown...we find that multipliers for federal highway spending are large. On initial impact, the multipliers range from 1.5 to 3, depending on the method for calculating the multiplier. In the medium run, the multipliers can be as high as eight. Over a 10-year horizon, our results imply an average highway grants multiplier of about two."
Hopefully I'll get back to this soon but like I said - models and numbers aside - it's the direction that needs to be established. As long as there's gridlock because one side's policy proposals are antithetical to the other, nothing will ever get accomplished.
I don't think there's much disagreement on the state of American infrastructure. There was a brilliant column in the NYT a few days ago by Uwe Reinhardt and one in the FT by Ed Luce as well on how public acceptance of sub-par infrastructure has led to a horrible state of things in the present. I'm just surprised there hasn't been a stronger and more forceful consensus (what's the use, nothing would ever be passed!). The best dose of medicine for the US would be massive, forward-thinking infrastructure spending on a grand scale. Anyway, I should get back to this bit.
The problem with thinking along these lines is that generally, during a crisis, quick-fix measures and solutions are most in demand and the ones that are actually good in the medium-long term tend to be brushed side. Nevertheless, one would still think that approval for infrastructure projects could have a significant short-term impact as well, especially in a depressed economy.
The goal is to shift AD and Luc/Wilson conclude with an estimated multiplier of about 2! Think about that for a minute, that's huge. It seems a bit too high from any angle - that for every dollar a state receives in federal highway grants, it's output increases by a couple. Also to be noted is that analytically, there's a variable used (constructed) that captures revisions to forecasts of current and future grants to states (seems sensible because actual spending can be far different in an unfavorable climate thus distorting the causal effects on output). Furthermore, (and there must be more of this in the paper) - spending specially on roads has a significant impact on a state's productive capacity as opposed to other government spending (eg: military).
So what are the conclusions?
- "Based on the results shown...we find that multipliers for federal highway spending are large. On initial impact, the multipliers range from 1.5 to 3, depending on the method for calculating the multiplier. In the medium run, the multipliers can be as high as eight. Over a 10-year horizon, our results imply an average highway grants multiplier of about two."
Hopefully I'll get back to this soon but like I said - models and numbers aside - it's the direction that needs to be established. As long as there's gridlock because one side's policy proposals are antithetical to the other, nothing will ever get accomplished.
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