Infrastructure Stimuli
By Tibor Machan - September 26, 2011

One of my colleagues, who is in substantial agreement that the free market is best, argues that if one is going to have a stimulus – and given how politicians always need to do something, whatever it is, this is very likely in the face of crises such as the current one – it might as well be directed to improving ("investing" in) the country's infrastructure. If such stimulus were to be handed to the citizenry randomly, leaving it to their discretion where the system will be stimulated, there is too much of a risk that the more important and stable productive factors will not be what's going to be given support. People may just take the money and blow it in Vegas or on something trivial and short-lived.

Now it is never really fruitful, as I see it, to argue about what kind of investment is best. After all, wherever productivity is in force, people will be earning a buck or two and thus will spend these funds on various projects that need to be produced, i.e., by which economic activity and employment will be generated. But there is a prima facie plausibility to the claim that investing in largely permanent improvements of a country, such as its infrastructure, is better than risking the stimulation on productivity that creates temporary features such as entertainment or sports.

Yet, as already suggested above, since no one can tell what those who obtain resources from infrastructure stimuli will spend them on, this appearance is misleading. Moreover, why would investing in family entertainment or vacations or even a trip to the Vegas tables amount to frivolous spending? Those who earn their income in these lines of work may very well spend what they earn very productively, even more productively than members of road crews.

Furthermore, all that infrastructure investment can go mighty wrong – when old style roads and rails are refurbished only to be made obsolete by yet unforeseen future innovation. Who knows for sure that renovating the roads with stimulus funds according to current technological possibilities will be of benefit once something else takes the place of the roads or when later on much better ways of improving them is discovered?

There is no substitute for the planning done in the market place or at the local level where those doing the planing have at least a reasonable chance of knowing what is likely to be needed and when. The saying "all politics is local" should be supplemented with "all economics is local." By that insight the best thing to do is not to extort funds from citizens and move them through the bureaucracy – where much of those funds is lost – but to leave them with the citizenry who have a reasonably good idea what needs to be done with it. And a huge side benefit of this is that those citizens have a better grasp on budgetary constraints than do politicians and bureaucrats who routinely forget about the source of the funds they spend and are subject to the dynamics of public choice, self-dealing and similar malfeasance that afflicts the public sector's administrators.

For my money, trying to figure out what is the best way to spend stimulus funds is akin to trying to figure out how best to spend loot gotten in a bank heist. There is simply no way to calculate such a thing. Stolen or extorted funds cannot be correctly, properly or rationally allocated. Recall, also, that when major infrastructure projects, such as highway systems or dams are built, not long after it priorities can change, such as when environmental concerns had developed and these huge projects turned out to become threats to endangered species or the wilds that some want desperately to preserve. But once the huge projects are there, it is very tough to change course – the damage may well have been done forever.

So appearances to the contrary notwithstanding, the idea of these infrastructure stimuli turns out to be flawed, even apart from the issue of how dare these people meddle in our lives all the time, taking our resources for purposes we haven't consented to?