Thursday, 29 April 2021

Research: infrastructure "stimulus" spending has no positive short-term effect on jobs

Garett Jones asks, "Have wonks widely discussed the finding that U.S. infrastructure spending appears to have no positive short-term effect on jobs?" Since infrastructure spending is widely used by governments under the guise of "economic stimulus" and "job creation," you'd think wonks everywhere would be. Or should be.

The finding has been reported by multiple researchers, and summarised by Valerie Ramey (advisor to the Central Budget Office and member of the NBER Business Cycle Dating Committee) as "puzzling." As it would be to an insider's inside like her -- the chief finding being that more infrastructure spending predicts no change or a decline in jobs.

Couched in Keynesian jargon, and ringed around with nonsense though it is, Ramey's key paragraph however is probably this one from the conclusion:
Fourth, cross-section and panel evidence on U.S. states or counties that focuses on bridge, highway, and road infrastructure spending suggests that the spending leads to either no change or a decline in employment in the first several years, even during ZLB periods. There is no obvious explanation for these puzzling results, though the disruptive effects of construction on existing infrastructure might play a role.

What she calls "puzzling" is simply economic common sense. If existing resources called are already part of existing business plans, then those existing resources are simply bid away instead for these "stimulus" projects (causing those "disruptive effects of construction on existing infrastructure" she mentions). And if they're simply sitting idle, then there's probably a good reason (that is, they're sitting idle because in the current circumstances it would probably make no economic sense to use them).

In either case, to call it puzzling indicates how far stimulunacy is from economic common sense. But at least it's being reported: now to see the lesson absorbed.

>> John Cochrane has more. Tyler Cowen's commenters comment.

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