The Economist Joins the Build While It's Cheap Chorus

Thu, 07 Oct 2010 13:30:27 +0000

Picking up on this thread, The Economist Free Exchange blog notes some critical infrastructure needs in the New York metro area and their relevance to the ongoing debate about fiscal stimulus:

Connections to New York City—the country's largest metropolitan economy—are economically crucial to the state of New Jersey. At present, New Jersey commuter trains share a bottleneck of a tunnel under the Hudson River with Amtrak, the national rail carrier, running on just two tracks that were originally built in 1910. The new tunnel, it is estimated, would double the number of New Jersey residents with a 50 minute or less commute to Manhattan. But the bigger picture is that traffic demand will only rise, and new capacity must ultimately be added, one way or another. If it isn't built now, when things are cheap, it will be built later, when things are expensive.

Austerity is never easy, but some cuts are less painful than others. Economist Alberto Alesina is known for his enthusiasm for budget cutting (this week, The Economist evaluates research he co-authored arguing that austerity may boost growth), but even Mr Alesina points out that some cuts are not worth making. A paper he wrote with Roberto Perotti concludes:

[F]iscal adjustments which rely primarily on spending cuts on transfers and the government wage bill have a better chance of being successful and are expansionary. On the contrary fiscal adjustments which rely primarily on tax increases and cuts in public investment tend not to last and are contractionary.

Cuts to public investment, in other words, are penny wise and pound foolish. If Mr Christie is actually interested in sustainable budgets for the state of New Jersey, he'll find a way to keep this tunnel project moving.

We should be clear -- there are plenty of ways to waste money through public investment.  This just doesn't happen to be one of those instances.  It was to avoid the temptation to waste money in the name of a perceived need to stimulate the economy that I wrote this and followed it up with this.  In the latter, I suggested that we establish a prioritized list of capital projects, so that we were ready to implement them as slack appeared in the economy.  Careful planning is the defense against waste, regardless of what you buy with the money.