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The Value of the Public Sector

By Matthew Yglesias  

"The Value of the Public Sector"

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One thing that I think gets a bit lost in discussions of stimulus multipliers and so forth is that this kind of argument doesn’t capture the substantial range of opinions that exists about the actual value of public sector projects. When you’re doing GDP calculations, you’re basically just looking at the price of doing the work. So if it costs $12 million to build a bridge, then all else being equal building the bridge adds $12 million to GDP. That’s the right way to do the national accounts data, but it’s not actually the right way to think about a project. In part, this can even get a bit imponderable. The Golden Gate Bridge looks really cool. When planning your future bridge, you could elect to spend extra money on ensuring that you wind up with an awesome-looking bridge and it would be hard to say definitively whether or not it was “worth it” to spend the extra cash. Someone might look at what you’re doing and say your project is full of “waste.” Alternatively, you might reply that the economy is in need of “stimulus” so it’s smart to do the bridge in the most expensive plausible way. But nobody could quite say whether or not the improved aesthetics are actually improved enough to justify the price. It’s just a decision.

By the same token, you can raise GDP a lot by building pointless crap — giant monuments in the middle of nowhere would be stimulus. But it’d be a bit strange to say you were actually adding to the nation’s wealth by doing that. On the other hand, people like the Gateway Arch and Mount Rushmore and the Eiffel Tower even though all that stuff’s pointless from one point of view. Conversely, public projects can increase well-being by far more than their cost. The New York City Police Department is an expensive undertaking, but to try to save money by eliminating it would be idiotic. Similarly, while we have some schools in this country that are spending a lot of money and accomplishing very little, we have other schools that are creating enormous value by educating children. This difference isn’t well-captured by looking at the difference between the schools’ contributions to GDP.

Thus, one thing people are disagreeing about when they disagree about the stimulus is about the value of public sector activities. I’m told that Amity Shlaes was on Bill Bennett’s radio show earlier and told him “the thing that you might want to do on your website is post those pictures of those cement posts of Japan after its multiple infrastructure programs that doubled unemployment.” That’s perhaps a compelling argument against building cement posts. But Japan entered its “lost decade” with infrastructure that was in many ways much more advanced than America’s. The abysmal quality of our current passenger rail service means, for example, that there’s a lot of low-hanging fruit that would improve things. And it seems to me that increasing the energy efficiency of federal buildings and doing repairs on our schools would be extremely valuable. After all, for decades now the country has been persistently governed by folks ideologically predisposed to underinvestment in the public sector. Individual projects are, however, always going to be subject to debate. What most conservatives seem to be doing, however, is just kind of pounding the table and insisting that any public sector undertaking is, by definition, “pork” and/or “waste” and that’s just not a tenable position.

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