Yesterday, Barack Obama hailed the fact that stimulus projects are coming in “ahead of schedule and under budget.” This is nice, but Paul Krugman worries that since the point of stimulus is to spend money this may lead to shortsighted policy:
Seriously: if the projects really are coming in cheaper than expected, that doesn’t mean we should bank the savings; it means that we need more projects.
Fortunately, my understanding is that this is what’s happening. As I heard Transportation Secretary Ray LaHood explain it, the grants are going out under a competitive process. The point of the process is to keep authorizing projects until the money is gone. So when projects come in under budget, that means more projects get funded.
My worry about this is that it seems to me the reason projects are getting done cheaply probably has to do with how bad the economy is. The massive reduction in global economic activity should be making materials super-cheap, and letting things get done at lower cost than would be necessary under ordinary times. That’s why, ideally, we should be getting started on many more infrastructure projects than are being contemplated right now. With local governments straining under the burden of falling tax revenues, things like basic upkeep of existing roads and sidewalks is going to get short-shrift even though it’s cheaper and more macroeconomically reasonable to do the fixes now. Businesses are cutting back on investment due to a lack of confidence, but policymakers should be about 100 percent confident that the United States of America will still be here in 2029, 2039, and 2049 and so people will be around to take advantage of well-maintained infrastructure. That’s not to say we should be pouring asphalt on bridges to nowhere. But I’ve never seen an American city that lacks potholes and cracked sidewalks, and the majority of the public lives in metro areas that could use more mass transit capacity. And that’s to say nothing of the things I can’t see like the bridges that are in need of repair.