Infrastructure is a name thrown around quite a bit in policy discussions, and it’s fundamentally macroeconomics. But what is it?
Infrastructure is all the public/government capital projects that help make modern society: roads, bridges, buildings, fences, and so on.
Here’s some examples. Warning: this video uses “bad” language for effect, and most will find it distasteful:
One of the dirty little secrets of Keynesian economics is that any expansionary power that government spending has needs to come through spending on things that we’d do (when it’s judged appropriate) whether we had the money or not. In short, this is mostly infrastructure. But, there are two caveats to that.
First, there’s a lot of talk in policy circles that our infrastructure is in bad shape, and requires huge new investments. Macroeconomists don’t think this claim is credible: yes, we need to spend a lot, but we always have, so claims that we need to spend more may be a form of corporate/labor welfare that we need to keep an eye on.
Second, when macroeconomists fret about the growth of entitlement programs (especially Medicare and its cover story Obamacare), what they are really worried about is that spending growth rates for these programs are on autopilot. And that autopilot is set to squeeze out more and more infrastructure programs with the passage of time. Basically, we’ve voted money to “grandma” that probably should go for waste treatment.
The scale of infrastructure is, at once, huge but also small. That Newtown Creek treatment plant in the beginning of the video cost $4,000,000,000, which is very expensive. On the other hand, it’s serving 8,000,000 people, so that’s about $500 per person. And that’s spread over an operating life of probably 50 years … so it’s comparable to the cost of something like a CPA exam that you might build a lifetime career around.
Via Marginal Revolution.