Hillary Clinton and Donald Trump have both recommended large increases in infrastructure spending as a means of increasing the efficiency and size of the economy and boosting wages. But this is not the cure for our economic malaise.
Productivity and wages are not generally suffering from an insufficiency of infrastructure. They are suffering from a glut of government.
Private-sector capital formation has been crushed by excessive taxes and regulation. Lack of private-sector plants, equipment and buildings has crimped productivity, employment and wages. Until these tax and regulatory deficiencies are addressed, pump-priming by infrastructure will have little effect on production, jobs and wages.
It does no good to pave additional roads if there are no additional goods being produced to ship over them...
...a reduction in property taxes or income taxes would do more for capital formation and economic output...
...governments are content to put money into projects with little or no net benefits, diverting resources from private uses yielding greater economic gains....
...No level of government should try to use infrastructure spending for countercyclical pump-priming...
...gains in investment and productivity are to be had by allowing the full, immediate expensing of the cost of business investment, instead of dragging depreciation allowance out over years or decades, and by lowering the corporate tax rate.
Infrastructure spending on the best projects can be better than just dropping money from helicopters to "stimulate" consumption, but it is inferior to letting the market direct capital to its most productive and valuable uses.
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