Policy Analysis No. 196

Paved with Good Intentions: The Mythical National Infrastructure Crisis

By John A. Tatom
August 12, 1993

Executive Summary

Several recent studies have developed the view, central to the Clinton administration’s economic program, that this nation’s infrastructure is crumbling and in crisis. They suggest that the public-sector capital stock has declined since the 1970s and that the decline has reduced productivity, with a corresponding decline of the nation’s standard of living. According to that view, increased spending on infrastructure is an urgent national priority.

The evidence reviewed here indicates that the view presented in those studies is based on a superficial reading of infrastructure trends and on a faulty view of the benefits of public capital formation. While public capital formation slowed in the 1970s, the slowing was concentrated in areas where demand for public capital was reduced by demographic and energy price changes, as well as by other economic influences. The slowing occurred at the state and local levels, not in federal government capital formation. The federal government provides little of the nation’s infrastructure, and there has been little change in the per capita stock of federal nonmilitary capital since 1947.

More important, the statistical basis of the claim that crumbling infrastructure has reduced the nation’s productivity is seriously flawed. When the flaws are corrected, there is no evidence that an increase in public capital raises private productivity. There is a meaningful relationship between the two, but it indicates that higher productivity boosts the demand for infrastructure. Finally, a recent private-sector poll and recent voting behavior show no evidence of an infrastructure crisis.

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John A. Tatom is an assistant vice president at the Federal Reserve Bank of St. Louis. The views expressed here do not necessarily represent those of the bank or of the Board of Governors of the Federal Reserve System.