Tuesday, August 16, 2011

Yes Folks, Some Government Spending Really Is "Investment"

These days, we hear politicians earning "points" by always using the word "wasteful" along with "government spending". Yes, some of it is wasteful. But I'd like to point out one example of government spending that's really an investment.

But first - what exactly is an "investment"?

According to Dictionary.com, to invest is:

to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value.

Wikipedia puts it this way:

In Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security of principle, as well as security of return, within an expected period of time.

Can we say that government spending on subsidized transportation is really an investment? Can we all expect to gain from it? Has thorough analysis been done? Is the principle secure? Will we see a secure return within an expected period of time? Or does it fail on any of these counts, making it truly wasteful?

Turns out the American Society of Civil Engineers (ASCE) and the Economic Development Research Group of Boston (EDR) recently did an analysis of spending on highways and transit. They were apparently concerned about the fact that Congress has failed to pass a Surface Transportation bill for three years. Too many things seemed more important to Congress, so we've been limping along with extensions of the previous bill. Since that was crafted eight years ago, a lot of things have changed. One very important change: the Highway Trust Fund, which help build and maintain our road system, has run out of money. It's been supplemented by money from the General Fund...some of it from our income taxes, much of it borrowed and contributing to the trillions of dollars of debt our country now owes.

Here's ASCE summary:

The nation’s deteriorating surface transportation infrastructure will cost the American economy more than 876,000 jobs, and suppress the growth of the country’s Gross Domestic Product by $897 Billion by 2020, according to a new report released today by the American Society of Civil Engineers. The report, conducted by the Economic Development Research Group of Boston, showed that in 2010, deficiencies in America’s roads, bridges, and transit systems cost American households and businesses roughly $130 billion, including approximately $97 billion in vehicle operating costs, $32 billion in delays in travel time, $1.2 billion in safety costs, and $590 million in environmental costs.
If investments in surface transportation infrastructure are not made soon, those costs are expected to grow exponentially. Within 10 years, U.S. businesses would pay an added $430 billion in transportation costs, household incomes would fall by more than $7,000, and U.S. exports will fall by $28 billion per year.

What does this mean to ME?

  • The Bureau of Labor Statistics tells us that in July of this year, 13,900,000 people were officially unemployed. If 876,000 were added to that, it would increase the number of unemployed by nearly 10%. That would further reduce investment in our transportation infrastructure by reducing tax revenue...but the infrastructure would still be deteriorating, needing more investment with less revenue. The infrastructure is our "principle" (because we already invested in it) and if it deteriorates, it would reduce the "security of principle" mentioned in the definition of investment above.
  • How much would it cost for each US household if we invest nothing more than we do now? According to the study, changing nothing incurs a loss of $7,000 per household. (Not a good investment.)
  • The Census Bureau tells us there were 112,611,029 households between 2005 and 2009. If, instead of losing $7000 each household were to invest half that amount ($3500 over the next ten years, or an average of $350 per year) there would be $394,138,601,500 ($394 billion) more spent on transportation infrastructure and services over the ten-year period..
  • According to the Department of Energy the 2009 revenue into the Highway Trust Fund was $36.9 billion. But an additional $350 per year investment from each household produces roughly $39 billion each year, more than doubling the Highway Trust Fund.
  • This $350 per year would result in a net gain of $6650 per year, or $66,500 on the the $350 annual investment.

Is this "wasteful government spending"? You decide.


  1. People who say government investment is inefficient are comparing government to successful private business. When you include failures, private business is extremely wasteful.

  2. There are forms of mass transportation which are not "government" - Greyhound Bus, for example.

  3. Could you be so kind and recommend other resources that carry info on this theme of course just in case you are aware of any of them.