When the U.S. Economy Is 'Too Strong' to Spend on Infrastructure

A low unemployment rate means major investments by the federal government could ultimately harm the economy.

2 minute read

February 6, 2018, 11:00 AM PST

By Katharine Jose


Alaskan Way Seawall Construction

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Tales of American’s failing infrastructure are not new, but, in recent months, they do seem to have increased in number and become more urgent in tone.

That does not, however mean that it’s the right moment to invest in major projects, writes Evan Horowitz at FiveThirtyEight, because “[w]hile inking an infrastructure deal is tricky under the best of circumstances, now is a particularly bad time — because the economy is just too strong.”

That’s because infrastructure spending (and the corresponding creation of jobs) benefits the economy when the government is providing jobs to the unemployed, but not when workers are leaving one job for another.

“[I]n today’s economic climate, where unemployment is nearing a 50-year low, even a massive infrastructure bill would likely generate only a trivial number of new jobs. Instead, the government would have to fill its construction crews by poaching private-sector workers, which could potentially create an inflation-generating war for scarce workers and neutralize many of the economic benefits commonly associated with large-scale government spending.”

Of course, for anyone living with failing infrastructure, or anyone in desperate need of a project with soaring costs, how the Federal Reserve feels about the unemployment rate does not feel particularly relevant.

Even if it means risking a negative impact on the economy, Horowtiz writes, "that still leaves one perfectly good reason to support such spending: It improves America’s crumbling infrastructure. But skeptics can point to the economic risks as a reason to say, yet again, ‘Let’s fix our infrastructure some other time.'"

Monday, February 5, 2018 in FiveThirtyEight

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