Will Federal Stimulus Again Feature Infrastructure?

The U.S. economy now appears headed for a recession, thanks to the S&P 500 dropping 20 percent from a recent high, so Jeff Davis writes about the potential of infrastructure spending as an economic stimulus. 

According to Davis, “predictably, there are those in Congress who are calling for an increase in federal infrastructure spending as part of a response to this downturn in the business cycle.” WIth that political momentum in mind, Davis poses the following questions: “[I]s increased infrastructure spending the best way to counter a downturn in the business cycle that is caused by the confluence of a [sic] (a) a reduction in foreign trade; (b) a temporary collapse in demand for travel, hospitality, and public gatherings, and (c) a drastic drop of oil prices and its effect on the energy sector?”

To produce an answer, Davis investigates the 2009 American Recovery and Reinvestment Act, as well as highway stimulus spending from 1958, 1975, 1983, and 1991. 

The answer is that the case for infrastructure spending in a recession is complicated. The slow pace of capital investments can make this approach ineffective as a response to short-term business cycles, but governments should do be spending on infrastructure anyway, for the potential long-term benefits.