Dynamist Blog


Blogger Felix Salmon criticizes my posts on the claim that the every $1 billion in new highway spending creates 48,000 new jobs. He's got me on one thing: That projection is not for 48,000 new construction jobs. It includes secondary and tertiary multiplier effects.

But, perhaps because I wrote in too telegraphic a style, he misses the main point: This story is supposedly about net new jobs, not merely leaving people in other industries unemployed in order to hire the politically favored. The money has to come from somewhere, and if you're simply moving it around, some folks are going to lose their jobs.

To get this sort of projection to work, therefore, you have to assume a signficant disequlibrium in the economy that can be cured with a jumpstart of government spending. There have to be lots of unemployed resources--people out of work and capital wasted on producing things people aren't buying. That is not the situation we're in, and given the ongoing recovery it's most definitely not the situation we'll be in by the time any of this highway money starts to be spent. (I was not using Keynesian as a curse word, merely as a way of saying there's a disequilibrium story here.)

As a side note, construction workers are pretty fully employed, thanks to low interest rates. Spending hundreds of billions of dollars on unproductive transportation projects won't do much for unemployed manufacturing workers, even if some multiplier effects kick in.

Finally, suppose the equation were true and there were a simple, linear relationship between highway spending and jobs. Why not spend even more and get more jobs? Clearly, even if you believe that the first $1 billion produces 48,000 jobs, it's unlikely that the 300th $1 billion will have the same effect. The political discussion never acknowledges diminishing returns, either in job creation or productivity.

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