Thursday, July 9, 2009

(Rural) roads vs. tax cuts

Today Ed Lazear writes about how the sluggish pace of stimulus spending here compares with the very rapid diffusion of tax rebates in 2008 (and in 2001).

Separately, the New York Times gripes about stimulus money being spent on rural roads rather than on cities. I'm no expert on the bang-for-the-buck differences between dollars spent on rural highways and bridges versus urban bridges. I get that the stream of consumption from a public investment of a given size ought to be larger in a denser area, other things equal. But rural roads also facilitate transportation of goods between cities. A new rural construction job and a new urban construction job probably has similar effects on the economy.

Finally, the political economy of doling out stimulus money doesn't seem all that obvious to me. If spending bills originate in legislatures where representation is proportional, like in the U.S. House for example, why should rural areas be disproportionately favored? Maybe the story is one about voting blocs, where all urban representatives are fairly monolithic in their voting behavior.

Still, Ed Glaeser makes some good points about the goofy political economy of mass transit money.

It's hard not to agree with Lazear and others that tax cuts are just easier in that they avoid all this and leave it up to consumers where to spend or invest funds. But it's also easy to imagine that public goods would be suboptimally provided in such a private market scenario, where there can be free-riding.