Obama's Next Trillion Spending Might Be Worth It

Dec. 29 (Bloomberg) — President Barack Obama is under fire for saying he wants to boost investment in infrastructure in the next decade. The critics say this is flawed stimulus because infrastructure projects take too long to get started and don't boost the economy now.

Obama's best move would be to stop spending. But given that he won't, and that he has three more years in office, the right kind of infrastructure splurge might not be such a bad idea — especially if you don't call it a stimulus.

That at least is what the record of the 1930s, 1940s and 1950s suggests, especially when it came to the classic American infrastructure project, highway construction.

Back in the 1930s, presidents started with the proposition that the primary aim of all spending should be to put people to work. Road construction was viewed as one of the tools to that end. In a single year, between June 1933 and April 1934, relief workers repaired 500,000 miles of highways.

As historian Mark Rose has noted, in the mid-1930s, almost $3 billion, then a good share of an annual federal budget, was poured into highway projects by relief officials and the Bureau of Public Roads.

But observers, including President Franklin Roosevelt himself, began to notice flaws with this plan. For one thing, as today, road projects were not shovel-ready — their lengthy planning coincided with the direst moments of recession. By the late 1930s, Roosevelt concluded that highway programs generally "do not provide as much work as other methods of taking care of the unemployed."

Cutting Spending

In early 1938 the president suggested that federal assistance to roads ought to revert to pre-Depression levels. That April, he reluctantly allowed that appropriating an extra $100 million for roads was all right, but "only for projects which can be definitely started this calendar year."

What was worse, the Hoover and Roosevelt road outlays didn't make enough sense as infrastructure. A highway expert, Wilfred Owen, pointed out that New Deal construction had "denied congested metropolitan areas" and were instead "lavished upon local rural roads."

As the country emerged from World War II, it was clear the unprecedented 1930s spending hadn't prepared the U.S. for exploding postwar road use. General Dwight Eisenhower, for his part, was put off by the heavy political element of New Deal outlays.

Washington doesn't shift gears easily. As the 1950s began, lawmakers therefore also presented construction as a tool to create jobs or manage the business cycle. The memory of the Depression was fresh. Recessions were still hitting with regularity — there were four between the end of World War II and 1959.

Man of Action

But Eisenhower, now president, was a man of action. He recalled the embarrassing number of days — 62 — it had taken a cross-country convoy to get from Washington to San Francisco in 1919. In his view, the one good thing that Adolf Hitler had done was to build the Autobahn. Where was the American Autobahn? In the end the bill that Eisenhower was able to push through Congress was straightforward.

Under the Highway Act of 1956, the federal government spent billions to build new roads and piece together older ones and construct a national highway system. There were secondary goals, such as national defense and job creation, among them. But the most obvious goal, serving a country that wanted to move at 65 miles an hour, came first.

Less Than Optimal

The outcome of the interstate highway program wasn't optimal. It favored truckers over cities. The roads cut off some downtowns from the commerce that had heretofore sustained them. Minorities pointed out that their communities often bore the brunt of construction. According to Rose, some black political and business leaders spoke of white men's roads going through black men's bedrooms.

As for budgeting, the interstate so far outran its original cost estimates that Senator William Proxmire awarded it his so-called golden fleece prize for federal profligacy.

But on balance, the highway achievement lasted in a way that stimulus or make-work projects did not. In the 1960s, one quarter of all productivity gains came from highway improvements. The interstate did its part to make the U.S. an economic superpower. By concentrating on one coherent infrastructure project, we helped to assure growth.

There were other benefits. As early as 1959, the New York Times was publishing headlines that said things like "Pay Roads Save Time and Tempers as They Lead Tourists to Far Places."

Today the country can ill afford another trillion in stimulus. But if such an outlay is inevitable, then let that trillion go to a national Big Dig. As Eisenhower demonstrated, a growth project like a road can be superior to a new social program. A road, or a railway, or a plan to collect water in space, after all, reflects more hope. Obama will achieve the happiest outcome if he simply makes like Ike and plows forward.

(Amity Shlaes, senior fellow in economic history at the Council on Foreign Relations, is a Bloomberg News columnist. The opinions expressed are her own.)

© Copyright 2009 Bloomberg

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