This seems like the kind of thing Greg Mankiw might want to justify, rather than simply assert:

First, since most infrastructure is used locally, the proper level of spending is best determined by state and local governments rather than by the federal government. Earlier, I suggested that fiscal stimulus could be decentralized. Each state governor could be allowed to determine whether to take federal money as state aid or have it paid directly to his or her state’s citizens as tax relief. I still think that makes sense.

I can think of about ten different ways that this doesn’t stand up to scrutiny. First and most obviously, quality interstate transportation is economically important. Absent federal coordination of infrastructure spending, we would probably see sub-optimal investment in such transport. It doesn’t do a state much good to build a high-speed rail line or new freight capacity up to its border and no further.

I suspect that states and local governments will simply say that they’ll take as much infrastructure money as they can get; voters are likely to look more kindly on completed roads and railways than they are on another $300 check. It should also be clear that if the primary economic unit is the metropolitan area, then state and local governments might not use their infrastructure allocation particularly well. State capitals might not be politically able to spend money on infrastructure in rich metropolitan areas, even if that’s where the money would do the most good. And local governments often are too small to think big enough. Give the money to a bunch of suburban counties, and they’ll all get busy widening local roads, whether or not that generates the best outcome for the local economy.

It’s kind of weird to suggest something like this, which would only work if we had this idealized set of local governments. Federalism might make sense when you’re trying to establish policy competition, in order to see what works best. It makes no sense at all when building infrastructure networks, where decisions made in one location display significant spillovers at the local, state, and regional level.


  1. BeyondDC says:

    We *have* metropolitan-level governments in this country. Every city in the country has one. And in fact, many of them function very well in the limited mission to which they’re assigned.

    The problem is they have no teeth. If the feds could figure a way to give them teeth, that alone would make a huge difference.

    Here’s hoping it happens with the next TEA bill.

  2. Doug says:

    It’s a really weird suggestion, and kind of a self-fulfilling prophesy. If you ask mayors and governors and county councils to determine the project then, yeah, you’ll get projects that answer local needs more than national ones. Of course, if I were the governor of any state not on a coast, I’d probably want my citizens handed cash and hope my state benefits commercially from my neighbor’s infrastructure improvements.

    I don’t know if he made it, but the best case for local control would be if most local governments already had wish lists of projects already researched and waiting for funding. That could accelerate the actual spending toward something more counter-cyclical, but it doesn’t explain why the citizen payouts make sense.

    There are a lot of known market dilemmas to be concerned with in Professor Mankiw’s suggestion. I learned ’em from his textbook.

  3. - g says:

    I can’t speak for any other areas, but my neck of the woods has “needs” assessments and “cost feasible” assessments (which cost less).

    In other words, the bureaucracy has already created an assessment showing where funding would go if they had the money for it. If the choice is whether the local governments truly need extra funds or whether the citizens should get it directly, the answer, it seems to me, is evident.

  4. Dan Staley says:

    Sounds like an ideologue. OR maybe he read Babbit’s book and felt as if he had to say the opposite.

    Sheesh. This is exactly backwards from what is needed.

  5. Reid Davis says:

    I can say emphatically that if this were to happen here in Georgia, what we’d get is a lot of new “developmental” highway miles in rural areas and widened roads in places guaranteed to induce demand. Despite the fact that metro Atlanta represents most of the state’s economy and population (and is in DIRE need of additional transit infrastructure), the legislature is dominated by rural interests. And of course, our DOT (like most of them) is actually a DTS — Department of Traffic Sewers. Do this federally, please!

  6. alli says:

    Word to Reid’s comment – the same thing would happen here in NOLA – in fact, it’s already happening.

    The LSU/VA hospital project selected a site that’s a functioning neighborhood, rather than two abandoned hospitals 12 blocks apart. The city is spending untold millions to demolish more housing in the midst of an affordable housing crisis. We lost 200,000 units just three years ago, and now they want more demolition.

    Federal control, please!!

  7. BeyondDC says:

    >Despite the fact that metro Atlanta represents most of the state’s economy and population, the legislature is dominated by rural interests.

    But what if the money were allocated not to the states, but to the MPOs? Via the Atlanta Regional Commission?