There are many justifications for investing in transportation
infrastructure. Some of the most common and widely used claims for why the
public should spend lots of money on new trains, roads, bike lanes or other
such things are that such investments will create jobs, lead to new economic
activity and offer future environmental benefits. These are all offered as
unambiguously positive characteristics. To evaluate these claims a bit I developed
an allegorical situation where a household decides to build a new bathroom on
their house.
Picture a four person family who lives in a nice little
house with three bedrooms and two bathrooms. They decide that their current
bathrooms are old and inadequate and something should be done. They can either
fix up the two bathrooms they already have or add a third bathroom. They decide
to add the third bathroom. So far, so good. The family has a bathroom designed
and gets bids for construction. The first bid has five workers completing the project
in a week. The second bid has ten workers completing the project in two weeks.
The third bid has 20 workers completing the project in a month. Let’s assume
all bids are under the same labor rules. Should the family “create” the most
jobs and take the month long bid with 20 workers? It seems obvious that the
family should take the first bid once they have verified that the company is
honest and legit. Jobs are a cost to the project.
But perhaps the family wants to be job creators, so they
take the high bid. They figure they will make it up in new productivity from
having a new toilet, shower and sink. Will the new bathrooms make them more
productive? Are toilets a derived demand? Considering that bathroom use
(production) is a matter of inputs (food and activity) it’s not likely that the
family will start pooping, peeing or showering more than they did prior to the
new bathroom. So productivity is a wash (no pun intended). However, because
there is a new place to “produce” the location of production will shift. This
may be in everyone’s interest considering the potential externalities, but the
family needs to weigh whether the cost of the new bathroom is worth the
benefit.
What about the future benefits? There are potentially many
from a new bathroom such as lower water flow and nicer fixtures. Yet these
could also be achieved through remodeling the existing bathrooms, which will
need maintenance and upkeep anyway. Maybe everyone would be better off with a
new hot water heater instead so there is always adequate warm water for the
existing showers. A new bathroom may allow the family to put off fixing up
their old bathrooms, but not forever, and money spent on a new bathroom cannot
be spent on an existing bathroom.
Ultimately, undertaking a new bathroom addition is something
that the family may decide they want to do for a variety of reasons (maybe to accommodate
new members to the household or congestion before everyone goes to school and
work). However, a new bathroom will only shift the time and location where
bathroom activities take place rather than causing each member of the family to poop, pee and
shower more. Remember, they have adequate bathrooms now and do not bathe in the
river.
In the bathroom expansion case, I suspect most people would
insist on hiring the low labor cost company and would never consider that an
additional bathroom would increase the need for a toilet.* Yet for transport
investments we tend to argue that we need to invest in what has the highest
labor cost and claim increases in productivity that have not been borne out
through research. In the US the existing infrastructure needs a lot of work,
and new facilities (roads, trains, etc) tend to just shift economic activity
instead of creating new economic activity.**
While travel is not entirely a derived demand, it largely is, just like
using a bathroom. I’m not saying that governments should plan and budget like
households, because they shouldn’t. But we should remember that jobs are a cost
to projects and that when an economy has a mature, well functioning transport
network additions and subtractions to that network will affect the location of
economic activity far, far more than create or destroy economic activity.
*It’s entirely possible that the current number of bathrooms
is inadequate for peak demand, which the family may want to address, but this
is different than increasing overall use.
**In the UK the official policy of the expected net effect on
productivity of High Speed Rail investment is zero for precisely this reason.
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