Manufacturing and Infrastructure

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Manufacturing and Infrastructure Development

Posted By : | Date : April 8, 2021

Normally there is little controversy over infrastructure development. In fact, this is the one area where bipartisan support is nearly always evident. Who can argue with the need for good roads, reliable bridges, functioning airports and seaports, and so on? Economic development is tied to infrastructure and so are jobs. What’s not to like? The issue is never about the need or value, it’s about how it is paid for. The fact is that infrastructure is handled by the government at some level – there are very few private roads, bridges, airports, and the like. That means that revenue must be devoted to the task and that either means taxing or borrowing, neither of which are popular options. It becomes a matter of value.

Biden Administration Infrastructure Development Plan

The Biden administration is making infrastructure a high priority and wants to devote some $2 trillion to the improvement and development. The problem is that the government doesn’t have ready access to $2 trillion – not after having spent upwards of $6 trillion on dealing with the pandemic. This money would have to be connected to a tax hike and to more borrowing and now the question is whether the investment is worth it. That is a tough equation to work with. There are several elements to consider. There is the value of the jobs created to do the infrastructure work and the value of the revenue earned by companies engaged in the work. There is economic development value as a result of improved transportation, communication, and the like. There is the manufacturing value as infrastructure work requires the building of machinery and the use of materials that also have to be manufactured. It is a trade-off discussion – are the gains worth the higher taxes and higher debt levels?

There are two types of advantages and two types of costs. Comparing is made awkward by the differences. When it comes to advantages there are direct factors such as the wages that will be paid to those working on the projects and the businesses that will reap more revenue and profit from the effort. There will be money made by manufacturers that sell the equipment and there will be additional demand for the commodities and materials. This is the part of infrastructure development that is expected to help pull economies out of recession. There are other advantages but these are harder to quantify. A new road has the potential to bring new business to an area but it is not guaranteed. A new or improved airport may mean more airline interest, more flights, and more passenger traffic, but it might not. Whether the investments make a difference will depend on many other factors and computations can only be estimates. The advocates will take the most optimistic position and opponents will veer towards the least optimistic.

What Does Infrastructure Development Cost?

Costs will be figured in two ways as well. There is the actual cost – computed fairly easily by adding up the wages and expenses and all the other inputs that go into a project but the other costs are far harder to establish. This is the opportunity cost. If the infrastructure development plan can only be achieved with higher taxes one has to consider what that money would be used for if it didn’t go to the government. What would the consumer have bought, what would the business have invested in? Would there have been more people hired or paid higher wages? If the money is raised through debt what is the cost of that debt service? The US is already paying some $400 billion in debt service every year because of the bonds that have already been sold. What else would the government have spent that borrowed money on? If there was a $2 trillion addition to the federal budget what else might that money be used for and would infrastructure spending really be the best use for it?

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