Today’s Times article on the lessons that America can draw from Japan’s experience in investing in public works as economic stimulus made some good points.
However, some of the numbers the article cites — on which kind of public investments deliver the greatest bang for each buck spent — may seem useful, but are not relevant to our current situation.
The numbers, from the Japan Institute for Local Government, say that 1 trillion yen spent on schools in Japan generated Y1.74 trillion in growth, the same spent on social services generated Y1.64 trillion, and the same spent on infrastructure generated only Y1.37 trillion.
Presto: so infrastructure investment isn’t a good stimulus, right?
But these figures don’t take into account the initial level of spending, the level of spending needed to create and maintain good assets, and the initial quality of the assets in each category.
Without that information, the numbers don’t mean much.
For example, if you’re spending no money annually on schools, and decide to spend $1 billion, you should see a big difference.
But if you’re spending $500 billion annually on transportation infrastructure, and decide to spend the same $1 billion more there, you should see a much smaller difference — it’s just harder to make that extra last dollar go to work.
Since the article doesn’t quantify the initial base of spending for each area, it’s hard to tell where an extra last dollar should have generated the greatest extra benefit.
The article does give one clue, though, noting that “any direct comparison of Japan and the United States is inevitably misleading, because Japan has spent so much more over the years on infrastructure.”
America, on the other hand, has neglected its infrastructure over the past few decades.
Since we’re starting from some such a dilapidated, outdated base, it’s reasonable to think that an extra dollar spent (wisely) on physical assets like 21st-century mass transit in the most productive metropolitan areas would have a big effect on private-sector productivity, delivering tremendous returns and making our future recovery stronger.
If our infrastructure were already in tip-top shape, that wouldn’t be the case. But it’s not.
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