Home April 2017 Stimulus Spending and the Infrastructure Deficit

Stimulus Spending and the Infrastructure Deficit

Frank Atkins.

For a long time, governments have been promoting a confusing link between infrastructure spending and stimulating the economy. I have long believed the Keynesian concept of stimulus spending is at best an outdated idea or at worst an idea that should have been buried long ago with John Maynard Keynes. Canada’s gross domestic product is over one trillion dollars. I do not understand how anyone thinks stimulus spending measured in billions will actually stimulate the economy. However, clever politicians over the years have convinced the public stimulus spending is an effective manner in which to help an economy recover from a downturn. Part of the rhetoric used to convince the public of the effectiveness of stimulus spending has been to couple it with the need for infrastructure spending. Politicians love the concept of an infrastructure deficit – a purely political creation – which started to creep into common use approximately 20 years ago.

The problem here is not only that no one seems to know exactly whether an infrastructure deficit actually exists; it is also that even if it did exist it would be virtually impossible to measure. Of course, this has not stopped politicians from using the term whenever they discuss the economy. This is because over the years there has been a deliberate blurring of what should be included in the concept of infrastructure. I do not think anyone would dispute that, for instance, roads and bridges are needed in order for the economy to operate effectively, and that these items should be included in infrastructure. However, politicians have greatly expanded the concept of infrastructure to include some questionable items. For instance, building recreation centres is now considered to be a form of infrastructure spending. This completely ignores the fact that if the government builds and operates recreation centres, they are directly competing with private-sector recreation centres, which does not seem to be an effective use of taxpayer money.

Several years ago, a group called Transformation Calgary expanded the concept of what should be included in infrastructure by claiming Calgary had a “cultural deficit” and a one per cent municipal tax to spend on culture in Calgary would be an effective manner in which to eliminate this deficit. It turned out this cultural deficit included building a new Saddledome. Apparently, professional hockey arenas should also be included in the concept of infrastructure.

So here we are today with the widespread belief that stimulus spending is acutely needed to help the Canadian economy and that this stimulus spending should be on vitally needed infrastructure because we have an infrastructure deficit. Unfortunately, the general public appears to have bought into this story. Apparently for a period of at least 20 years we have been pouring taxpayer money into various sorts of infrastructure spending in order to eliminate the infrastructure deficit. However, politicians are still warning us we have a dangerously large infrastructure deficit. I find it somewhat strange no one has stopped to consider the following question: when will the infrastructure deficit be eliminated?

Politicians are once again buying votes with taxpayer money. Only now marketing of this age-old idea is much more politically sophisticated.

Frank Atkins is a senior fellow at the Frontier Centre for Public Policy.