Bill Watkins: Investments and false expectations


When Keynesian economists call for more government spending these days, they call it investment. The last time they succeeded in increasing "government investment" in a big way, we got the stimulus program in 2009, most of which consisted of transfers. The investment component was extremely small.

Today, there seems to be a renewed push for "investment" spending by Keynesian economists, but they still are rather vague about what that means.

When pushed for what they would invest in, the most common answer is: education. The problem is that the evidence generally indicates that increased spending on education doesn't improve educational outcomes. Increased educational spending without significant reform is a transfer, not investment.

Another common answer is some form of "green" energy or technology. The problem with these investments is that governments are no good at picking winners.

Governments are also subject to herd mentality. Eight U.S. states defaulted on their debts in the 19th century because of their herd mentality. New York's Erie Canal was a huge success. So other states started building canals willy-nilly, with disastrous results.

California's high-speed rail is a perfect example of herd mentality in action. Whenever I ask someone why we are doing it, I hear something about high-speed trains in China and Japan. That's scary.

Then there are roads. Governments like building roads. They are highly visible. They are built with union labor. In the past, they were great investments. Building roads, such as the post-WWII interstate system, has generated some of government's best successes. That was a long time ago.

Today, lots of goods – music, for example – never travel on a road. Instead of buying a vinyl record or a DVD, people just download songs or movies. More and more, that is how we will receive many goods. The return on roads in 21st century America will be a lot less than in previous centuries. What is a pro-infrastructure statist to do?

California does have a glaring infrastructure deficiency and nobody in Sacramento wants to talk about it. California's major ports are publicly owned and they are obsolete. They are unable to accept the largest tankers and container ships, and their breakdown and distribution systems are inefficient.

Combine this with an enlarged Panama Canal and port expansions in Mexico and Canada, and California's economy stands to lose big time. Long Beach-Los Angeles alone processed cargo worth $426.1 billion in 2011.

The Southern California Association of Governments has been well aware of the problem for years, and they have been working on it. But, there is no political will to make the changes that would allow California ports to accept today's larger ships.

Objections from environmentalists are part of the problem. The bigger problem is that high-speed rail is currently more desirable than ports.

Ports are what California's infrastructure investment debate should be about.



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