Infrastructure is a red herring…

…when discussing the overall effect of a grab-bag of policies people are calling “stimulus.”  The Stiglitz and Moore discussion referred to by Peter Dreier seems to have been about exactly that.  One of Stiglitz’s points shows what I’m getting at.  As Dreier puts it:

Stiglitz praised the President’s initiative. Investment in infrastructure, he said, offers the most bang for the buck.

[…]

“If we had spent a few billion dollars (repairing the levees around New Orleans before Katrina hit) we would have saved over $100 billion” in damage.

That’s clearly right, but entirely beside the point.  It’s not just that it’s a phenomenal example of hindsight bias.  It’s that it ignores tradeoffs.

Numbers may help make the point.  The real issue is that if infrastructure (levees) is going to be repaired, it’s not worth it–it offers no bang for the buck–if, in order to get that “few billion,” over $100 billion needs to be spent on useless crap.

Moore’s point should be that the “stimulus” is heavy on the useless crap, and therefore any bang its bucks deliver is eliminated to the extent the crap accompanies it.  Of course, big-government liberals (like both the Democrats and the George W. Bush wing of the Republican Party) hardly ever see useless crap in government budgets.  After all, they know best where our money should go.  They’re experts.

This failure to recognize useless spending brings up a whole other issue–identifying good “investments” ex ante.  Count me among those who say nobody has enough knowledge–nor could they–to be able to effectively direct billions of dollars toward any economic activity without doing more harm than good.  What’s funny about Stiglitz’s point that Dreier likes so much is that it should make him agree with me.  But I don’t think he does.

That is, Stiglitz blasts the Dow as an insufficient metric for measuring the economy; he rightly says that the information it provides is limited.  Why those who realize the shortcomings of the Dow–a metric incorporating millions of decision makers’ judgments–for overall measurement purposes insist that Congressional legislation–reflecting the judgments of a few hundred politicians and bureaucrats–somehow gets our economy’s needs right is dumbfounding.

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