US Infrastructure and Public Investment

How has investment in public assets changed on account of the wars? In 2000, total military assets – the Pentagon’s buildings, aircraft, ships, vehicles, computers, and weapons -- were valued at $904 billion.  They rose to $1,245 billion ($1.2 trillion) by the end of 2009, an increase of $341 billion (valued in current dollars). 

Public investment in non-military assets – all the public buildings, roads, mass transit systems, water and sewer systems, public utilities, recreation facilities, and so on -- was strong throughout the 1950s, 1960s, and the first part of the 1970s. In the mid-1970s, the rate of investment dropped significantly. Since that time, investment in state and local government assets has held steady, but at about half the rate of accumulation of the 1950s and 1960s.   

Why is this comparison important? Investments in core infrastructure have a direct impact on the performance of the private economy. The private sector benefits derived from public investments in roads, water systems, and other goods are in addition to the direct benefits that public investment confers to the population – that is, roads help people get around as well as improving the efficiency of businesses. However, investments in military assets do not show a similar positive effect on economic performance.

The private economy does benefit from military spending on durable, physical assets – the arms industry and defense contractors being obvious examples. However, there are no ‘spill-over effects’ in terms of the long-run productivity of the rest of the private sector.  To the extent that investment in defense displaces public investments in basic infrastructure, the productivity of the private sector suffers.

Specifically, a 1 percent increase in investment in ‘core infrastructure’ would increase the productivity of the private sector by up to 0.2 percent, considering the direct effects of infrastructure investments.

What if the US had invested more in non-military infrastructure? If the investments in military assets and infrastructure over the last decade had been made in core public economic infrastructure (transportation, roads, utilities, water systems, and sewerage) instead, this would represent a 7.4 percent boost to the current value of key public assets providing an additional $150 billion in benefits to the private sector in terms of increased productivity.

If these capital investments were made in U.S. education infrastructure, it would represent an 18.5 percent boost in terms of capital improvements nationwide.  This would finance the investments in public school facilities required to return the country's schools to good condition.  The fact that these alternative investments have not been made and the productive benefits of such public assets have not been realized represent real costs of the wars that have been launched since September 11th, 2001.