Monday, October 20, 2008

Investment Spending

This is what I talk about when I get annoyed that the FTA won't build tunnels and instead points the cost effectiveness of bus rapid transit. While the cost of the tunnel is more, it sure lasts a long time, and should be amortized as such.
And as people like Minnesota congressman James Oberstar have pointed out, the failure to separate government investment from government consumption has perverse effects on how the government spends money, leading it to emphasize projects that cost less on an annual basis but more on a long-term basis, while also leading us to underestimate the benefits to the economy at large of investments in things like infrastructure, basic research, and so on.
As Oberstar said:
Many argue that our current method of accounting biases spending decisions against physical infrastructure by requiring infrastructure to be paid for all at once rather than over its useful life. Thus, infrastructure investments are not judged on their long-term economic return, but rather on a distorted view of their "up-front" impact on the budget.
H/T Bellows

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