Do New Roads Boost the Economy?

RANDAL O’TOOLE, CATO INSTITUTE

“More highway spending won’t rev up the economy,” argues a recent article in the Wall Street Journal. However, the article’s writer, David Harrison, seems a little confused about how highway spending might help the economy.

“The U.S. already has an extensive system of roads, so building more wouldn’t add much to productivity, economists say,” writes Harrison. But this depends entirely on where roads are built.

People don’t travel by car or ship packages on UPS or FedEx just because there are roads to drive on. They do it to obtain economic benefits, such as shorter commutes to work, better housing, lower‐​cost consumer goods, or on‐​time deliveries to their customers. This what economic productivity is all about.

New transportation infrastructure boosts the economy if it lowers costs and/​or increases speeds and convenience. A proof of success is an increase in travel or freight shipment. If use of new infrastructure merely replaces travel on some other route or mode, there isn’t much benefit.

Harrison admits that new roads can generate new travel, but immediately damns this, saying that “added road miles saw a proportional increase in driving” and thus fail to relieve congestion. But that’s not the point: if new road miles increase driving, they are increasing economic productivity. The fact that, in many places, new roads do increase total driving disproves Harrison’s thesis that such roads don’t boost the economy. It is only when new roads won’t increase total travel that we should question whether they are needed.

The Interstate Highway System generated huge benefits by replacing 45‐​mph roads with 70‐​mph roads. If a new road today increases speeds from, say, 65 to 70 mph, the benefit won’t be as large, but there is still a benefit.

There is an easy way to determine whether this benefit is worthwhile: are users willing to pay for the new infrastructure? If they are, then it was worth building; if they aren’t, and it can only be built with subsidies, then it probably wasn’t worth building. In general, users would be willing to pay for many new roads in America, but not new light‐​rail lines, high‐​speed trains, or other forms of transport that require heavy subsidies.

President Biden’s infrastructure plans call for limiting nearly all federal highway spending to reconstruction and maintenance of existing roads and bridges. While this may be needed in some cases to continue current levels of economic productivity, it obviously won’t boost the economy. But neither will spending billions on mass transit or Amtrak, especially since ridership of both are likely to decline no matter how much taxpayers spend to support them.


Used with permission. Cato Institute / CC BY-NC-SA 4.0


Randal O’Toole is a Cato Institute Senior Fellow working on urban growth, public land, and transportation issues. O’Toole’s research on national forest management, culminating in his 1988 book, Reforming the Forest Service, has had a major influence on Forest Service policy and on-the-ground management. His analysis of urban land-use and transportation issues, brought together in his 2001 book, The Vanishing Automobile and Other Urban Myths, has influenced decisions in cities across the country. In his book The Best-Laid Plans, O’Toole calls for repealing federal, state, and local planning laws and proposes reforms that can help solve social and environmental problems without heavy-handed government regulation. O’Toole’s latest book is American Nightmare: How Government Undermines The Dream of Homeownership. O’Toole is the author of numerous Cato papers. He has also written for Regulation magazine as well as op-eds and articles for numerous other national journals and newspapers. O’Toole travels extensively and has spoken about free-market environmental issues in dozens of cities. An Oregon native, O’Toole was educated in forestry at Oregon State University and in economics at the University of Oregon. Email: [email protected]


LEAVE A REPLY

Please enter your comment!
Please enter your name here