Sylvain Leduc and Daniel Wilson studied the effect of unexpected infrastructure grants on state GDPs (GSPs) since 1990 and found that, on average, each dollar of infrastructure spending increases the GSP by at least two dollars. Valerie Ramey, Professor of Economics at UC San Diego and member of the National Bureau of Economic Research, reports that the typical fiscal multiplier is between 0.5 and 1.5.
Leduc and Wilson note that their results serve as a validation of Keynesian economics:
We find that unanticipated increases in highway spending have positive but temporary effects on GSP, both in the short and medium run. The short-run effect is consistent with a traditional Keynesian channel in which output increases because of a rise in aggregate demand, combined with slow-to-adjust prices. In contrast, the positive response of GSP over the medium run is in line with a supply-side effect due to an increase in the economy’s productive capacity.
What’s more, their study showed that the multiplier increases during a downturn. Leduc and Wilson found that the multiplier in the wake of the 2009 stimulus was “roughly four times” more than average. That means infrastructure investments offer more value during busts than booms, which should encourage policymakers attempting to counteract high unemployment in the construction sector by increasing spending on highways, roads, and bridges.
Keynes put it in such clear perspective, but of course, this really has been known for thousands of years. You build a road and it will pay for itself many times over. How do you think early civilization began? Caesar was truly a road builder.
It’s a fascinating and depressing reality that so many leaders from early human history were so much smarter than today’s teatard leaders.