Congress recently passed the White House’s Infrastructure Bill to the tune of $1 trillion. President Joe Biden is expected to sign the legislation into law on Monday.
In the lead-up to the vote, the administration and House Democrats were oddly adamant that the bill would cost zero dollars. That’s right, a free $1 trillion infrastructure bill.
Another FEE article already debunked this claim with thorough examination of the concept of forgone alternatives. However, following the poor reception of the rhetoric that the infrastructure bill would cost nothing, messaging seems to have pivoted to a less dubious position. Namely, that the infrastructure bill will not add a penny to the deficit.
There is more truth to this assertion than the last, but a thorough examination still finds this claim wanting. Why? In order to understand, we need to, again, consider the forgone alternatives.
Alternatives to “Infrastructure”
When government spends money on something like a bridge, it’s easy to believe this is obviously a good investment. When the project is completed, tax revenue has transformed into a bridge that citizens could find useful for years to come. Politicians seeking re-election often campaign on concrete accomplishments like these.
However, a bridge is not always a boon. In order to know if a new bridge is beneficial to society we must first ask, what was given up to get the bridge? Could the money for the bridge instead have been used for a park or a school? Would one of those have been preferable? To complicate the matter even more, what would taxpayers have done with their money had it not been taxed?
If the next best use of tax money has a higher value to society than the bridge, building the bridge was a waste of scarce resources. Economists call this concept of the highest valued alternative use of resources, opportunity cost.
For taxpayers, a lower deficit appears to be preferable to a higher deficit, other things held constant. Indeed, rhetoric surrounding the infrastructure bill appears to assume that people will be happy if not a penny is added to the deficit. This is a tacit admission that, for many, a lower deficit is better (again, all else held constant). I take this admission at its word.
So, when $1 trillion is spent on an infrastructure bill, what’s the opportunity cost? Well, given that people prefer lower deficits, one alternative way to use $1 trillion dollars is to pay down the deficit.
So consider a world where instead of paying for infrastructure, this trillion dollars is used to pay down the deficit. If this were to happen, the deficit would be one trillion dollars lower than it is today. This is the problem with the rhetoric that the infrastructure bill doesn’t add to the deficit. While it’s true that the absolute amount of the deficit will not increase when the infrastructure bill is implemented (assuming sufficient revenue is actually collected), the deficit does increase relative to a world where the revenues are used to pay down the deficit.
It’s important to point out here that this is actually the best case scenario for the infrastructure bill. If the only two goods Congress can provide are 1) creating infrastructure, or 2) paying down the deficit, the highest value alternative use of money used for infrastructure is, by definition, paying down the deficit. A relatively higher deficit is the best case scenario for creating infrastructure. If, instead, there are other things that could be done with the $1trillion dollars in wealth, it’s possible that Congress is forsaking an even better option.
For example, what is the value to society of taxpayers keeping their $1 trillion dollars, and using it to invest in thousands of businesses and purchase goods from thousands of others? The value of this option is beyond our ability to measure, but it’s at least possible, if not probable, that this is even better than paying down the deficit. If so, the sacrifice being made for the infrastructure is even larger.
The Bottom Line
Even to the most skeptical critic of allowing people to keep their own money, there are innumerable other things the government could have purchased instead of what they bought in the infrastructure bill. Pick your favorite cause as the opportunity cost.
I’m not arguing that a particular use of $1 trillion dollars is best. Instead, it’s important to merely point out that a trillion dollars of infrastructure could have been a trillion dollars to pay down the deficit. And, if there is any option more valuable than that, then a relatively higher deficit isn’t even the worst of problems created by the new infrastructure bill.
There’s no such thing as free infrastructure.
This article, The True Costs of Biden's Infrastructure Bill, Explained, was originally published by the Foundation for Economic Education and appears here with permission. Please support their mission.