A note on international comparisons

Everyone is using yesterday’s Amtrak disaster to make a point about US infrastructure spending (I, II, III, IV, etc). They’re right, mostly: the US should absolutely spend more on roads and bridges and trains, if for no other reason than the government can borrow for free right now. I’m all for it.

But there are two ways to make empirical comparisons to support these arguments, and one makes more sense than the other. The first is to make a within-group, across-time comparison and point to the fact that US public infrastructure spending is at historic lows. This makes sense; there’s nothing to suggest that our economy is so structurally different from what it was ten years ago that we can’t rack up public capital like we have in the recent past.

The other way is to compare US public investment to countries abroad. This graphic, or variations on it, has gotten a lot of attention:

Untitled

This is a ridiculous comparison. China is in the midst of a literally unprecedented economic expansion — an experiment in SOE-flavored capitalism, the hallmark of which is massive public investment.  It needs a place to put all 1.4 billion people, and the way to do that is for the government to build new cities from scratch as quickly as possible. America on the other hand is a rich, aging society with tons of infrastructure, albeit shitty, already in place. Of course we’re not dumping money into this stuff like China is.

The point here is that the size, age, and health of your economy matters: richer countries invest less in infrastructure than do developing ones. They just do. They have less stuff to build, more old people to take care of, and tighter budgets to deal with. The low-hanging fruit is long gone in the developed world. Here’s a scatterplot I threw together just now using IMF and World Bank data:

Graph

Data is for 2013. The sample is all countries with available data and a GDP per capita greater than $2,000 (the poorest countries obscure this relationship as political instability tends to undermine any public investment; at any rate the relationship here is robust to lower or even no threshold).

So now we know not to compare public investment across countries with different living standards. Great. But what about other rich countries? Aren’t they doing a much better job of funding this stuff than we are?

The answer is yes and no. If you want to compare the composition of infrastructure spending, then yes, it’s true that most European countries spend more on rail. (They also make sure that the costs of these projects stay in the god damned atmosphere, and by doing so, avoid crushing the political will for this stuff.) But to claim we need more investment in rail is one thing; to draw the sweeping, indiscriminate conclusion of more infrastructure now!!! is another. The reality is that when we look at public investment as a whole, the US is…pretty normal among its developed peers:

graph2

Data is from the IMF’s World Economic Outlook publication. These figures were calculated by taking nominal public gross fixed capital formation as a share of NGDP.

Again, this doesn’t mean there aren’t good reasons to ramp up funding for infrastructure. There are. It’s just that these international comparisons are not one of them.

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One Response to A note on international comparisons

  1. Pingback: No, Europe doesn’t spend 5 percent of GDP on infrastructure | zero mean error

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