Why do we raise taxes to invest in transportation? Because transportation investment boosts productivity and the wealth generating potential of the entire economy. It also increases personal mobility and quality of life. The key benefit, however, has nothing to do with “job creation” in the construction trades. In fact, we want to create as few jobs as possible in those sectors because we want to get as much road transportation mobility and reliability as possible for as little cost as possible in terms of investment and payroll for construction workers.
Nor is the key benefit related to personal income growth in a particular geographic area where the road is built. No, the key benefit and reason for transportation investment is from helping to make businesses and individuals more productive, across the geographic landscape. We rely on our transportation investments to increase the economy’s overall productivity – both in terms of making individual travel (business and personal) faster and more reliable, and in terms of the productivity benefits of making freight flows faster and more reliable. “Any congestion, or lack of capacity, must be viewed as a bottleneck not just to traffic, but to productivity and economic growth itself.”
Although private investment in transportation infrastructure is growing, transportation funding is still overwhelmingly public. So when one asks if investment in transportation crowds out more productive private investments, one is essentially asking if public investment in transportation crowds out more productive private investments. Some research suggests the answer is no. According to economist David Aschauer, publicly funded roads increase the profitability of private investment (higher rates of return) and lead to increases in private investment with the expected economic growth benefits. Aschauer has suggested that every one percent increase in highway infrastructure investment will increase GNP by as much as 0.24 percent.
While the level of return is hard to estimate, the Congressional Budget Office in 1991 asserted “cost benefit analysis finds substantial returns to increases in federal funding for highways.” Further support for the benefits of highway investment came in the testimony of OMB Director Richard Darman who said, “it is apparent that some public investment – particularly for street and highway infrastructure provides direct productive services that are complementary with private investment.”
But how does investment in transportation lead to benefits that are worth more than the negatives from crowding out other investments? The rest of this section attempts to explain this benefit, along with other benefits to personal travel and quality of life that also result from highway investment.