In reality, of course, this makes no economic sense whatsoever. Sucking resources out of the private sector – whether through taxing or borrowing – so that government can spend those dollars on politically-driven projects is not a plus for the economy.
If you need a real world example, just check out the latest bad news reported on July 17 by the Boston Globe regarding Boston’s “Big Dig” project, which many appropriately renamed the “Big Pig.” Several points worth noting from the report:
• Massachusetts residents got a shock when state officials, at the peak of construction on the Big Dig project, disclosed that the price tag had ballooned to nearly $15 billion... Now, three years after the official dedication of the Central Artery/Third Harbor Tunnel, the state is reeling under a legacy of debt left by the massive project. In all, the project will cost an additional $7 billion in interest, bringing the total to a staggering $22 billion, according to a Globe review of hundreds of pages of state documents. It will not be paid off until 2038.
• Big Dig payments have already sucked maintenance and repair money away from deteriorating roads and bridges across the state, forcing the state to float more highway bonds and to go even deeper into the hole. Among other signs of financial trouble: The state is paying almost 80 percent of its highway workers with borrowed money; the crushing costs of debt have pushed the Massachusetts Turnpike Authority, which manages the Big Dig, to the brink of insolvency; and Massachusetts spends a higher percentage of its highway budget on debt than any other state.
• The scope of the debt has not previously been calculated, much less publicly disclosed, by the state's political leaders, including Governor Deval Patrick and his senior transportation officials.
• The debt is a big part of why Massachusetts had the highest tax-supported debt per capita in the United States last year. Most of the Big Dig borrowing occurred when cost overruns on the tunnel network skyrocketed in the late 1990s and state officials scrambled to keep the partially completed project afloat… During the last three years, Massachusetts spent the most of any state, by far, 38 percent of its highway budget, on debt payments, according to Globe analysis of federal data. The median is less than 6 percent nationally.
• When the project was unveiled in the early 1980s, Massachusetts residents were told by transportation officials that the federal government would pick up 90 percent of the cost. Based on cost and borrowing estimates made at that time, state residents were expected to spend around $345 million, interest payments on debt included. But the federal government ruled that the project was not eligible for that level of federal support. As costs mounted over the next two decades, it was the state's responsibility to make up the difference. Ultimately, the federal government paid just 27 percent of the construction costs, or about $4 billion. As a result, the Globe analysis of state and federal data shows, state taxpayers and toll-payers are responsible for a staggering $18 billion of the total $22 billion in construction and debt costs.
• There are two sources of state highway funds: state borrowing and reimbursement to the state on federal gasoline taxes collected in Massachusetts. The Big Dig, which makes up 7.5 miles of an 11,000-mile system, gobbled up about 40 percent of those funds during the last 17 years, data show.
The “Big Pig” is a glaring example of government waste and incompetence, and it thereby illustrates that more government spending – on infrastructure or other escapades – is not the path to an improved economy.
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