Is Public Infrastructure Undersupplied?

Over the past decade, infrastructure issues intermittently have moved toward the forefront of the domestic policy agenda. The coming year promises to intensify debate. By September 1991, Congress must re-authorize the federal highway program. Unlike past re-authorizations, this time Congress almost certainly will have to set new priorities and incorporate new principles of cost sharing for highways, since the original mission of the federal highway program will have been accomplished. Sometime in 1991-92, workers will complete the last segments of the interstate highway network, bringing to an end an era of road-building that began with Dwight D. Eisenhower in 1956 and has dominated infrastructure spending since that time. Any consensus that Congress reaches regarding the definition of a new federal role in the highway program, or the appropriate use of price incentives in grant programs, is likely to spill over to the financing of other infrastructure functions. This paper sets out to provide an introductory perspective on the current infrastructure policy debate. It begins by considering the record of public capital spending. Most of the studies claiming extreme erosion of infrastructure investment start their story with the 1960s, which turned out to have been the peak period for infrastructure spending. A somewhat longer perspective better captures the wave pattern that has characterized infrastructure investment, but the impression of a secular decline in gross investment is weakened. In this perspective, the late