It’s Never Infrastructure Week

(Bloomberg Opinion) -- In the second quarter of this year, investment spending by the federal government dropped below 1.4 percent of gross domestic product for the first time since the 1940s, according to the latest data from the Bureau of Economic Analysis. OK, at 1.397 percent, it wasn’t much below, and federal government investment as a share of GDP isn’t exactly a closely watched economic indicator. But the decline through the decades is still pretty striking:

It’s Never Infrastructure Week

Overall federal spending, meanwhile, is at an estimated 20.9 percent of GDP in fiscal 2018, currently higher as a share of GDP than it has been for most of the post-World War II era. It’s just that investment in research and development, roads, bridges, transit systems, buildings, equipment, and such has been replaced with spending on Social Security, Medicare, Medicaid and other social insurance programs. 

The federal government isn’t the only investor in town, of course. Since 1994, state and local governments have been investing more than Washington has. Include them, and the decline in overall government investment is less precipitous, and it has actually rebounded a teeny-weeny bit since last year, although it’s still lower as a share of GDP than at any point between 1948 and 2017.

It’s Never Infrastructure Week

Throw in business investment (nonresidential gross private domestic fixed investment, in BEA lingo), and the picture changes a lot. Total investment in the second quarter was right at the 1947-2018 average of 17 percent of GDP.

It’s Never Infrastructure Week

So … everything’s fine, right? After huge federal investments in interstate highways, R&D and the like in the 1950s and 1960s, the private sector has taken over and continued to invest in things that will drive future economic growth — in some cases, even in the kinds of infrastructure projects that had for a long time been the sole purview of government. As a country grows wealthier and more developed, there’s also evidence that government investment brings diminishing returns. Still, there are things that need to get built or fixed or researched that private investors will never have an appetite for. U.S. infrastructure clearly needs an upgrade, and taxpayer money is going to have to be a part of that. No, federal investment probably doesn’t need to go back to the 5 percent of GDP it hit in the second quarter of 1953. But 1.397 percent feels low.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

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