A recent survey carried out by the Centre for Policy Dialogue says that near three quarters of the electorate think that infrastructure is a good thing. Which is a good thing -- for infrastructure is a good thing.
However, we've got to be careful of our definition here. Building something because we can build it is not a good thing. Building something that people will then use can be a good thing. So we end up with that most common answer in economics: “It depends”.
To put it very simply, building something no one uses is a waste of money and effort. Not building something many people would use keeps us poorer than if we built it. What matters is what is it that we are building, how much is it going to cost, and what will be the value for the people using it?
The things where the value in use is more than the cost of building are the things we should build -- those that are worth less make us poorer.
So far this is all so obvious. But we've got to work out those costs, those benefits. The not very technical name for this is a cost-benefit analysis (CBA).
We add up all of the costs on the one side. This will include things like the nature we've got to destroy to build it, the cement we'll use, the labour, and so on. Then we add up all the benefits -- the time saved from being able to use the infrastructure, for one example.
When people do a CBA for a railway in Europe they really do measure the time that people will save, say that people's time is worth something (usually the amount they would get paid at work for that time) and then add that all up. If we end up with a positive number, the benefits are greater than the costs, then we should build it.
The point to grasp here is that only that infrastructure which passes the cost-benefit analysis should be built. If the costs are greater than the benefits, then this makes us poorer. That is, yes, infrastructure can be good but it must be the right infrastructure.
Sadly, we then get to another level of difficulty. Sometimes people lie in those cost benefit analyses. I have a terrible social and personal failing -- I actually read the footnotes of reports. I even go and look up the documents the footnotes refer to and check that what is claimed to have been said actually has been said. It is not always true that what is claimed is what has been -- this is often politics we're talking about here, a field of life where total truth and transparency are not a usual feature.
Just to give the most recent example that amused me. Ireland has tried a universal basic income for artists. Give them some money and they can make art instead of having to work in a burger shop to pay the rent. OK, this might work even if I, personally, don't value modern art all that much. Or at all, to be frank, but then I admit to being an uncultured barbarian. They spent €100 million (euros) on testing this and claimed that the benefits were greater than the costs. So, they're going to make this a permanent feature. Free money for artists to do art.
Well, OK. But evil people, like me, who actually read the report, and the footnotes, see that €80 million of the benefits are because artists like having free money. No, really, that's it. The benefit to society of spending €100 million is that artists like having free money and the value the artists put on having that free €100 million is €80 million. Which is where we have to be really, really, careful about CBAs. For we have to make sure that we're including all of the costs and all of the benefits.
No one is really surprised that free money makes people happier. Which we can write down as a benefit, of course we can. But that money comes from somewhere. People have been taxed €100 million and we can assume that this makes them less happy than if they had not been taxed €100 million.
So, if we include the benefit of free money then we must include the cost of taxation. At which point it's not so obvious this is a good idea. After all, those -- possibly few -- people who want to give free money to artists can do so without the government having to do it. Indeed some few people do -- they're called art patrons.
This is all also true of infrastructure itself. We should only build that where the benefits are greater than the costs. What is a cost, what is a benefit, has to be checked against those footnotes. Because, astonishing as this might seem, sometimes people blur the truth -- let us not be crude and call it lying -- in order to make their sums add up.
Some infrastructure is a good thing. What matters is determining which bits.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.
