Economists aren’t so sure. A wide body of research focused on the effects of highway spending suggests that major new investment in U.S. roads would generate little, if any, long-term economic gain.
While the projects would spur hiring and spending temporarily, both when they are announced and under way, they aren’t likely to raise the economy’s productivity and, in turn, its overall growth potential in a lasting way, many researchers find.
That is because the US already has an extensive system of roads, so building more wouldn’t add much to productivity, economists say.
“Highways can generate a boost for the short run, but in the long run that seems to be dubious,” said Gilles Duranton, an economist at the University of Pennsylvania.
New spending for roads accounts for the largest single share—roughly 19%—of the $579 billion in new spending that the White House and a group of lawmakers have agreed to. Both Democrats and Republicans say that money would raise the economy’s productivity, defined as the level of output per hour worked.
President Biden last week touted the agreement as delivering “higher productivity and higher growth for our economy over the long run.”
Sen. Rob Portman, an Ohio Republican who helped craft the deal, said last month that the plan would “increase our productivity as a country.”
Development of the U.S. interstate highway system between the 1950s and 1970s—currently 47,000 miles of multilane highways stretching coast to coast—did make the economy much more productive, John Fernald, an economist at the Federal Reserve Bank of San Francisco, wrote in a 1999 paper.
The system meant a cross-country trip that used to take months could be accomplished in days. Businesses gained access to new suppliers and new customers. Cities were able to specialize in certain industries. International trade opened up. By one estimate, the U.S. economy would be 3.9% smaller today without the interstate highway system.
But those gains all came about when the highways were built. By now, the gains have been reaped.
“Building the interstate highway system was enormously productive,” Mr. Fernald said. “That does not imply that building a second one would be equally productive.”
Other research has reached similar conclusions.
Charles Hulten, an economist at the University of Maryland, found that infrastructure investment in developing countries like India resulted in increased productivity and higher growth rates. In developed countries with vast road networks, such as the U.S., new investment resulted in no change in overall productivity and growth.
A group of economists in Spain studying that country’s infrastructure spending between 1964 and 1991 concluded that the investment earlier in the period produced greater economic gains than investments later, when much of the infrastructure was already in place.
Researchers have also found that in developed countries, whatever local benefits come from highway improvements come at the expense of other locations. In other words, road spending reallocates the pie but doesn’t make it bigger.
Mr. Duranton and two co-authors, Geetika Nagpal and Matthew Turner, both of Brown University, suggested in a paper last year that new investments “lead to a displacement of economic activity while net growth effects are limited.”
That’s not to say that billions of dollars in new government road spending wouldn’t boost growth in the short term. But the gains would come about as the result of the construction, and would dissipate once all the projects are completed.
In a 2012 paper, San Francisco Fed economists Sylvain Leduc and Daniel Wilson found that new spending on roads can boost an area’s economy at two specific times: immediately after the new spending has been announced, and six to eight years later, when construction is under way. Beyond 10 years, there were no economic benefits to infrastructure spending, they found.
Moreover, the immediate effect applies only during recessions, they wrote. It’s unclear whether the U.S. would see that short-term boost now that the economy is expanding rapidly.
Some of the spending lawmakers are considering could ease congestion. But those improvements would also be temporary. Adding more highway lanes to ease congestion tends to encourage more people to use those lanes, making them congested once more, a phenomenon known as “induced demand.”
A 2011 paper by Mr. Duranton and Mr. Turner found that areas that added road miles saw a proportional increase in driving, resulting in the same overall traffic levels.
Even if long-term benefits are limited, there is still a case to be made for spending money on roads, economists say. Filling potholes could provide a more comfortable driving experience, for instance.
“The more comfortable ride is getting you the improved quality of life but it’s not necessarily adding tons of private sector productivity,” Mr. Fernald said.
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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
