Saturday, April 21, 2012

Krugman Explains Why the $22 Billion 'Big Dig' Was Worth It

 The Big Dig, a megaproject in Boston that rerouted the Central Artery (Interstate 93) traffic through the heart of the city, into a 3.5-mile (5.6-km) tunnel is likely the greatest boondoogle in highway construction history.

The Boston Globe said the total cost for the project will be around $22 billion. In 2008, BG wrote:
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...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.
The state has also been forced to meet payroll demands for 1,400 Massachusetts Highway Department workers with borrowed money because it does not have enough cash to pay them.
But hey, there is upside to the billions spent. Paul Krugman got an "amazingly fast" taxi ride:  
I lived and worked in the Boston area from 1979 to 2000, with a few interruptions, and I got to know the traffic very well. In particular, I had a very good idea of how long you should count on spending in a cab if going from South Station to Cambridge at 5 PM on a Friday.

But I left before the Big Dig was finished.

So here I am, to be the dinner entertainment for the NBER macro conference, and I did the aforementioned cab ride (if the conference had been at Kendall or Harvard Square I would have taken the T, but it isn’t). And the ride was … amazingly fast.

The Big Dig is often treated as a cautionary tale of delays and cost overruns, and I have no idea how the cost-benefit analysis looks in retrospect. And I’m in general skeptical about highway expansions. But there sure have been benefits; and would the money really have yielded a higher social return if it had been used to reduce budget deficits, and thereby make more funds available for the housing bubble?
This is as sad as it gets when it comes to being a 24 hour apologist  for the state. Krugman is attempting to use a utilitarian justification for the Big Dig, without any attempt at looking at the data. He readily admits that he doesn't know the cost-benefit analysis of the Dig. In other words, he is talking pure gibberish.

This is aside from the problems with using utilitarian analysis in the first place. Murray Rothbard destroyed this method of analysis, decades ago:
Oddly enough, while utilitarianism assumes that morality, the good, is purely subjective to each individual, it assumes on the other hand that these subjective desires can be added, subtracted, and weighed across the various individuals in society. It assumes that individual subjective utilities and costs can be added, subtracted, and measured so as to arrive at a "net social utility" or social "cost," thus permitting the utilitarian to advise for or against a given social policy. Modern welfare economics is particularly adept at arriving at estimates (even allegedly precise quantitative ones) of "social cost" and "social utility." But economics does correctly inform us, not that moral principles are subjective, but that utilities and costs are indeed subjective: individual utilities are purely subjective and ordinal, and therefore it is totally illegitimate to add or weight them to arrive at any estimate for "social" utility or cost.


  1. That's exactly what I thought when we briefly looked at cost/benefit in terms of future traffic demand to justify a given highway project in my highway engineering class. The teacher calculated it based on minimum wage (as a way to assign a value to everyone's time) and I thought "Hey! That's why they impose a minimum wage - to make cost/benefit analysis more simple for DOT engineers."

  2. Krugman's conclusion is that today's social return is all that matters. Nevermind the impact of our debt on future generations or the negative impact it will have on their social return. Nope, only what you can see matters. What an ass.

  3. This guy is a fake...I know that the secret bankers of the Federal Reserve is a scam, so why would this fake think that he understand economics?...he is clueless
    check out the history of the Federal and you will see why i call this clown a fake...

  4. I have never heard a logical explanation of why broken windows paid by debt is a good idea again. I thought the idea was debunked as a fallacy a long time ago, and everyone kind of knew that.