INFRASTRUCTURE INVESTMENT: A REVIEW ESSAY

ECONOMISTS TRY not to be faddists but they often cannot help themselves. While work on a topic should mirror the prospective importance of the topic, that situation seems to occur with disappointing frequency. Instead, the usual pattern is that some reasonably important topic will be totally ignored for the longest time, then recognized, and then the subject of a flurry of work all out of proportion to its likely long run importance. Nowhere has this speculative bubble of economic research been more clearly illustrated than with infrastructure investment. Macroeconomists havelong felt that the stock of public capital is an important factor input in the production of total output. Macroeconomists have known that U.S. productivity growth slowed dramatically in about 1973 and macroeconomists should have known that United States investment in public capital has been down since the late 1960s. Yet analysis of the U. S. productivity slowdown completely ignored infrastructure investment for the first fifteen years of this slowdown, concentrating instead on energy prices, social regulation, the composition of the work force, research and development, different rates of obsolescence of the private capital stock, and any number of other matters. The public capital stock was hardly ever even mentioned as a potential factor in the productivity slowdown. Aschauer changed all that. He wrote a series of papers (1989a, 1989b, 1989c) that put these two movements together econometrically-infrastructure investment turned down and aggregate productivity turned down slightly later, both in the United States and in some other developed countries. His work hit the magic button. Those who had worried about the productivity puzzle for fifteen years welcomed a new suspect. Those who were worried about low rates of U. S. national saving welcomed a new way to make their argument even more forcefully than with official figures on saving and investment, which do not count infrastructure investment as investment. Political liberals and liberal politicians saw a way to rescue government spending and projects from the assaults of Reaganism, and even a way to avoid oth-