Growth In the toolkit of economic stimulus measures, infrastructure spending is the favourite

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Brett Bundale
Telegraph-Journal

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In an attempt to overcome the Great Depression, Franklin Roosevelt poured money into public works projects. His New Deal for the American people showed spinoffs from infrastructure spending can help lift an economy out of a slump.

Decades later, infrastructure spending is still the instrument of choice in the toolkit of economic stimulus measures.

Prime Minister Stephen Harper promised in Wednesday's Throne Speech to accelerate infrastructure dollars to the provinces, a move Premier Shawn Graham said will help New Brunswick cope with "the most challenging economic time that we have seen in years." Infrastructure spending will "stimulate activity and be a catalyst to economic growth," Graham said in an email.

Carl Sonnen, president of Informetrica Ltd., an economic forecasting firm, said spending on road work, bridges and other public works projects provides the best "bang for your buck" because of the added advantage of economic spinoffs.

A study released this month by Informetrica showed an increase in infrastructure spending of $1 billion creates more than 11,000 jobs, including 5,500 new construction jobs, and also increases the gross domestic product by 0.13 per cent. In addition, $1 billion spent upgrading roads, bridges and water mains creates more jobs and acts as more of an economic stimulus than $2 billion in tax reductions.

Dean Baker, an economist and co-director of the Center for Economic Policy Research in Washington, D.C., said infrastructure spending during an economic downturn is only the "least bad choice."

"There's going to be waste when you rush to fix the economy, but building a new road or bridge keeps money rolling in your region," Baker said.

David Murrell, a professor of economics at the University of New Brunswick, said former premier Frank McKenna spurred the "McKenna Miracle," a period of increased regional economic development, largely through government spending on highways.

"What we saw was an upward spike in the employment of construction workers, but there were important spin-offs too," said Murrell.

"They needed materials like sand, gravel and cement that came from the province or at least P.E.I. or Nova Scotia," he said. "And there were also indirect jobs from the re-spending of money in the economy. It's the multiplier effect."

Jean Perrault, president of the Federation of Canadian Municipalities, said the Throne Speech is good news for cities with badly needed infrastructure repairs.

"We're very pleased that the government has promised to accelerate access to money in the Building Canada Fund," Perrault said.

Although most experts back the move to invest in infrastructure, some warn that governments should be wary of throwing money at the crisis without a sound economic and environmental plan.

Governments should consider "green infrastructure" and the possibility of offering subsidies for businesses and individuals to retrofit their buildings and homes with energy-efficient equipment and insulation, Baker said.

Chantal Guay, chief executive officer of Engineers Canada said aging infrastructure and the threat of global warming requires "innovative engineering solutions."