May 6, 2015

When looking at federal spending programs over a long period of time, the actual dollar amounts are not particularly useful because the value of a dollar changes over time (particularly during the regular double-digit annual inflation of the 1970s and early 1980s). Most economists and budget experts either look at “constant” dollars (adjusted for inflation in some way) or else look at the program sizes as shares of something larger (either the whole economy or of total government spending).

ETW does not like the use of the Consumer Price Index as a measurement of inflation of infrastructure spending because CPI is designed to measure consumer expenses and is heavily weighted towards food and housing costs and also includes components like cable TV bills, pet grooming expenses, etc. which are not particularly relevant to the cost of gravel and cement or to the effectiveness of a dollar of highway or transit project from one year to the next. So we put together a chart this week measuring total federal spending (outlays) for transportation capital grants to states and localities (highway, transit, airport and intercity passenger rail grants) all the way back to 1941 (which is as far back as the Office of Management and Budget has public data) both as a percentage of U.S. GDP and as a percentage of total federal spending.

The chart was striking in terms of how closely the two lines tracked each other, reflecting (we think) the relative constancy of total federal spending as a share of GDP since the Korean War (except for the divergence from FY09-13 due to ARRA stimulus spending).

Federal Outlays for Grants to State and Local Government for Transportation Capital Investment, FY 1941 – FY 2014