Explained: The True Costs of Biden's Infrastructure Bill

The White House's $1 trillion Infrastructure Bill was just passed by Congress. On Monday, President Joe Biden is likely to sign the bill into law.

The administration and House Democrats were curiously certain in the run-up to the vote that the plan would cost no money. That's true, a $1 trillion infrastructure bill is completely free.

This argument is backed up by a careful investigation of the idea of forgone options. Following the negative reaction to the claim that the infrastructure bill would be free, messaging appears to have shifted to a less problematic posture. That is, the infrastructure bill will not increase the deficit by a dime.

Although this assertion has more truth than the previous one, a comprehensive study reveals that it is still untrue. Why? To comprehend, we must evaluate the foregone choices once more.

Alternatives to “Infrastructure”

It's easy to assume that when the government invests money on something like a bridge, it's a smart investment. When the project is finished, tax income will have been turned into a bridge that residents will be able to enjoy for many years. Politicians seeking re-election frequently campaign on tangible achievements such as these.

A bridge, on the other hand, is not necessarily a blessing. To determine if a new bridge is useful to society, we must first consider what was sacrificed in order to obtain the bridge. Could the bridge funds have been better spent on a park or a school? Would either of those have been better? What would taxpayers have done with their money if it hadn't been for the government?If the next best use of tax money is more valuable to society than the bridge, it was a waste of precious resources to build the bridge. Opportunity cost is the term economists use to describe the notion of the most valuable alternative use of resources.

If all other factors remain constant, a lower deficit looks to be better to a greater deficit for taxpayers. Indeed, it appears that the language around the infrastructure plan assumes that no money would be added to the deficit. This is an implicit acknowledgement that, for many people, a smaller deficit is preferable (again, all else held constant). This admission is taken at face value.

So, when $1 trillion is spent on an infrastructure bill, what’s the opportunity cost? Well, given that people prefer lower deficits, one alternative way to use $1 trillion dollars is to pay down the deficit.

So, instead of paying for infrastructure, imagine a future where this trillion dollars are utilized to reduce the debt. The deficit would be one trillion dollars smaller than it is now if this were to materialize. This is the flaw in the argument that the infrastructure plan will not increase the deficit. While the deficit will not grow in absolute terms if the infrastructure bill is enacted (provided adequate income is collected), the deficit will grow relative to a world in which the revenues are used to reduce the deficit.

It's worth noting that this is the best-case scenario for the infrastructure bill right now. If Congress can only supply one of two goods: 1) building infrastructure or 2) reducing the deficit, the highest value alternative use of money for infrastructure is, by definition, reducing the deficit. The best case scenario for building infrastructure is a slightly greater deficit. If there are other things that might be done with the $1 trillion in wealth, it's likely that Congress is passing up a better opportunity.

What is the societal benefit of taxpayers maintaining their $1 trillion and investing money in tens of thousands of enterprises and purchasing things from tens of thousands of others? The worth of this choice is beyond our abilities to assess, yet it's plausible, if not likely, that it's better than paying down the debt. If this is the case, the infrastructure cost will be substantially higher.

The Bottom Line

Even the greatest skeptic of letting individuals to keep their own money would admit that the government could have spent their money on a variety of other things instead of the infrastructure bill. As the opportunity cost, choose your preferred charity.

I'm not suggesting that a certain use of $1 trillion dollars is the greatest option. Instead, it's more critical to emphasize that a trillion dollars spent on infrastructure might have been used to reduce the deficit by a trillion dollars. And, if there is any choice more valuable than that, the new infrastructure bill's greatest flaw isn't even a significantly greater deficit.

No such thing as free infrastructure exists.