My colleague Bob Caylor wrote a good editorial for last night's paper looking at both the seductive appeal and flaws of the "do the deluxe version now to save money in the long run" argument for government projects:
The problem comes when people arguing over options for public spending reason as if money spent today on construction comes from a vault otherwise sealed off from the rest of the economy. It's reasonable to assume that construction today costs less than construction a decade from now. But that doesn't mean that public money not spent on construction today lies idle, waiting to be appropriated. Even if the money did just wait to be appropriated, the cheaper approach could be a money-saver sometimes. Using Downs' example, the $319,000 to be saved by paving with asphalt, not brick, on Wilt Street would not remain $319,000. If that savings were set aside at 4 percent interest, it would grow quickly enough that it could pay for the next five asphalt paving jobs over 90 years, with about $4.8 million left in the bank at the end of 90 years.
Of course, that $319,000 saved by paving with asphalt instead of brick didn't become a savings account for street paving. Instead, that money enabled the city to pave nine other similar stretches of street along with Wilt Street. Nine other stretches of residential streets were be spruced up, providing a lift for nine other groups of neighbors. Motorists enjoyed 10 times as much freshly paved street mileage, free from potholes and crumbling. Stretching the benefits of fresh paving 10 times as far doesn't sound like miserly foolishness.
When we were talking about it, I thought of an analogy based on personal experience that makes the flawed thinking more apparent, at least to me. I just had my house painted, and it cost me about $5,000. Let's say it has to be repainted every five years. That would cost $40,000 over 40 years. If I could find a one-time solution (say vinyl siding) for $20,000 that would last 50 years, wouldn't I be better off in the long run? Well, yes, but . . .
As it stands now, I have to put aside only $1,000 a year for my house painting, and the rest I get to keep for other needs. Assuming I could even come up with $20,000 in one big chunk, that's $20,000 that immediately comes out of my disposable income, which can't be used for trips, a new car, other household emergencies. Besides that, I would be coming up with a solution that would last longer than my expected residence in the house -- in effect, partly subsidizing expenses for the next owner.
