In 2017, President Donald Trump was considering a major increase on federal government spending on infrastructure, including building and repairing bridges, highways, rail lines, and subways. An article in the Economist argued, “Just as economists talk of ‘negative externalities’ (from, say, pollution), infrastructure can have positive externalities that are not captured by investors but will benefit society.”
a. Explain what positive externalities infrastructure spending might generate.
b. If infrastructure spending generates a positive externality, what effect should this have on government policy?