Paving a Road to Prosperity: Assessing the Economic Impacts of the U.S. Interstate System
By: Harish Ganesh
The Boston Economist — Few infrastructural developments in history have seen impacts as great as the United States Interstate Highway System. Conceived and developed as a national defense system during the Cold War by President Eisenhower, this vast network of highways has gone on to become a catalyst for economic development. As we delve into the history and impact of the U.S. Interstate System, this article aims to dissect its economic effects, exploring its role in facilitating commerce and shaping societal shifts.
Origins
Following the end of the Second World War, the United States found itself in a Cold War with the USSR. The Arms Race with the USSR rapidly accelerated during the presidency of Dwight D. Eisenhower in the 1950’s as a result of his “New Look” policies, which relied on American military strength not through raw ground, naval, and air forces, but through an increasingly large stockpile of nuclear weapons, economic dominance, and covert interventions abroad. In 1956, Congress passed the Federal Highways Act, which President Eisenhower signed into law shortly thereafter. The Act had two intentions. The first was to facilitate the transportation of supplies, troops, and weapons between parts of the United States in the event of a nuclear attack or ground invasion by connecting major industrial powerhouses. The second was to reduce transportation times and bolster the economy. The Federal Highways Act provided $25 billion ($207 billion 2022 USD) for the construction of 41,000 miles of highway across the United States. The Federal Government would pay 90% of the cost, while states were required to pay 10% of the total cost. The government largely financed the project through taxes on gasoline and diesel, and to a lesser extent, limited access toll highways.
Suburbanization — A Societal Shift
While the project was conceived as a national defense measure and cross country travel method, the Interstate System soon saw many unintended effects. Between 1950 and 1990, the overall population of metropolitan areas in the U.S. grew 72%. In the same time period, the percentage of American population living in city centers decreased by 17%. The development of the Interstate Highways ran concurrently with the establishment of the Federal Housing Administration. The Federal Housing Administration subsidized mortgages, assisted in financing housing developments, and provided home insurance, enabling millions of Americans to own homes for the first time in history. Simultaneously, overall American purchasing power had grown due to the post-World War II economic boom, and car ownership soared. In 1950, there were 25 million registered automobiles in the United States. In 1958, this number reached 67 million, a 168% increase in 8 years. The percentage of American families owning cars increased from 54 percent in 1948 to 74 percent in 1959. The concurrent increases in highway construction, housing availability, and income led to the development of the American suburbs and centerless cities. The Interstate system enabled people to live increasingly far from the city and still be able to commute in and out. In 1940, 19% of Americans lived in suburban areas. By 1960, this figure reached 31%.
The impact of suburbanization on American cities compared to our European counterparts is still visible to this day. By relying heavily on automobile transportation and neglecting public transit networks, U.S. cities are far more spread out than European ones. Take for example the cities of Houston and Paris, nearly equal in population:
The centerless city and the suburban sprawl became a phenomenon unique to the United States and came with its own set of economic implications. Businesses have increasingly left inner cities for more attractive and lower-cost real estate in the suburbs — urban job openings decreased by 2% between 2002 and 2012, while suburban job openings increased by 5%, further advancing the suburban sprawl of the nation. This also makes auxiliary interstates, such as I-495 in Massachusetts and I-287 in New York and New Jersey increasingly important as more and more workers commute from suburb to suburb rather than suburb to city. Suburbanization also leads to inequality, as there is a clear disparity in the wealth levels of suburban communities compared to both rural and urban communities. Poverty rates in the U.S. sit at 18% for rural and 17% for urban, compared to about 14% of suburban. As a consequence of discriminatory lending practices, the suburbs also closed their doors to African Americans, contributing to economic inequality along racial lines. Additionally, due to the spread of metropolitan areas resulting from well-developed road networks, the cost of public works and infrastructure can rise by up to 40%. These expenses cost the United States 1 trillion dollars each year, an expense that is generally absent in Europe. It is undoubted that the development of the American suburb and its economic consequences can largely be attributed to the interstates.
Supply Chains — Facilitating Commerce
In contrast to the negative long-run consequences of suburbanization, the United States GDP has grown 340% since the development of the Interstates in 1956, from $3 trillion to $19 trillion. According to the United States’s Federal Highway Authority, 25% of the nation’s productivity increase from 1950 to 1989 can be attributed to the Interstate system. A recent study has shown that the United States’s Real GDP would shrink by as much as $619.1 billion if the Interstate system were to cease to exist tomorrow. This is largely due to the trucking industry. Thousands of tons of goods are transported across the vast land of the United States rapidly through trucking due to this road network. Engine parts produced in Alabama can be trucked to an Airbus factory in Washington state in 3 to 4 days, without the need for incremental, expensive air travel. The interstates also provide a crucial connection to exports. Producers of crops in Nebraska and Kansas can rapidly move their produce to the East Coast for export and make a profit. The quantitative side shows the clear success of the Interstate system. The Federal Highways Authority spent $128 billion constructing the network, while the highways have produced an estimated $283 billion in additional American output. In other words, for each dollar spent on the Interstates, they have produced $2.21 in additional economic output.
Conclusion
The United States Interstate Highway System, initially conceived as a strategic defense initiative during the Cold War, has left an indelible mark on the nation’s economic and societal landscape. The dual purpose of enhancing national security and fostering economic growth laid the foundation for a vast network of highways that not only facilitated the movement of troops and supplies but also became a driving force behind suburbanization and economic development. While the Interstate System has had some unintended negative consequences for the U.S. economy and environment, including vast suburban sprawl, car-based infrastructure, and income inequality, it has also contributed greatly to making the United States an economic superpower. The U.S. has seen 340% GDP growth since the system’s inception, driven by efficient supply chains and connectivity. The Interstate System’s quantitative success, producing $2.21 in economic output for every dollar spent, underscores its pivotal role in shaping modern America. As we move forward, acknowledging and managing the complex legacy of such infrastructure projects is crucial for informed decision-making and sustainable development in the future.
References
https://www.nber.org/research/data/transportation-economics-21st-century-highway-data
https://trace.tennessee.edu/cgi/viewcontent.cgi?article=1212&context=utk_agbulletin
https://www.artba.org/2021/06/28/americas-economy-rides-on-interstate-highways/
https://en.wikipedia.org/wiki/Suburbanization#
https://www.archives.gov/milestone-documents/national-interstate-and-defense-highways-act
https://en.wikipedia.org/wiki/Federal-Aid_Highway_Act_of_1956
