Interstates Add Billions to Economy

According to Wikipedia, constructing the Interstate Highway System cost $535 billion in 2020 dollars. Now, three economists from the University of Colorado and Florida State University have calculated the amount of benefits the highway add to our economy.

Interstate highways carry a quarter of all vehicle travel and probably more than a quarter of all heavy truck travel. Photo by Rupert Ganzer.

Their answer was $601.6 billion. Per year. In 2012 dollars, meaning $760 billion in today’s dollars using the GDP deflator. And that’s for freight only; the value of passenger travel is probably at least equal to that.

They determined this by calculating the highway system’s contribution to the nation’s gross domestic product. “Removing the entire IHS decreases real GDP by $601.6 billion in 2012 dollars,” they found.

They also calculated the value of the ten longest individual highways. The greatest value per mile was generated by I-75, which goes from Michigan to Florida. It added $22.7 million per mile per year to the economy. I-70, from Colorado to Pennsylvania, was $19.3 million per mile, while I-5, from Washington to California was just behind that at $19.0 million per mile.

The average for all interstate highways was $12.3 million per mile in annual benefits. The least valuable was I-40, from southern California to North Carolina, whose annual value was $4.7 million per mile. At a 5 percent interest rate, that’s still a present value of $94 million per mile.

Since a typical four-lane interstate costs about $20 million per mile in rural areas and perhaps $60 million per mile in urban areas, these annual benefits are far greater than the costs.

To be fair, you can’t calculate a benefit-cost ratio by dividing an item’s contribution to GDP by its cost. But this shows that, however you calculate benefits, they are likely to be far larger than the costs of the highways.

We know heavy trucks represent 10 percent of highway vehicle-miles and that 25 percent of vehicle-miles take place on the interstates, but we don’t know exactly what percent of heavy truck travel takes place on the interstates. I suspect it is much more than 25 percent. Without the interstates, the cost of moving that freight would be higher and so a lot less freight would be shipped, which is what was measured by this economic study.

Furthermore, just because the original highway system generated such huge benefits doesn’t mean that building a new highway will produce identical benefits. It certainly does not mean that spending money on some other mode, such as high-speed rail, will produce similar benefits. Each individual project needs to be judged on its merits.

The interstate highways produced these benefits because they allowed faster, safer, lower-cost shipping that would be possible without them. High-speed rail would be slower than flying and more expensive than either flying or driving so it could not produce similar net benefits.