Wednesday, December 17, 2008

The Economist On Infrastructure

Image credit: Arizona D.O.T.

This week, the print edition of The Economist magazine had a couple of interesting articles regarding President-elect Obama's stated ideas about improving infrastructure and getting the economy going. On infrastructure, they opine:

The need is undeniable. Many old industrial cities have rich networks of roads and railways, dating from a time when they were much bigger. These are now crumbling. Last year a bridge collapsed in Minneapolis, killing 13 people. A tunnel that brings water to New York sprang a leak in the 1980s and is currently losing about 20m gallons a day. Philadelphia has been flooded with sewage. The most recent infrastructure “report card” by the American Society of Civil Engineers contains nothing but Cs and Ds.

Matters are even worse in the desert West and lowland South, where population growth has been so rapid that basic infrastructure is often non-existent. Las Vegas (population 560,000) is linked to Phoenix (1.6m) by a rural road that trundles over the Hoover Dam. The West struggles with a water system, built by the federal government in the early 20th century, that serves farmers much better than city-dwellers. The scarcity of power lines is holding up efforts to generate electricity from sun and wind.

Roads To Nowhere

I'll just interject at this point and say that there are at least two reasons for this. One is the obvious one - for the last couple of decades, cutting taxes, particularly for the rich, has been the mantra of American politics. The failure of the bridge in Minnesota can be directly related to this movement. The state government had gradually shrunk the road maintenance budgets to the point where nothing was getting done.

The other reason is less obvious, which is that the manufacturing infrastructure for doing all these things has gradually been moved out of the country. When you aren't a market any longer, people stop trying to sell you stuff.

The Economist goes on:

The federal government’s failure to invest in infrastructure has had one good effect. It has pushed much of the burden on to states and cities, whose efforts are scrutinised much more closely by taxpayers and the media. California has set up a strategic growth council to co-ordinate infrastructure spending. Voters have responded by approving tens of billions of dollars in infrastructure bond issues in the past two years. The latest, last month, was $9 billion towards a high-speed railway between Los Angeles and San Francisco.

Roads To Nowhere

I'd view this as a mixed blessing. Quite a large segment of the voting public seems to believe that roads and other infrastructure should be built without spending any money to do it. What this will end up creating is a situation where the more affluent areas have their infrastructure, and the other areas don't. We're getting there already, in fact.

They certainly identified one problem, though, and it's one that the Obama Administration would do well to rectify before it starts pumping billions of dollars into infrastructure improvements:

The greater problem is the lack of a strategy. No federal office oversees spending on infrastructure. Congressmen appropriate money for individual projects, a few of which are ludicrous (Alaska’s “bridge to nowhere”) and most of which bear no relation to each other. Cash for roads is given to states with few strings attached. “It is as close to a blank cheque as the federal government comes to writing,” says Robert Puentes of the Brookings Institution, a think-tank.

Roads To Nowhere

The process we've seen in the last few decades has been that the Congress starts with a plan that has been sent to it by the executive, and then proceeds to add as much pork as it can. Ted Stevens' bridge to nowhere is just one example of this sort of thing, although it's one of the most egregious. In the other article I was referring to, TE notes:

The conundrum is that it is hard to spend both rapidly and wisely. America’s transport infrastructure is in need of overhaul (see article), and many worthy projects exist that could boost energy efficiency or alternative fuel sources. But there may not be enough of them to absorb large sums quickly. Often such projects are kept on the drawing board not by lack of money but by politics and planning. Adapting the electricity grid, for example, to use more alternative energy may require new transmission lines for which approval can take years. In September the non-partisan Congressional Budget Office estimated it would take two years to spend just 60% of $37 billion in infrastructure funds in a stimulus bill passed by the House of Representatives (but not yet acted on by the Senate).

State and local governments say they have thousands of “shovel-ready” projects that could be started as soon as federal money becomes available. The Conference of Mayors, seizing the moment, released an 803-page report this week listing 11,000 projects which, they claim, would create more than 800,000 jobs over the next two years. But the economic merit of many is dubious. Their list includes $1.5m to coax prostitutes off the streets of Dayton, Ohio, and $200,000 for a dog park in Hercules, California. Douglas Holtz-Eakin, a former economic adviser to John McCain, says many unfunded projects are “ready to go because they were drawn up, reviewed and rejected” by government. Mr Obama has promised not to spend money the “old Washington way” but those ways are hard to change.

Days of Open Wallet

They certainly are hard to change. One of the many reasons I was so skeptical of Obama's candidacy was because Washington, DC is a place that resists change to a degree that makes granite look ephemeral. Talking about change is easy. In DC, it's nearly impossible.

Nevertheless, we're now in one of those times when it is possible. Severe economic meltdowns of the sort we're looking at are rare, and whether it happens before or after, it will definitely happen. I hope that Obama and Congress can make that change as painless as possible.


Mike at The Big Stick said...

Good post. I've been beating the drum for increased infrastructure spending for a long time now. Current estimates by civil engineers place America's infrastructure needs at somewhere between $1.3 and $1.5 trillion. And a lot of that is just maintenance of what we have currently.

I'm a HUGE fan of the New Deal. Heavy infrastructure does not just provide jobs in the present but would also create a generation of skilled workers who can support themselves for the rest of their lives on the skills they acquire now. It would be a massive shot in the arm of the middle class, similar to what happened after WWII when a lot of New Deal-trained men came home to good jobs where they could put those skills to use.

Cujo359 said...

In manufacturing, the rule usually is that the time to refit a factory is when production is low. That's usually a good time for infrastructure improvements, too. That would be true even if we weren't facing a dreadful economic calamity. It's even moreso now. Make this a genuine opportunity to improve our country's ability to produce goods, and we'll be sitting pretty later. Make this an opportunity for pork-barrel and making things better for the rich (breaking unions and so on), and then we get calamity.

It's pretty much up to us.

Mike at The Big Stick said...

The biggest obstacle is obviously going to be red tape. I posted about railroads in the Chicago area, which are woefully inadequate, but the community is extremely resistant to new lines because it would effect auto traffic, home values, etc. Many infrastructure projects face similar problems.

Here in Louisville we are getting two new bridges over the Ohio River but the land purchasing is going to put a 10-year timeframe on the project.

Cujo359 said...

NIMBY's a problem, certainly, particularly in urban projects. Even there, though, more money can help. Being able to pay more for land helps get better rights of way, and being able to use more money for noise abatement can help, too. Better oversight can make the money go further.

Plenty of obstacles ahead, that's for sure.