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.