Economics

Why the Public Sector Can No Longer Build

New Jersey Governor Chris Christie recently killed a needed trans-Hudson commuter rail tunnel because of cost. He was right. Boston’s infamous Big Dig, originally estimated at $2.5 billion, took almost 20 years to build at a cost of $22 billion, according to the New York Times. The Obama administration pushed through a $230 billion infrastructure package as part of its stimulus plan in early 2009, but the Wall Street Journal reports that as of August 2010, only $66 billion had been paid out (subscription may be required).

The public sector can no longer build. It has tied itself in knots with regulations and interest group special deals, such as the Davis-Bacon sop to construction unions and an astonishing array of environmental assessments, payment rules, appeal rights for rejected contractors, and preference programs for minority-owned firms and small businesses, requiring an army of compliance personnel to administer. Dubious high-speed rail plans are another example: the United States will never be a major market because service would be cost-effective on only a few routes, but instead of buying trains cheaply from a high-volume foreign producer with economies of scale, the Obama administration’s stimulus funding has a 100% Buy American requirement (subscription may be required).

Even worse, the public sector has burned up its borrowing power to build pyramids for political pharaohs rather than economically vital projects. Nationwide, these Wonders of the Modern World have included tomblike, government-funded stadiums worthy of ancient Giza. The New York area is building its own mausoleum: rather than serving its infrastructure-building mission, the Port Authority of New York and New Jersey is spending $3.3 billion—double the per-square-foot cost of new commercially built New York skyscrapers—on the remote, bunker-like, money-burning Ground Zero Freedom Tower.

In the 19th and early 20th centuries, private enterprise, interested in making a profit rather than appeasing interest groups, created a quality rail and mass transit infrastructure funded by user fees. We need to return to that approach.

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