Economics, Pethokoukis

Actually, America doesn’t have a trillion-dollar infrastructure crisis

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If Democrats have one big economic idea, it’s this: build. Crank up the infrastructure spending. Last summer, for instance, President Obama floated a “grand bargain for middle-class jobs” to cut the US corporate tax rate and use billions of dollars in revenue generated by eliminating tax breaks to fund infrastructure projects. And in his State of the Union address, he called for $50 billion in new public works spending.

But that’s just a beginning. Progressives think the US suffers from a massive “public investment” deficit. They point to a much-hyped “report card” from the American Society of Civil Engineers —  folks who like infrastructure spending, mind you — that calls for an additional $2 trillion in spending to get US road, bridges, and water works up to a solid “B” grade from the current “D+” by 2020. And this chart (below) from BCA Research was much circulated recently by folks arguing for vastly more infrastructure spending:

Credi:  BCA Research

Credi: BCA Research

But dig a little deeper and you find claims of a supposed infrastructure crisis are wildly overstated. US public construction spending has averaged 1.8% of GDP since 1993, with a low of 1.6% in the first quarter of this year and a high of 2.2% in the second quarter of 2009. Over the past two years, it’s averaged about 1.7%.

But is that a lot or a little compared to what our needs are? A Bloomberg piece last August highlights research that finds US public investment has tracked the OECD average since at least 1970. “The US. is about where it should be — close to peer nations such as Canada, Germany and Australia,” concludes reporter Evan Soltas. “Nations that spend substantially more tend to be in a phase of catch-up growth, such as South Korea and Poland.”

That’s the view from 30,000 feet. Brookings economist and privatization advocate Clifford Winston looks at US infrastructure a bit differently. He says the lack of market forces in the transportation system — drivers, for instance, don’t have to pay a special toll for driving at the heart of rush — and a government-ownership monopoly means transportation is an underpriced commodity. As he said on a recent EconTalk episode:

 I think that the claims of the infrastructure crisis are grossly overstated, and what we really have is a pricing crisis. And if we can get the prices right, that will do an awful lot to improve the condition and service of our infrastructure.

Roads have an artificially low price. Cars are not charged for congestion, so they put pressure on peak capacity. Trucks are not charged efficiently for the damage they do to roads; they pay a gas tax when they really need to pay an explicit charge that reflects the damages they do to roads. This underpricing causes road capacity to fill up, causes the roads to wear out a lot sooner. And it generates a demand for more spending … I say let’s get the prices right. Now, the same thing is true for airports, same kind of thing; even ports. Same thing. My guess would be after getting the efficient prices, yeah, there probably is room for some efficient–and I mean efficient that would satisfy cost-benefit criteria–investments in highways in some high density areas. Certainly additional runways in high density airports. But not the trillions of dollars that people talk about and not nearly as much as people are led to believe. …We have this enormously expensive and valuable transportation system that’s the envy of the world. There’s no question it’s better than other countries’ systems when you look at the thing in toto. But there’s an enormous amount of waste, enormous amount of inefficiencies in terms of operations, and for what we spend, we could have something that’s even better, and in ways that people find hard to imagine.

In a 2010 piece Winston outlined three big benefits from privatizing roads and airports, apart from the billions in dollars that would go to cash-strapped state and local governments:

– First, private operators would have the incentive to minimize the costs of providing transportation service and can begin the long process of ridding the system of the inefficiencies that have developed from decades of misguided policies.

– Second, private operators would introduce services and make investments that are responsive to travelers’ preferences.

– Third, private operators would develop new innovations and expedite implementation of current advances in technology, including on-board computers that can improve highway travel by giving drivers real-time road conditions, satellite-provided information to better inform transit riders and drivers of traffic conditions, and a satellite-based air traffic control system to reduce air travel time and carrier operating costs and improve safety. The technology is there. But it hasn’t been deployed in a timely fashion because government operators have no incentive to do so. The private sector does.

That’s right. Private-sector innovation is the answer here, not government infrastructure banks and bullet trains with their 1960s technology. If we want driverless cars shooting down highways at 90 MPH — at least ASAP — it would sure help to have well-maintained, pothole-free private roads for them to run on. The center-right has said little on infrastructure spending recently, other than expressing opposition to more stimulus-driven spending. Conservatives have particularly missed the role of transportation as a quality-of-life issue for middle/low-income Americans. A recent study from the Equality of Opportunity Project suggests geographic isolation in areas marked by (a) sprawl and (b) poor transit systems hurts economic mobility.

But last week Senator Mike Lee, a Utah Republican, gave a big policy speech that recommended sharply cutting the federal gas tax and transferring highways authority back to the states:

Under our new system, Americans would no longer have to send significant gas- tax revenue to Washington, where sticky-fingered politicians, bureaucrats, and lobbyists take their cut before sending it back with strings attached. Instead, states and cities could plan, finance, and build better-designed and more affordable projects.

Some communities could choose to build more roads, while others might prefer to repair old ones. Some might build highways, others light-rail. And all would be free to experiment with innovative green technologies, and new ways to finance their projects, like congestion pricing and smart tolls.

We may need to spend somewhat more on infrastructure, but let’s make sure we do as efficiently and intelligently as possible — and not just as a way to create more jobs.

Follow James Pethokoukis on Twitter at @JimPethokoukis

35 thoughts on “Actually, America doesn’t have a trillion-dollar infrastructure crisis

  1. This is, unfortunately, the blind leading the blind. I want what everybody wants when they turn the faucet, for clean, safe water to come out of the tap. The way you determine that is not to compare spending with some other country and see if we track ok according to their spending levels but rather to go through all our governments, find out who has water pipes as part of their responsibilities, and get their inventories, lifespan estimates, and estimated cost to replace for each pipe.

    You count the infrastructure pieces and calculate their TCO. Everything else is hogwash.

    The scary part is, so far as I know, nobody has actually gone out and done the work. It’s all guesses and estimates all the way down. Some irresponsible governments, such as the city of Los Angeles, don’t even regularly inventory infrastructure investments like their sidewalks.
    http://ow.ly/qtP8P

    Instead of drawing a conclusion in advance of facts, it would be much better to create a framework where we have the facts as a routine matter and then do the simple math to draw a conclusion. For every infrastructure item, every government should be asked to put its inventory online and keep that inventory up to date. Pull all the inventories together and you can make real estimates as to infrastructure spending needs to maintain our civilization. Tack on expenditures to shut down ghost towns and expenditures to build up expanding jurisdictions and you have a budget that is based on reality.

    This is a big job and the best time to have started it was about ten years ago because it’d be done by now. The second best time to start it is right now.

  2. So with the federal government borrowing at near- (long-term) or below-zero (short-term) rates, you’re saying that there are aren’t lots of big government infrastructure projects that would pencil out very, very nicely indeed over the long term?

    Those crazy Chinese are building out to 18,000 km of high-speed rail by 2015. Are they (in Sowell’s locution) just a bunch of fuzzy-minded “unconstrained thinkers” who don’t understand resource scarcity?

    Obviously they are. Thank goodness for steely-eyed American conservatives who will prevent us from traveling down that road to widespread growth and prosperity…

    Scary thought, that…

    • Have you seen the ROI of the Chinese high-speed rail projects? Yes, I thought not. They are certainly not the path to “widespread growth and prosperity” they are touted to be. As for the feds borrowing rates, they are low (as are private borrowing rates) but we see what happens to the tax money that’s collected via the gas tax, car registration, etc., that’s intended for infrastructure use….they end up in the general fund and are re-allocated to other pet projects, hence the poor state of our roadways nationwide. The truly scary thought is that there are those that want to double down on this broken system.

      • The accounting profit on pretty much every transportation system is negative. That’s because that accounting doesn’t tally or include the value of the goods provided.

        Nobody paid for that.

        So we can’t measure what its value is.

        So it has no value.

        I think we all find value in driving or riding the train to work in the morning. Just for starts: being able to take a better job, farther away. (Plus many et ceteras.)

        Does that value get posted to the government’s bottom line? Would improve the accounting ROI a lot!

      • China is actually a best-case scenario for high speed rail, given that construction costs are (relatively) low and population density quite high. Here in the US, costs would be much higher and comparable population densities are hard to find, outside of the northeast corridor.

    • Steve, Not sure if the Chinese are the greatest example of infrastructure planning: http://www.forbes.com/sites/realspin/2013/10/28/in-china-theres-not-one-city-sans-terrifying-stretches-of-empty-houses/

      And sure there are many projects that would pencil out very nicely at current federal borrowing rates – if that was the only input to consider. But when you consider the inputs of planning, execution, operation and maintenance; I’ll take the private sector any day.

      Greg

    • The Chinese need high speed rail to move a hundred million workers to the cities where they are manufacturing. Otherwise they risk revolt and overcrowding in their cities. Are you saying we need “high speed rail” to move the millions of disaffected US country folks into our cities? Where they don’t want to go? LOL…

  3. Since we are talking about percentages of GDP, How’s about looking at the “financial industry” and consider the growth there and its relationship to “debt”, public and private.
    Watch out for the potholes and call a banker if your front-end gets knocked out.

  4. “We have this enormously expensive and valuable transportation system that’s the envy of the world”

    What a load of crap! Trying to sell something to the average American that still believes the world is flat?

    • As compared to that tangled mass of confusion in Europe they call a highway system, it is indeed more expensive and more valuable. Canada?…..that’s funny. Project much, do you?

  5. the types of questions you should be asking are the roads in good shape…or are potholes damaging your front end? are people wasting time in traffic jams?

    US healthcare should prove the fallacy of determining if we’re spending the right amount by comparing our spending to other countries…

  6. so… would private tollroads be better than gas taxes in terms of user fees and govt eminent domain to obtain the land?

    we have, arguably, the most robust commerce infrastructure in the world.

    you can put a package on a Fed Ex/UPS truck almost anywhere in the US and in less than a week, often in a few days, that package will be delivered to virtually any other place in the US.

    Few countries in the world have such a robust and mature commerce infrastructure but it was largely provide via govt taxes and govt eminent domain – not private sector toll roads.

    • it was largely provide via govt taxes

      I.e., taxpayer money. Why do you assume that the missed opportunity of the taxpayer spending his own money would have led to a worse result that government officials taking that money to be spent on their pet projects.

      As I’ve told you before, if you have to force people to fund your project, it’s probably a loser. As with most lefties, you see only the seen and completely and utterly ignore the unseen.

      And infrastructure building began as private ventures, that was eventually taken over by government in order to show how “useful” it was. After a bit of time, there aren’t anyone old enough to remember this, then the lies start (Joe Biden).

      Lastly, if you build something only because you’ve stolen it, but dress up the theft as “eminent domain”, then build something, how can you claim that a success? If I steal your car and then steal money from other people to put new tires on it, are you really going to claim what a success I am? Or do you fully understand that I have actually made the economy, on net, worse off?

      • re: ” I.e., taxpayer money. Why do you assume that the missed opportunity of the taxpayer spending his own money would have led to a worse result that government officials taking that money to be spent on their pet projects.”

        actually I support toll roads over taxes but I notice that those who dislike taxes sometimes hate tolls even more!

        “As I’ve told you before, if you have to force people to fund your project, it’s probably a loser. As with most lefties, you see only the seen and completely and utterly ignore the unseen.”

        I support toll roads – remember?

        “And infrastructure building began as private ventures, that was eventually taken over by government in order to show how “useful” it was. After a bit of time, there aren’t anyone old enough to remember this, then the lies start (Joe Biden).’

        most early toll roads eventually failed in part because they could not easily or cheaply obtain the right-of-way.

        even today, toll roads depend on the govt to obtain the right of way via eminent domain and that’s the same for rail and pipeline.

        “Lastly, if you build something only because you’ve stolen it, but dress up the theft as “eminent domain”, then build something, how can you claim that a success? If I steal your car and then steal money from other people to put new tires on it, are you really going to claim what a success I am? Or do you fully understand that I have actually made the economy, on net, worse off?”

        Oh I totally agree with your logic but the reality is that almost all transport infrastructure whether built from taxes or tolls or even private sector like pipelines and rail – utilize govt eminent domain to get the right-of-way.

        and the reason why is that the govt can get the right-of-way cheaper and they can remove anyone who is blocking the project.

        I don’t defend it especially for private things like pipelines but it is the way it is.. it’s a reality.

        we’ll probably never toll surface streets – just limited access highways…though… and so taxes will be collected to pay for surface streets even if we convert the limited access roads to toll roads.

        • To the extent that the taxes collected to pay for surface streets are a rough proxy for miles driven and damage done to those streets, those taxes approximate user fees – i.e. tolls. More efficiently assessed than tolls on individual streets would be, but less efficiently distributed because of the political temptation to commingle with general funds.

          • IF you are a local worker then the surface street idea works out but what if you are a 100 mile a day commuter to a job 50 miles away?

      • @Ken: “if you have to force people to fund your project, it’s probably a loser.”

        1. “Force”: A person born in America is gifted all the public goods that this country has created–a truly spectacular endowment.

        There is no way to say that that person has entered into a “voluntary” contract.

        But that gift nevertheless imposes some requirements on the individual, no? Like, for instance, paying taxes to maintain and increase the endowment with which we were all provided, gratis?

        2. “Loser”: Are the Centers for Disease Control a “loser”? Their ROI is execrable. That’s because the value of the public goods they provide are unmeasurable within the Revealed Preferences belief system because — the very nature of public goods — they aren’t purchased. Add that value to the bottom line, and you’d have a huge winner that only exists because people are “forced” to pay for it.

        • The CDC might indeed be replicated by insurance companies and hospitals, or even universities if it did not exist, though indeed it is probably a public good.

          The question is for other projects. China, for example, built its huge system of roads using BOT, i.e. privately, with tolls, that later become public, another option not discussed.

          A smarter investment than 1980′s HSR would be investing in the legal and institutional framework that would allow true driverless cars. These will mimic trains in that you will not require drivers, and yet be point to point, revolutionize traffic, and save vast amounts of human time wasted in commutes, etc. But, let’s face facts: the technology will be stymied by…lawyers. That’s the plain fact nowadays. Infrastructure and innovation smothered by lawyers and regulations.

          Also, here are two infrastructure projects we could start tomorrow:

          Yucca Mountain
          XL Pipeline

          The claim that Democrats are for big infrastructure spending is belied by their attitude towards these two projects. I suspect that while Democrats’ right hands say they want more spending, their left hands will be busy delaying all projects with red tape, impact reports, etc. Hell, some Democrats don’t like the idea that MEN will get more jobs from these projects than women.

          Dollar to donuts, any big “infrastructure” bill comes with all kinds of non-infrastructure give-aways attached.

          • re: XL

            nothing prevents XL from having an American subsidiary that would obtain right-of-way via willing seller-willing buyer or utilizing one of dozens of existing already-owned rights-of-ways.

            what is preventing XL is that it wants to US to grant it the right of Eminent Domain … for a new route.

            this is about a company who wants to become a competitor to other existing pipeline operators.

            nothing wrong with that at all and it could do that tomorrow if it wanted to use willing seller/willing buyer transactions.

  7. While there is nothing wrong with the federal government spending money on interstate highways, they should stop spending on local roads. I saw “stimulus” spending blown on a mile-long upgrade to a shopping mall’s driveway (Berkshire Mall, MA), and millions of federal money spent on widening main street sidewalks (with a loss in parking spaces) planned for Concord NH, and similar projects elsewhere (e.g., Adams MA). While the benefits of these projects are/were purely local, no sane local government would have chosen to spend its own money on these projects; therefore they were not cost effective.

    • You are not kidding. There is a local road I drive on every day that was built not 5 years ago… they tore it up right down to the gravel and rebuilt the whole thing because they were given stimulus money to do it. Screwed up traffic all summer. And again- not a highway by any means, just a local road with commercial warehousing on both sides.

  8. Weird that we don’t need to spend on infrastructure (the headline), but then we point out how to pay for infrastructure. Just leave our perfectly good roads alone! The headline already points out that they are fine and we don’t need to waste money in America on them. Why all the paragraphs after?

  9. Water, roads and bridges is a local matter it should stay there. Just because some states and cities was money on welfare does not mean the rest of us should pay for it.

    • roads and bridges are not necessarily local especially the bigger ones… over major rivers… and tunnels.. etc..

      the question is – should all major roads and bridges and tunnels be tolled or payed for with taxes?

      I prefer tolls. what say you?

  10. Yeah- if you look at that ASCE report card… its quite a bit of spin (and indeed, its like asking cattle ranchers if we get enough meat in our diets).

    For instance- if a bridge was built in 1950 and is structurally sound, works fine, traffic is light, it might still get a failing grade because there is a replacement bridge that is modernized. Well and good- but the new bridge wont carry any more traffic any more safely than the old bridge. They are often pointing out that replacements are POSSIBLE, not that they are needed.

  11. Go ahead. Privatize the transport system. You know, the one built with public money. Let’s just sign it over to the best low-ball bidder. It may end inefficiencies, but cost more. Because exec bonuses and dividends cost more than ineffiencies and living wages to the workers. Instead of deferred maintenance because congress was forced to spend it on WS banksters, it wil happen because bonuses must be paid and dividends. These people speak of peak use charges. How does the public, making $10p\hr afford to get to work when the boss wants it there? What of current gas taxes, registration\license fees, tolls, traffic tickets, etc that more than pay for upkeep now, except the state gov’ts sweep these fees into the general fund and squeeze out ever so little to the transport system?

    • I do not like the idea of privatizing public infrastructure either. I work for one of the most well known and recognizable corporations in the world. One thing that I have learned is that private industry will hose you every chance they get and do it with a smile. Privatize water, give corporations only looking to turn a profit control of one of our basic rights. One thing is for sure, if the screw with that upheaval will take place, that you can be assured of. Does Bolivia ring a bell?

  12. A good discussion of privatization will never fit into an article as I’m sure James is aware of and Ultimately its about govt competence. The blackouts in CA a few years ago were caused by poorly written rules that allowed energy providers and traders to bankrupt the state by gaming the system. But that’s not an argument against private energy transmission& delivery by any means.

  13. John:

    Appearances matter, as the left knows all too well. (In fact, that is almost ALL the left knows.)

    To show we do NOT have an infrastructure crisis, please begin the Y axis at zero, not 1.6. Or at least indicate the gap.

  14. Did anybody ever notice that the dems always talk about roads and bridges, but once they get their hands on the stimulus money it never sems to actually go to roads and bridges, but mostly ends up going to some kind of dem graft.

  15. Connected corporations have always used the treasury as a slush fund. Given the recent multi-trillion dollar bailout of infinitely corrupt bankers and the elite shareholder class they serve, any assertion that we have a free enterprise system is a sick joke. American elites are welfare queens to the max. You’ve waged a class war against Americans for decades, as Warren Buffet has said. A counter attack is coming, and it’s about time.

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