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Infrastructure Spending Done Right
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Infrastructure spending as stimulus appeals to politicians and voters because it would appear to kill three birds with one stone. Ostensibly, critical infrastructure is repaired or newly constructed, job opportunities are created for the unemployed, and the greater economy is set on course for growth. But how and where funding is spent frustrates these objectives. Federal funding often winds up disproportionately in rural areas at the expense of dense, growing cities where long-term economic benefits would be greater. Moreover, job creation is dubious given the high level of skill required for construction work and increased role of technology on the project site. Although greater investment in maintenance could both give relief to the unemployed and boost the benefits of existing infrastructure, politicians eager for ribbon cutting ceremonies often choose new infrastructure over repairing the roads, bridges and railways we currently have. David Levinson, transportation expert and professor at the University of Sydney, takes us though past and potential future infrastructure spending initiatives, and explains how setting the right priorities can ensure our infrastructure provides greater prosperity over the long term.
A Political Economy of Access: Infrastructure, Networks, Cities, and Institutions by David M. Levinson and David A. King
On December 6, 2008, in the throes of the Great Recession, then President-elect Barack Obama laid out key parts of his Economic Recovery Plan. In his radio address he boldly said “ … [W]e will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s… If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.” This plan turned into the American Recovery and Reinvestment Act, with a total budget of $831 billion. It dedicates $105 billion to infrastructure, of which $48 billion went to transport.
The value of the projects from the 2009 stimulus remains questionable. Projects tended to fall in rural areas (mostly road resurfacings) not because the work was essential, but because they were “shovel-ready” and easy to do. The projects were easy because they were already designed and had environmental permits in place. But the fact that these projects were so far along in development, yet remained unbuilt, suggests that they were not the highest priorities for the local and state transportation agencies that oversaw their construction.
Though administrations have changed, the disproportionate allocation of federal spending to rural areas over more developed cities - where the majority of needed infrastructure work exists - will likely go unabated. President Trump has proposed various tax incentives to stimulate $1 trillion worth of private investment towards the nation’s infrastructure. While Trump has discussed urban-based projects, such as rebuilding New York City’s poorly-managed airports, the Republican party - which he leads but counts as its base mainly rural voters - will likely exacerbate the overfunding of rural projects even more, if only to get its own representatives and senators re-elected.
Along with project location, setting job creation as an objective of infrastructure spending can also undermine the economic value of projects. At the time of the 2009 stimulus, unemployment was around 10%. With more workers looking for jobs, spending on infrastructure during a recession may arguably bring labor off the sidelines, while also taking advantage of the temporary wage drop due to the joblessness spike. In short, the state can get more infrastructure built for less, and put people to work who would have been otherwise unemployed. Today, however, unemployment is around 4.7%. Competition for labor is up, and with it construction wages. And without slack in the labor market, new projects are more likely to shift employed workers around, not add new jobs to the economy. Worth noting is President Trump’s assertion that his proposed tax breaks will pay for themselves. If these privately-funded projects fail to increase the net number of jobs, the hope for additional revenue to offset tax incentives will never come into reality.
Further complicating the job scenario is the capital-intensive nature of construction today. Macro-economists or policymakers who think of highways and transit lines as engines of job creation are remembering grainy black and white images of Civilian Conservation Corps workers slinging pickaxes as they build roads through national parks. Construction projects are more capital intensive than they were in the 1930s, using heavier machinery and far less labor. As technology advances, and construction equipment becomes increasingly roboticized and automated, jobs will become highly skilled and decrease in number. Most infrastructure construction jobs already require two or three years of apprenticeship and on-the-job training. In the future, infrastructure stimulus may offer little for unemployed people without extensive construction experience.
While the creation of jobs from infrastructure construction is limited, there are potential long-term benefits of constructed infrastructure in terms of jobs. It is worth noting that our current surface transportation system is not just in need of repair. In most parts of the U.S., our system connects everything worth connecting, and does so as cost-effectively as possible. There’s little need for new infrastructure, but great urgency to rehabilitate the infrastructure we already have.
Local and state governments are largely responsible for preserving existing infrastructure. They can use additional federal support. But we should be sure that any support is pushed toward maintenance, not new infrastructure which largely serves as a distraction. We all know that maintenance, repair, and reconstruction are not sexy. They do not result in ribbon cuttings with smiling politicians getting their pictures taken and posted in the local news. Yet on a per-dollar basis, fine-grained maintenance work employs more people than large-scale greenfield construction. Moreover, it is ideal to run the capital equipment required for road construction at a continuous level, thus maximizing its productivity. Continuous utilization is achieved by a steady rate of spending on projects, not stimulus-related spikes or failures to authorize infrastructure expenditures.
Economic activity increases with accessibility – more specifically, the ability for workers to reach jobs and stores, and for firms to easily interact. This occurs with faster and more direct transport, denser land use, and increased access to developed urban areas over less economically active rural areas. That said, it is cheaper to build in rural areas than cities, so the cost-to-benefit ratio is not obvious. This ambiguity is worth noting. While infrastructure policies may aim to even out spatial inequities and “spread the wealth,” that ambition is at direct odds with the desire to maximize the productivity and efficiency of infrastructure.
Public works are justifiable when social benefits exceed costs, not because they create spikes in job growth or score political points. To maximize the amount of infrastructure society gets per dollar, the government needs to be efficient about how infrastructure money is spent. From an infrastructure perspective, if a road project employs some people, that provides a nice rhetorical flourish; but if projects are aimed solely to employ people, the state will be wasting money which in the long run shrinks the economy. The debt borrowed to build said projects ultimately comes due.