Ed Glaeser has a superb essay on infrastructure at City Journal, titled "If you Build It.." I have a few excerpts, but do go and enjoy the whole thing. Larry Summers also has a new blog post on infrastructure, with some fascinating bits if you read carefully. I wrote about some of these issues in the WSJ and recent post, but not with Ed's clarity and erudition, nor Larry's imprimatur.
Glaeser starts with a clear summary paragraph:
While infrastructure investment is often needed when cities or regions are already expanding, too often it goes to declining areas that don’t require it and winds up having little long-term economic benefit. As for fighting recessions, which require rapid response, it’s dauntingly hard in today’s regulatory environment to get infrastructure projects under way quickly and wisely. Centralized federal tax funding of these projects makes inefficiencies and waste even likelier, as Washington, driven by political calculations, gives the green light to bridges to nowhere, ill-considered high-speed rail projects, and other boondoggles. America needs an infrastructure renaissance, but we won’t get it by the federal government simply writing big checks. A far better model would be for infrastructure to be managed by independent but focused local public and private entities and funded primarily by user fees, not federal tax dollarsEd documents well my own doubts that infrastructure spending will do much for the economy as a whole, especially in the short run. Buy the infrastructure for the infrastructure, at lowest possible cost -- not for the "jobs" or on the idea this is the key to returning to growth. Annoying as they may be, there is no case that US GDP growth has been cut in half because there are too many potholes. The Hillary Clinton plan included a praiseworthy -- and novel, considering her party's years of opposition to freeway building -- proposal to cut commuting times. But
What about the economic value of the shorter commuting times that new infrastructure can bring? ... it’s hard to see how substantially reducing time lost to traffic congestion will turbocharge the economy. Imagine that America gets its act together and cuts traffic time sufficiently to save $80 billion—a pretty miraculous improvement. That would still represent less than one-half of 1 percent of America’s $18 trillion GDP....Transportation infrastructure isn’t a solution for America’s lackluster growth ratesThe idea of public works to boost the economy goes back, I think, to the Romans, but I'm glad to read just how fresh an idea it is in America:
The idea of using infrastructure building as a weapon against unemployment first entered American politics after the economic panic of 1893. Before that recession hit, in 1891, businessman and Ohio politician Jacob Coxey drafted his “Good Roads Bill.” Coxey wanted the government to spend at least $20 million per month building roads across America, paying workers “at least 80 percent above the going hourly rate.” This building campaign, he argued, would be financed by the printing press—Coxey was a pro-inflation Greenback Party member—and would hike government spending by 75 percent.Fiscal expansion financed by helicopter drops remains the cutting edge of Keynesian policy macroeconomics. Keynes once said that "Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist." It sees instead that practical policy Keynesian economists who believe themselves a vanguard of intellectual influence are usually the slaves of some defunct politician! It's a more general problem when economics comes to the service of policies decided for other reasons.
On the stimulus aspect of infrastructure, I have long been suspicious. The Keynesian argument for stimulus works for wasted spending just as well as infrastructure. That you have to wrap it in something nice to get it past the rubes who will not believe that wasted spending is a good thing suggests faith in the idea is not as strong as it should be. Anyway, Ed takes this on with precision
... one should be wary of drawing infrastructure-related lessons from the 1930s for the twenty-first century. .. While a sensible anti-unemployment policy targets resources at areas that have high unemployment rates, many of those areas are today in long-term decline, and the last thing they need is new roads and bridges...
...The relatively simple technology of infrastructure construction of the 1930s meant that the unskilled unemployed could easily be put to work building roads. Among the iconic images of the Great Depression are scores of men wielding shovels and picks. That isn’t how roads and bridges are built anymore, though. Big infrastructure requires fancy equipment and skilled engineers, who aren’t likely to be unemployed. The most at-risk Americans, if they’re working at all, usually toil in fast-food restaurants, where the average worker makes $22,000 a year. They’re typically not trained to labor on complex civil-construction projects. Subsidizing Big Mac consumption would be a more effective way to provide jobs for the temporarily unemployed than subsidizing airport renovation.My emphasis because it's such a great quote. It also holds for the permanently unemployed, low-skilled or not construction union members.
The building process was also much quicker in the past, meaning that projects proposed during the Depression could be started and even finished during the Depression, making them more likely to fight temporary joblessness. Robert Moses built the Triborough Bridge complex, the construction of which got under way on Black Friday in October 1929, in just four years. Such speed is hard to imagine today. Boston’s Big Dig, to take one famous example, took 25 years from initial planning to its final completion in 2007.It took 6 years to build the transcontinental railroad in the 1860s. By hand.
Why have transportation projects become so much slower? Yes, they’re usually more technologically complicated, but much of the time, politics is also to blame. ... To erect the Triborough, Moses could just demolish the buildings that he needed to get out of the way—neighborhood complaints be damned. Such tactics are no longer politically acceptable, so the Big Dig and other large-scale undertakings needed painstakingly to avoid inconveniencing anybody, dramatically raising costs and delays. New Deal projects also didn’t face environmental-impact reviews, which can add years to a project timeline. Detroit’s Gordie Howe International Bridge’s review process took “four years of consultations, public hearings, traffic analyses, and environmental studies,” to take a recent example. The project should be finished around 2020—15 years after that review process began.Ed closes with an important point. Just why are roads and bridges, today, financed by Federal tax money? Groceries are funded by the money of people who buy them. In the past, roads and bridges were public goods -- it was not practical to charge users. Now, electronics make real-time, congestion-contingent tolling practical on city streets.
Many tasks of government have nothing in common with private enterprise. Neither our military nor our courts should be in the business of extracting revenues from, respectively, foreign powers or litigants. Aid to the poor and to the elderly is meant to be money-losing. But infrastructure is different and has much more in common with ordinary businesses. After all, infrastructure provides valuable services, the use of which by one individual typically crowds out the use by someone else. E-ZPass technology has made it simple to charge for transportation. Why not, then, establish a business model for transportation infrastructure?Back from Free-Market Nirvana, Larry Summers' latest blog post has a predictably strong argument for infrastructure investment along the lines of the Hilary Clinton plan, multiplied by about a factor of 10. But he has some wise and important words of caution as well:
How can we be sure investment is carried out efficiently? There is legitimate scepticism about this, and there is no silver bullet for this problem. ... progressive advocates of more investment should compromise with conservative sceptics and, in the context of increased spending, accept regulatory streamlining, as well as requirements that projects undergo cost-benefit analysis. Minimising cost should be the objective of infrastructure procurement.This is a very important statement. Me, in the WSJ,
In return for more spending, Mrs. Clinton could have offered serious structural reforms: repeal of Davis-Bacon, time limits on environmental reviews, serious cost-benefit analysis, and so forth. Such a package would have been irresistibleIt's nice to agree. But minimizing cost is a breathaking proposition in American politics. A good acid test for infrastructure fans: Suppose a Chinese company offers to build your high speed train at half the cost. Do you say yes? If no, you're not really serious about infrastructure. Larry just said yes.
Larry also takes on the private sector issue,
What about the private sector? ...Policy frameworks that streamline regulatory decision-making and reduce uncertainty could spur investment in these sectors. There is a case for experimenting with mobilising private capital for use on infrastructure that has been a public-sector preserve, such as airports and roads. But, the reality that government borrowing costs are much lower than the returns demanded by private-sector infrastructure investors should lead to caution. It would be unfortunate if, in an effort to avoid deficits, large subsidies were given to private financial operators. Only when private-sector performance in building and operating infrastructure is likely to be better than what the public sector can do is there a compelling argument for privatisation.Anytime someone uses a passive locution so convoluted as "experimenting with mobilising private capital," I suggest you react as you would to "Ladies and Gentlemen, a band of pickpockets has been discovered working the room." Precisely for the reasons laid out in Larry's last sentence: "Public-Private partnerships" usually mean public protection, private profits, and a piñata for politicians.
