Why We Should Invest in America’s Infrastructure Problems
I would like to make the argument that despite the cost of repairing or replacing our infrastructure, it is a good investment for the country.
The infrastructure problems are increasing business costs and it will only get worse. Whether it is missing a delivery promise because of a freeway jam, losing water pressure in a food plant, loss of electricity during a blackout, or being fined by a government agency; infrastructure problems will continue to increase business costs and make business less competitive. They will also increase consumer costs through user fees and service bills.
Our current strategy seems to be to use our limited resources to react when the bridge falls, the water main explodes, or the sewer overflow dumps raw sewage into the city’s river – and then depend on our emergency forces to get us out of the jam with around the clock TV coverage.
But, dealing with these kinds of problems during an emergency is the most expensive solution and most often there is no budget and the local government has to rely on deficit spending. This is like a person with a cut or abrasion deciding to not go to the doctor where the service is a hundred dollars an hour and then getting blood poisoning and having to go to the hospital emergency room for thousands of dollars an hour.
Another very good reason to consider a comprehensive plan to deal with the infrastructure problems is that it would create a lot of jobs in both construction and manufacturing inside the U.S. A study by the San Francisco Federal Reserve Bank found that the Administration’s American Recovery and Reinvestment Act (the stimulus plan.) in 2009 “ saved or created 1.1 million jobs in the construction industry and 400,00 jobs in manufacturing by March 2011.
The stimulus plan, even though it passed Congress, has drawn serious criticism about the results of the investment. The criticism was justified because only $111 billion of $798 billion was spent on infrastructure. The other $697 billion was spent protecting the vulnerable, education, state and local government fiscal relief, health care, energy, tax relief and other. Whether you agree with these numbers or not they do show that the investment of funds into infrastructure did produce a lot of jobs in both construction and manufacturing. As important as the other spending may be ($687 billion (86%) on non infrastructure projects) it is not going to solve the nation’s infrastructure problem.
What does the government propose?
After several budget proposals by the Obama administration that never got traction, they submitted the American Jobs Act in Sept 2011. After two years of political wrangling by both parties, the bill was finally passed by Congress in March 2013 at a total cost of $450 billion. Unfortunately this wasn’t really an infrastructure, transportation, or jobs bill. The need for infrastructure spending was trumped by politics and only $60 billion or 13% of the bill went to infrastructure problems. The other $390 billion was appropriated for unemployment benefits (13%), payroll tax reductions (54%), and aid to state and local government (19%).
The majority of the $60 billion for infrastructure was dedicated to loans and grants and for the development of an infrastructure bank. Only $27 billion of the appropriation was dedicated to transportation infrastructure. And, if you take out the monies for high speed rail, Amtrak, and airport improvement the budget is further reduced to $19 billion.
By my calculations any effort to really solve the immediate problems of repairing or replacing the highways, bridges, water systems, sewers, and electrical grid would require a 20 year comprehensive plan costing around $200 to $300 billion per year. The $19 billion per year appropriated in the Jobs Act won’t even cover the annual emergency fix costs.
The big problem of addressing all of America’s infrastructure issues is that it will take a large investment. We have allowed the infrastructure systems to crumble for decades thus causing the costs to repair or replace to grow logarithmically. Depending on how fast or how thorough the job is done we are facing an investment of at least $1 to $2 trillion. With our current Federal deficit that has grown with every President since Ronald Reagan we don’t have the money and any fix would be deficit spending.
When the economy went off the cliff in January 2008, the hardliners in both the U.S. and Europe promoted “austerity “as the solution. It was assumed that if we cut back on our debts somehow the economy would begin growing our way out of the Great Recession. The hardliners won out and countries began to cut their budgets, businesses laid off workers, and consumers reduced both their debts and consumption. As the economy returned to low growth, businesses did not hire, banks did not loan, unemployment exceeded 7%, and there was a huge reduction in consumption (which is 70% of our economy).The austerity approach simply prolonged the recession and money for infrastructure problems was low on the list of priorities. And for all practical purposes Europe has gone back into recession.
The Nobel winning economist, Paul Krugman of the New York Times, has been against the austerity approach from the beginning. He says, “By all means let’s try and reduce deficit and bring down government indebtedness once normal conditions return and the economy is no longer depressed. But right now we are dealing with a once-in-three generation financial crisis. This is no time for austerity.”
In the near term, the solution will simply be to increase consumer fees for water, sewer, and electricity and to enact more user fees at bridges, highways, and airports. Another possible approach would be for cities, states, and counties to simply increase taxes on a middle class, who are still struggling from the recession and whose median household income has dropped $5,063 since 1999. Politicians know that either fees or taxes could get them voted out of office, but some form of fees and taxes may be necessary if the emergency fixes continue to grow and we do nothing about the infrastructure problem.
As for the hardliners who want to stay the course and avoid deficit spending, they don’t seem to realize that responding to the emergencies is deficit spending and will continue to add to our deficits. Most of these emergency fixes to our infrastructure cannot be forecasted and are not budgeted and the costs will continue to rise in the future. The irony is that the politicians who are leading the charge against deficit spending (mostly conservative Republicans) have supported deficit spending in the past.
- They supported both wars during the Bush administration which were funded by deficit spending and have cost $1.3 trillion not counting veteran costs or homeland security according to the Congressional Research service
- They supported the 4 tax cuts during the Reagan and Bush administrations which were not funded and added to the deficits
- They supported the bail out of the Big Banks at the end of the Bush administration which cost the taxpayers $700 billion through the Troubled Asset Relief Program,
- And most of them support the ongoing trade deficit which has cost the country $8 trillion in the last 20 years.
So, I would conclude that trade deficits are ok with all politicians as long as it funds a project they favor. So why not fund the infrastructure project that the country and all states need so badly? It could actually produce a lot of jobs for both construction and manufacturing as well as reduce business costs.
Like it or not we are in the middle of an infrastructure collapse and we are going to have to pay for it with either a comprehensive plan or pay as we go. 5,500 citizens get sick every year because of water contamination, 240,000 water main breaks every year, bridges are falling, the highway trust fund will run out of money in 2014 and the electrical grid will cause another blackout. We are standing in the middle of the river screaming we need to stop the water, but don’t realize that the damn has burst and the big wave is coming at us. Just how bad does this have to get before voters’ voice their protest?
Just as in the Great Depression we have gotten ourselves into the unenviable place where the only answer is Federal money. The good thing is that a comprehensive plan could create a lot of jobs, reduce business costs, and make the U.S. much more competitive to compete in the global market. It is time to face the realities and come up with the money. Our position is one of “pay me now, or pay me later” – but we will pay.