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A public policy blog from AEI
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:
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
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