Infrastructure Investment and America's Slow, Sad Path to Irrelevance

Investment in infrastructure at this stage seems like a no-brainer; interest rates are at historic lows (which should continue into the near-future, provided Congress passes an increase in the federal debt ceiling), construction workers are unemployed at a rate much higher than the national average, and a good deal of construction equipment lays idle.  

Pressing these resources into action in the months to come would provide continued short-term stimulus through increased employment and would provide a greater boost to the overall economy through the multiplier effect of infrastructure investment.  Mark Zandi, chief economic advisor for Senator McCain’s 2008 presidential campaign and economist at Moody’s Analytics, made the calculation that government investment in infrastructure projects would produce a 60 percent return on investment and would have three to six times more stimulative effect on the GDP growth than permanent tax cuts.  

Over the long-term, federal investment in infrastructure may just help to prevent America’s long, slow decline into irrelevance on the world stage.  Irrelevance?

The United States government has always undertaken efforts to improve its infrastructure, whether actively or passively.  Road, rail, air traffic, communications, energy, and water infrastructure underlie the accumulation of fantastic sums of wealth in this country.  We, as a nation, need to sow the seeds for future prosperity in the form of infrastructure investment.  

The most forward-looking leaders in American history recognized the necessity of improvements in transportation and communication for economic growth and prosperity.  The U.S. government’s continual attention to infrastructure from the nation’s founding through the 1960s provided the foundation for the prosperity of the American Century.  In a survey of the literature on the impacts of infrastructure investments on economic growth, Francisco Rodriguez, economics professor at Wesleyan University, concludes that indeed infrastructure improvements produce robust economic returns, despite the claims of conservative economists to the contrary.

Since the construction of the Interstate Highway System in the 1960s and 1970s, the federal government has embarked on few new major infrastructure projects and has lapsed in its funding of infrastructure maintenance.  The reasons for this, the development of environmental impact reports, the public comment process in building projects, the complacency of American voters, and the diminution of the federal gas tax, are all topics for another post.  However, none of these factors, taken separately or all together, are formidable enough to prevent the construction of the next round of America’s great infrastructure projects.

The U.S. government, with the help of state and local governments, historically has directly or indirectly subsidized the construction of the following types of projects:

turnpikes/postal roads, canals, railroads, telegraph and telephone lines, power plants, dams, bridges, roads, irrigation for farming, drinking water provision, interstate highways, airports and air traffic control systems, and the internet

Today, all Americans, regardless of class, political orientation, race, or other ascriptive category, benefit in some way, and most in a significant way, from these infrastructure improvements.  These projects helped to substantially raise our national productivity, and consequently, our standard of living.

As a friend reminded me last week, not many countries have the resources or the political will to develop such all-encompassing infrastructure.  This has largely been to the detriment of the citizens of those countries.  He noted that Ireland had only recently completed major stretches of motorway (roughly equivalent to American interstates) in the last few years; prior to today, many of Ireland’s major intercity roads were narrow and treacherous.  This served to restrain development in Ireland’s interior; Limerick and other interior cities continue to lag behind their coastal counterparts, like Galway and Dublin, in economic development.

We cannot take for granted that our infrastructure advantage over the rest of the world will last.  Indeed, American infrastructure, suffering from lack of maintenance funding, crumbles as the Chinese build tens of thousands of miles of highway, lay thousands of miles of high-speed rail, and create the foundations for, one would hope, a clean energy system.  The Chinese and other rising powers in the world will not lag behind for long and will not wait for us as our economic relevance wanes.  

President Obama’s administration keeps talking about “winning the future”; I think we need to be more concerned about America’s current slow, sad path to irrelevance.  Unless federal spending for infrastructure projects, like high-speed rail, modernization of the power grid, scaling up public transportation, and retrofitting and maintenance of our existing systems, increases markedly, we will almost certainly lose the present and forfeit the future.