More Infrastructure
is the new hot phrase. Hillary wants it. Trump wants it. Your local asphalt
company wants it. I think maybe even the Pope wants it.
All together now – three cheers for more infrastructure.
More infrastructure
will cure our ills. More infrastructure will improve productivity, wages,
employment, and economic growth. More infrastructure may even shrink your
horribly swollen prostate. Sorry kids – this is an adult blog.
From the
above words you are ready for the punchline. Surely there can’t be anything
wrong with this new focus on more infrastructure. Or can there be?
Notice that
more infrastructure spending mostly means spending more on our existing
infrastructure. Most discussions mention dilapidated bridges, pot holes in
highways, and leaky water systems. We can add sagging power lines and possibly
an inefficient network of information technology equipment.
When we
refer to infrastructure we are legitimately singling out another dimension in the list of
factors that produce output in a country. We know that how much output we get
depends on how much input we use. Labor and capital are the two traditional labels
for organizing our thinking about the inputs we use to alter the amount we produce.
Now we are emphasizing a third factor – infrastructure.
Imagine a
manufacturing company that produces those lovely little outfits worn by female beach
volleyball players. That company has sewing machines (capital) and it has
workers (labor). But notice that even the tiniest of these garments has to be
shipped via truck or airplane. Orders might come in from the Internet. While having capable workers and great sewing machines is important to
Tiny Garments, Inc, so is the quality of roads, airports, and computer
networks.
The basic
theory of infrastructure is not being questioned by me today. It is pretty
clear why more and better infrastructure would be better for companies and
therefore for their customers. I am not doubting the need for improvements in infrastructure. I am doubting the magnitude of the impacts of the current proposals.
The
questions I have are practical. For one thing, we are not talking about
Tiny Garments Inc deciding on the best machines to create their very tiny garments.
We are instead talking about society ordering improved roads for all the companies
of America. Wow. Can you imagine the mess when the studly representatives of
Wyoming get into a duel over whether they need the highway improvements more than brainy
Connecticut. Or when kindergartners stage rallies demanding an equal share of
the new fiber being laid for the purpose of America’s productivity. There is only so much we can spend on infrastructure
though listening to our main candidates suggests that the sky is the limit.
Which brings
me to the next point – what is the optimal amount to spend on infrastructure
if our goal is to increase America productivity, wages, and employment? Can you imagine Paul Krugman and Rush Limbaugh coming to some consensus about
that. Surely we don’t want too much or too little? After all we have a pretty
big national debt and infrastructure won't come cheaply, right?
Once we
know how much we want, there is this question about whether or not more
infrastructure today will really work to raise productivity, employment, and
wages. Remember that this is 2016 and
not 1956. In 1956 Eisenhower was President, manufacturing was dominant, and I
had a full head of black hair with a pompadour. Putting in a new highway system was a lump sum
investment and probably was worth every penny we spent on it after 1956. But in 2016 will
another $300 billion or more have similar impacts? I know I have a few black
hairs among the few hairs that populate my head and I know Eisenhower is no longer
President.
I also know
that trucks are already very efficient even on crappy roads and that drones are
elbowing their way into delivery. Will $300 billion worth of better roads
really make today's workers more valuable to companies? How much better will companies
be able to compete because of the better roads? How much will they lower prices
because of these efficiencies? How much will our spending and employment increase as a result
of these price reductions?
And hold on –
is it not possible that in today’s globally competitive high technology
environment that some firms may react to improvements in infrastructure by
using even less labor? Recall that some equipment is called labor-saving
equipment. Some machines replace labor. Is it not possible that infrastructure improvements
will mean a smaller demand for labor and lower wages? If infrastructure spending switches from roadways to super IT highways, might we need fewer workers?
I know we don’t
expect our politicians to actually think about the things they say. But as I
see it, this More Infrastructure thing is more complicated than they explain. It is clearly not
a slam dunk no matter what they legislate. But that puts the cart before the
donkey. What will they really legislate? Is this a serious attempt to improve
economic growth or just another backdoor scam that appears to look like they
are doing something? Or are we getting agreement from both parties because a
new investment in infrastructure is rife with opportunities for rewarding friends and gaining from corruption?
We can barely afford to maintain the infrastructure we already have much less replace it with all new stuff. I know there are federal "trust funds" for infrastructure, but as with the Social Security Trust Fund, they've all been robbed and used to make the deficit look smaller than it really is. The feds and states can tax the users more than they do now, but at what point, as you said, do we get any return on our investment? I'm pretty sure there's still a Law of Diminishing Returns...every additional dollar confiscated and spent has less and less impact. Perhaps if we had been spending adequately on preventative maintenance all along, the need wouldn't be so great today. Here in Georgiastan, we've been given...we the people weren't given a vote...a sliding scale gas tax. The tax increases/decreases with the price of road repair materials, labor, etc. Of course, when has a tax ever decreased?Perhaps if Comcast could use Charter's infrastructure, I wouldn't be stuck with U-verse as my only alternative. And the power lines aren't the only things sagging around here.
ReplyDeleteEvery time I drive anywhere in the USA there are major road repairs and very painful stoppages. Imagine what it would take to get anywhere once they were doing even more work. My issue with all this is that the buzzword "infrastructure" has become a rallying cry for the government to spend more. Like green vegetables -- most people can't find a thing wrong with more infrastructure. But will more infrastructure even come close to solving the nation's productivity problems? I don't think so.
DeleteDear LSD. Ya know, I think some infrastructure spending would be good. Many bridges are unsafe, big potholes need filling/repair, and some roads need repaving and expansion (can you say Long Island Expressway and Brooklyn, Chicago Loop, I-5 Los Angeles, etc.?)—it’s not simply a matter of repair/improvement but of safety, too. La Guardia airport truly is third world—and possibly O’Hare—haven’t been there in a while. Your comment that infrastructure won’t necessarily increase overall productivity is credible, particularly where attendant graft/corruption negate productivity gains. However, oil pipelines, electrical grid upgrades for transmission/expansion and cyber security, port (including oil/LNG) repairs/improvements/additions/security, etc. would be exceptions. I’d like to see a prioritized list.
ReplyDeleteI also think Trump’s idea of issuing bonds to fund infrastructure is reasonable and practicable. However, major private sector involvement/participation concurrent with fees to use the improvements/repairs would be needed to (1) mitigate inherent inefficiency when govomit gets involved, and (2) to repay the bonds.
Infrastructure—including (all) energy production and distribution—surely would jump start good paying yobs. I don’t get the heebe-jeebees when I hear the infrastructure ‘buzzywirdy’ mentioned. Chill.
You sound like a very grown up and optimistic Tuna. But please be realistic about the potential to throw out the baby with the bath water. I agree that infrastructure money could be well spent. But remember we are talking about our politicians. Do you really think there is one chance in hell that this money would go where you want it to go? Oil pipelines? Are you kidding? We don't like oil pipelines. As for your point about bonds and borrowing -- how do you think they are going to afford this increase of $350 billion plus on top of our current national debt? Of course, increase the national debt even more. Do you think we will add user fees for all these projects to pay back private bonds?
DeleteDear LSD. The amount of infrastructure being bandied about is a lot and if comes to pass undoubtedly boondoggles, inefficiency, increased debt, and muted productivity gains would result—if govomit as we know it participates. Unarguably many roads, bridges, ports, airports, etc. need repair, replacement, and/or upgrade. That effort would create good paying yobs—a shure bet—better than writing/selling poetry. As I said, I’d like to see a prioritized list. As I said2, I think bonds would be good because they would not be an immediate drain on U.S. cash flow although they’d have to be repaid, which would add to the deficit—unless something like user fees are used for repayment (tolls, etc. have already been implemented for such projects—tolls paid for the construction of GA 400 here in ‘otlanta). I’m aware we’re talking about pols, but if Trumpy gets in he won’t be your typical pol—at least I hope he wouldn’t—and with this commercial development expertise I think he’d be capable of pulling off both a prioritized list and user fees: I’ll call him to share my confidence and ask him to call you to ask that you reconsider your cynicism, despite your penchant for the dismal science.
DeletePlease give Mr Trump my burn phone number only. I like to hear your optimism. I agree that infrastructure might be better than funding poetry. But there are other alternatives -- if we are going to be optimistic. I prefer to see business firms adding to their private capital stocks and doing more R&D. To get them to do so, it will take tax reform and it will take rethinking government regulation. I doubt you disagree on that approach. My point is that there are policy choices. Infrastructure is being touted too much and is being oversold. Mr Trump needs to tell a good policy story about economic growth in this country. Scaring people about international trade and promising bridges to nowhere is not going to get it with me.
DeleteAgreed. Machines and IT are much faster and more competitive than people. People are slowly getting replaced but at a quicker pace. what to they do? at 55 go to school and learn IT. Probably not so they get underemployed with marginal retirement jobs. Where did the pensions go? Young 18 to 30 year old are poorly educated other than using electronic devices for social gratification. These two population groups a quite large and do not include welfare. We are going through a transition just like the beginning of the the 20th Century but much quicker and dangerous. but back then there were options. So POLS that say we can create jobs are misleading but the average voter does not understand the facts.
ReplyDeleteI was just sent this nice quote from Economist Walter Williams -- it is a good response to your comment.
DeleteWalter Williams: "It is true that the number of manufacturing jobs in the United States has been in steep decline for almost a half-century, but manufacturing employment disguises the true story of American manufacturing. U.S. manufacturing output has increased by almost 40 percent. Annual value added by U.S. factories has reached a record $2.4 trillion. To put that in perspective, if our manufacturing sector were a separate nation, it would be the seventh richest nation on the globe. ... While job loss can be traumatic for the individual who loses his job, for the nation job loss often indicates economic progress. In 1790, farmers were 90 percent of the U.S. labor force. By 1900, about 41 percent of our labor force was employed in agriculture. Today, less than 3 percent of Americans are employed in agriculture. ... Losing a job due to outsourcing or losing it to technological innovation produces the same result for an individual: He's out of a job. The best thing that we can do is to have a robust economy such that he can find another job."