Are we spending too much or too little on infrastructure?
American infrastructure has improved since the 80s. But it still may be inadequate.
Infrastructure — roads, bridges, rail, airports, seaports, waste management, dams, water treatment, electrical grids, the internet, etc — is the backbone of the modern economy, the base upon which the rest of industry sits. When infrastructure works, businesses, individuals and societies can go about their business — travel, shop, ship goods to customers, drink clean water, easily dispose of waste, access information through the internet, etc. When infrastructure fails or doesn't exist, businesses, individuals, and societies face huge problems.
In the U.S., public construction spending (i.e., infrastructure spending) as a proportion of GDP has recently fallen to a low:
At the same time, the American Society of Civil Engineers, which produces the American Infrastructure Report Card, estimates that American infrastructure is deficient, giving the U.S. a D+ grade for infrastructure, and calling for $3.6 trillion of extra spending by 2020 to fix the holes.
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Their conclusion:
However, it is possible to over-invest in infrastructure. Look at China, which has thrown so much money at infrastructure in recent years that the world's most populous nation now has virtually empty ghost cities that nobody wanted in the first place, and that nobody wants now. But the phenomenon in the U.S. is totally different — the infrastructure that the engineers suggest improving is infrastructure that is already in place, and in use.
In spite of the engineers' warnings, many say that American infrastructure is not so bad. In an unfortunately titled Bloomberg op-ed called "The Myth of the Falling Bridge" — unfortunate, because just over a month later, a Washington State bridge collapsed — columnist Evan Soltas asked, "Is the quality of infrastructure worsening?" He concluded that American infrastructure was actually improving.
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So the Federal Highway Administration agencies note that American infrastructure is improving, but the American Society of Civil Engineers note that it is severely deficient. Who should be believed? Well, in the long run perhaps both are right — American infrastructure may have improved since the late '80s, but that doesn't mean that it's adequate. And clearly, falling bridges are not a myth.
But from an economic perspective, in the short term the reduction in infrastructure spending is really strange. Lots of resources, capital, and labor are idle. Unemployment and youth unemployment are still considerably higher than normal, while government borrowing costs are still close to all-time-lows:
By spending money on infrastructure, government can kill two birds with one stone — improving infrastructure to the standard that the professional engineers recommend — and probably preventing some future bridge collapses — while reducing the unemployment rate and putting idle resources to work.
So in the short term, greater infrastructure investment is an obvious choice, at least until the unemployment rate falls to a considerably lower level. For a rich country like America, it is possible for the federal government to borrow cheaply when the economy is weak and run huge deficits to fill the gap left by private-sector shortfall. This is the perfect time to invest in infrastructure.
And in the longer run, it is probably wiser to err on the side of caution. As we move into the 21st century, the kind of infrastructure that is most beneficial will change. For example, widespread 1Gbps fiber optic broadband like Google Fiber could potentially have massive economic benefits, just as widespread electrification did. The same is potentially true for rooftop solar, for charging stations for electric cars, or for exotic mass transit systems like Elon Musk's proposed hyperloop.
So it is not only the time to repair traditional infrastructure, but also to think big about the kinds of infrastructure that will be necessary for the next 50 to 100 years.
John Aziz is the economics and business correspondent at TheWeek.com. He is also an associate editor at Pieria.co.uk. Previously his work has appeared on Business Insider, Zero Hedge, and Noahpinion.
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