Economics: Now's the Time to Invest in Infrastructure

This describes what should have been started two years ago.

People say the government should be run more like a business. So imagine yourself as CEO. Your bridges are crumbling. Your air-traffic control system doesn't use GPS. The Society of Civil Engineers gave your infrastructure a D and estimated that you need to make more than $2 trillion in repairs and upgrades. Sorry, chief. No one said being CEO was easy.

But there's good news, too. Because of the recession, construction materials are cheap. So is labor. And your borrowing costs? They've never been lower. That means a dollar of investment today will go much further than it would have five years ago—or than it's likely to go five years from now. So what do you do? If you're thinking like a CEO, the answer is easy: you invest.

That's what the administration is proposing to do. But their plan is too modest. The $50 billion bump in infrastructure spending it outlined is only for surface transportation. And as for our water systems, schools, and levees? This is not a time for half measures. It's a rare opportunity to do what we need to do—and save money doing it.

Unemployment in the construction sector is at 17 percent—and that doesn't even count the construction workers who've given up looking for jobs. There's work that needs to be done, Larry Summers, outgoing chairman of the National Economic Council, told me. There are people there to do it. It seems a crime for the two not to be brought together.

As for debt, delaying a dollar of needed repairs is no different from racking up a dollar the government owes. You run a deficit both when you borrow money and when you defer maintenance, Summers says. Either way, you're imposing a cost on future generations. Plus, if America has to borrow money, now is the time. The interest rate on 10-year Treasuries is less than 3 percent—the lowest it has been since the 1950s. So a dollar of debt is cheap, and a dollar of infrastructure investment goes far. [Emphasis added].

The problem is that the process by which we choose infrastructure projects is embarrassing. About 10 percent of infrastructure spending comes from earmarks. Most of the rest depends on a formula in which the government just hands money to the states. There's no requirement for cost-benefit analysis. The decisions are horribly politicized. If taxpayers are making a huge investment in our nation's infrastructure, then we're owed an assurance that policymakers are choosing the best projects. That suggests a grand compromise in which more infrastructure money is tied to reforms ensuring a better process for spending that money.

For more, see If You Build It ... Now's the Time to Invest in Infrastructure by Ezra Klein, October 02, 2010 at Newsweek.