The Who-Gets-to-Decide Crisis

“There is now a consensus that the United States should substantially raise its level of infrastructure investment,” writes former treasury secretary Lawrence Summers in the Washington Post. Correction: There is now a consensus among two presidential candidates that the United States should increase infrastructure spending. That’s far from a broad consensus.

“America’s infrastructure crisis is really a maintenance crisis,” says the left-leaning CityLab. The “infrastructure crisis is about socialism,” says the conservative Heritage Foundation. “There is no widespread crisis of crumbling infrastructure,” says libertarian Cato Institute. “The infrastructure crisis . . . isn’t,” agrees the Reason Foundation.

As Charles Marohn, who classifies himself as a traditional conservative, says, the idea that there is an infrastructure crisis is promoted by an “infrastructure cult” led by the American Society of Civil Engineers. As John Oliver noted, relying on them to decide whether there is enough infrastructure spending is like asking a golden retriever if enough tennis balls are being thrown.

In general, most infrastructure funded out of user fees is in good shape. Highways and bridges, for example, are largely funded out of user fees, and the number of bridges that are structurally deficient has declined by more than 52 percent since 1992. The average roughness of highway pavements has also declined for every class of road.

Some infrastructure, such as rail transit, is crumbling. The infrastructure in the worst condition is infrastructure that is heavily subsidized, because politicians would rather build new projects than maintain old ones. That suggests the U.S. government should spend less, not more, on new infrastructure. It also suggests that we should stop building rail transit lines we can’t afford to maintain and maybe start thinking about scrapping some of the rail systems we have.

Aside from the question of whether our infrastructure is crumbling or not, the more important assumption underlying Summers’ article is that infrastructure spending always produces huge economic benefits. Based on a claim that infrastructure spending will produce a 20 percent rate of return, Summers says that financing it through debt is “entirely reasonable.” Yet such a rate of return is a pure fantasy, especially if it is government that decides where to spend the money. Few private investments produce such a high rate of return, and private investors are much more careful about where their money goes.

For every government project that succeeds, a dozen fail. Funded by the state of New York, the Erie Canal was a great success, but attempts to imitate that success by Ohio, Indiana, and Pennsylvania put those states into virtual bankruptcy.
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The 1850 land grants to the Illinois Central Railroad paid off, at least for Illinois, but similar subsidies to the First Transcontinental Railroad turned into the biggest political corruption scandal of the nineteenth century. The Union Pacific was forced to reorganize within four years of its completion, and it went bankrupt again two decades later. The similarly subsidized Northern Pacific was forced to reorganize just a year after its completion in 1883 and, like the Union Pacific, would go bankrupt again in 1893.

The Interstate Highway System was a great success, but a lot of transportation projects built since then have been pure money pits. It’s hard to argue that any of the infrastructure spending that came out of the American Recovery and Reinvestment Act did anything to actually stimulate the economy.

Think the Atlanta streetcar, whose ridership dropped 48 percent as soon as they started charging a fare, generates economic development? Only in a fantasy world. Japan has used infrastructure spending to stimulate its way out of its economic doldrums since 1990. It hasn’t worked yet.

In the Baptists and bootleggers political model, Keynesians such as Summers are the Baptists who promise redemption from increased government spending while the civil engineers, and the companies that employ them, are the bootleggers who expect to profit from that spending. Neither should be trusted, especially considering how poorly stimulus spending has worked to date.

Making infrastructure spending a priority would simply lead to more grandiose projects, few of which will produce any economic or social returns. In all probability, these projects will not be accompanied by funding for maintenance of either existing or new infrastructure, with the result that more infrastructure spending will simply lead to more crumbling infrastructure.

Almost as an aside, Summers adds that, “if there is a desire to generate revenue to finance infrastructure investments, the best approaches would involve user fees.” That’s stating the obvious, but the unobvious part is, if we agree user fees are a good idea, why should the federal government get involved at all? The answer, of course, is that politicians would rather get credit for giving people infrastructure that they don’t have to pay for than rely on user fees, and the controversies they create, to fund them.

Instead of an infrastructure crisis, what we really have is a crisis over who gets to decide where to spend money on infrastructure. If we leave infrastructure to the private market, we will get the infrastructure we need when we need it and it will tend to be well maintained as long as we need it. If we let government decide, we will get too much of some kinds of infrastructure we don’t need, not enough of other kinds of infrastructure we do need, and inadequate maintenance of both.