Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.
Two credible reports issued last week present compelling and complementary cases for infrastructure investment and should be required reading by members of Congress before their next vote on President Obama’s American Jobs Act.
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One report was from President Obama’s Council on Jobs and Competitiveness (on which I serve), a nonpartisan group of business and labor leaders, and the other from the New America Foundation, an influential Washington think tank. According to nonpartisan economic forecasters, the jobs act, which proposes about $90 billion in infrastructure spending as part of a $450 billion package of tax cuts and spending, would create about two million jobs.
Echoing the views of many economists, the foundation report asserts: “Long-term investment in public infrastructure is the best way to simultaneously create jobs, crowd in private investment, make the economy more productive and generate a multiplier of growth in other sectors of the economy.” In less technical language, the council’s report makes the same point, arguing that infrastructure investment is a “twofer” that creates jobs in the near term and promotes competitiveness and productivity in the long term.
Both reports provide sobering evidence of the growing deficiencies of infrastructure in the United States, which millions of Americans experience every day in traffic and airport delays, crumbling and structurally unsafe schools and unreliable train and public transit systems.
These deficiencies impose significant costs on the economy. For example, the Department of Transportation estimates that freight bottlenecks cost the American economy about $200 billion a year, the equivalent of more than 1 percent of gross domestic product; the Federal Aviation Administration estimates that air traffic delays cost the economy nearly $33 billion a year.
Both reports cite a study by the American Society of Civil Engineers that documents a five-year gap of more than $1.1 trillion between the amount needed for maintenance and improvements of the nation’s public infrastructure and the amount of public funds available for such investment.
President’s Council on Jobs and Competitive, using data from American Society of Civil EngineersThe American Society of Civil Engineers has estimated the gap between needs and cost across all forms of infrastructure.
Several recent bipartisan reports, including one by the former transportation secretaries Norman Mineta and Samuel Skinner, find that the annual spending gap in transportation infrastructure alone is $200 billion.
Based on such estimates, the New America Foundation report calls for a five-year public investment program of $1.2 trillion, encompassing transportation, energy, communications and water infrastructure as well as science and technology research and human capital. (In a report I did for the New America Foundation a year ago, I proposed a five-year increase of $1 trillion for infrastructure investment.) The Jobs Council report recommends a significant increase in infrastructure investment but does not set a target.
The two reports concur that the multiplier effects of an increase in infrastructure spending are substantial, citing recent estimates by Moody’s and the Congressional Budget Office that $1 billion of infrastructure spending generates about a $1.6 billion increase in G.D.P. According to Moody’s, the multiplier for government spending on infrastructure is even larger than the multiplier for a payroll tax cut, the largest component of the president’s proposed jobs act.
And according to the C.B.O., infrastructure spending is one of the most cost-effective forms of government spending in terms of the number of jobs created per dollar of budgetary cost. The Jobs Council report cites studies indicating that each $1 billion of government infrastructure spending creates 4,000 to 18,000 jobs. Most of these jobs are relatively well paid.
Critics of infrastructure spending as a form of fiscal stimulus point out that the lags in such spending are long and variable. It often takes considerable time to initiate and complete infrastructure projects, even those deemed “shovel-ready” with engineering plans in place.
In 2009, when many economists thought (or hoped) the recession’s effects would be temporary, the conventional wisdom was that fiscal stimulus measures should be “targeted, timely and temporary.” Nearly three years later, the consensus among economists is that the United States will be mired in an anemic recovery with high unemployment for several years.
So what the country needs now is not temporary stimulus measures that increase consumer spending but sustained stimulus that increases investment spending over several years.
Yet more than just additional money is required. As the Jobs Council report highlights, an increase in funds must be coupled with reforms to select and carry out projects efficiently, based on cost-benefit analysis.
The Obama administration has urged the Congress to adopt such reforms in its reauthorization of multiyear surface-transportation legislation, because political pressures more often drive project selection than cost-benefit considerations. For example, state and local governments frequently allocate federal infrastructure funds to build roads and bridges rather than to fix existing ones, despite compelling evidence that repairs are more cost-effective. A recent study for the Hamilton Project lays out the efficiency case for a “fix it” strategy for spending on transportation infrastructure.
Road pavement tends to deteriorate slowly at first; its rate of deterioration accelerates over time. It’s often much cheaper to repair a road early on, when it’s still in fair condition, than when it falls into a condition of serious disrepair.
The foundation report makes a related argument, noting that deteriorating infrastructure is subject to “cost acceleration,” as repair and replacement costs rise over time. A project that costs $5 million to repair now may cost more than $30 million to repair two years from now. Deferred maintenance on essential infrastructure is not fiscally wise but fiscally irresponsible. That’s why many of the infrastructure investments in the American Jobs Act focus on rebuilding and repairing roads, bridges and schools.
Even when infrastructure projects are carefully selected, they often face permit and approval delays that can last for months, even years — though, recently, far less than the C.B.O. had anticipated. Eighty percent of the highway funds in the American Recovery and Reinvestment Act were deployed between February 2009, when the act was passed, and the end of fiscal year 2011 (far exceeding the C.B.O.’s prediction of 55 percent).
The Jobs Council report includes numerous recommendations to reduce permitting and approval delays, calling on local, state and federal agencies to develop coordinated one-stop shops to eliminate duplication and harmonize project approval standards and practices.
As a first step, President Obama has identified 14 high-priority infrastructure projects for expedited review and permitting by the relevant federal agencies and has announced the creation of a “Projects Dashboard,” to track the projects as they move through the expedited process.
Members of Congress who argue that the federal government cannot afford the infrastructure investments in the American Jobs Act are wrong — the government’s borrowing costs are at a historic low. Borrowing now to fund efficient infrastructure projects will reap returns that exceed these costs and will reduce future deficits through job creation and higher growth.
An investment of $10 billion by the federal government to establish a national infrastructure bank, as proposed in the jobs act, would also unleash additional private funds for infrastructure by fostering public-private partnerships. Many other developed countries have similar institutions and have successfully used them to tap private funds for infrastructure. Both of the new reports recommend the establishment of a national infrastructure bank, and bipartisan Congressional support for the idea is growing.
As the Jobs Council warns, there is no “silver bullet” that will solve the nation’s jobs crisis. But as the mounting protests around the country warn, the federal government must take concrete steps to address the crisis. Significant, timely and targeted investments in the nation’s deteriorating infrastructure should be one of these steps.
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