The Investment Deficit
Interesting report from the Campaign for America’s Future on America’s investment deficit in infrastructure:
America grew up investing in its land and its people. Historically, we directed roughly 8 percent of our gross domestic product to long-range investments, and the investment paid off. Now we are down below 4 percent. Our post World War II infrastructure is starting to decay, and we aren’t replacing it. We are lamenting the loss of jobs rather than hiring people to renew and rebuild.
Other countries are racing past. China spends 9 percent of its GDP on infrastructure investment and opens a new subway system every year.
Beyond the quantity of funds, one major problem with our infrastructure policies is the quality of our decision-making. Our spending allocations are highly politicized and our politics are highly skewed toward underpopulated areas and toward senior members of congress. But the two places where you don’t need more infrastructure are the places where nobody lives and the places that have already been targeted for spending. Instead of the spending we need, we’ve tended to get round after round after round of bridge and road construction in Alaska when what we need are things that would reduce congestion and support smart future development in the country’s largest metro areas.
41 Responses to “The Investment Deficit”
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December 14th, 2008 at 12:07 pm
The Chinese also spend a much larger percentage of GDP on food. Clearly, there is a food gap. We need smarter, faster food or else the Chinese will start to pass us with their woks and chop sticks and soy sauce.
December 14th, 2008 at 12:18 pm
To echo bjk, Why is percentage of GDP a good measure of infrastructure investment?
December 14th, 2008 at 12:19 pm
Our spending allocations are highly politicized
Ya think?
The Chinese also spend a much larger percentage of GDP on food.
Thank you, bjk, for alluding to the fact (as I guess you are) that under-infrastructured, under-developed countries grow faster than developed ones since the return to investment is higher. Likewise, the lower national income, the greater proportion spent on food.
A little elementary growth economics might be welcome for those of all political persuasions who bring up the “challenge” posed by growth in China and India.
December 14th, 2008 at 12:27 pm
Three words: Solow growth model.
Of course I agree with you that cost ineffective spending is a problem but spending as much as China on infrastructure is absurd.
December 14th, 2008 at 12:28 pm
“…Beyond the quantity of funds, one major problem with our infrastructure policies is the quality of our decision-making. Our spending allocations are highly politicized…”
And just watch as Congress starts spending another $trillion “stimulus”. The pork, earmarks and nonsense will reach epic proportions.
December 14th, 2008 at 12:39 pm
Given that economists failed totally to explain growth, I don’t see why they think we should take their advice.
December 14th, 2008 at 12:43 pm
There have been policies in place to shackle State governments ability to build infrastructure. That means that taxes are collected and spent at the Federal level where they can be redistributed from urban states to rural ones.
December 14th, 2008 at 12:44 pm
As mentioned above, underdeveloped countries certainly have reason to spend more on infrastructure. But we’re still not spending enough. I go to Bangkok about once a year. Every time I go, I’m impressed by the new construction. The Sky Train has a few more stops. The Subway has a few more stops. The highways are nicer. The streets are cleaner. There are more traffic signals. It’s really cool to watch. Bangkok is really becoming a world-class city. When I go to most American cities, everything is just a little older, just like me. And in the few cities that are growing, they’re just sprawling. The growth just isn’t done right. The saddest thing though, is that our highways are no longer any better than what you see in Thailand. They improved, and we didn’t. We’re a developed country, we should have those fancy highways that they have in Germany. Instead, we have what you’d expect in the Developing World. And those countries are still trying to improve. We aren’t. At least there’s still India to make us look good. But East Asia is leaving us in the dust.
December 14th, 2008 at 12:46 pm
Given that economists failed totally to explain growth, I don’t see why they think we should take their advice.
First of all, you’re full of shit. Secondly, I, for one, am not offering any advice.
December 14th, 2008 at 12:58 pm
AMERICA IS THE GREATEST COUNTRY ON EARTH AND EVERYTHING HERE IS THE BEST AND YOU, SIR, ARE A COMMUNIST ITALIAN.
December 14th, 2008 at 1:07 pm
If it’s done by government it isn’t investment. If it’s paid for by taxes it isn’t investment. These things have to be understood. These are the logical conclusions that the anti government crowd has been inferring for 40 years and have now become the rock hard reality in the minds of conservatives.
Granted it is much easier politically and psychologically to build new than to rebuild. Easier for the Chinese in other words. It’s possible if not probable that this has always contributed to the decline of great powers. The legacy costs build and build and build untll they become untenable. The legacy of maintaining what has been built and the legacy costs of paying long time workers and investors. Everyone feels entitled.
The 20 campaign to inflate assets by monetary and financial means ws the easy way out, while it lasted.
December 14th, 2008 at 1:20 pm
I am not sure its right, but this would suggest that states should do a higher percentage of the investment. The federal government could still play a role in coordinating state actions but the actual investments should be at the state level. Borrowing at the federal level and giving aid to the states seems like a good idea when interest rates are 0%, but unfortunately the aid will go to the wrong states.
December 14th, 2008 at 1:46 pm
“The federal government could still play a role in coordinating state actions but the actual investments should be at the state level.”
That’s great in theory, but most states have balanced budget policies. They can’t do deficit spending, which is exactly what’s needed now. The federal government has to do the spending. But then you say:
“but unfortunately the aid will go to the wrong states.”
Sadly, that is true. Think Byrd might get more than his share? He always does. Regardless, we have to do it. Much of the money will go to stupid projects, but most of it will go to projects we need. It would be nice if we could reform how Congress allocates money while we do this spending. But that’s not really realistic.
That just raised a thought, but it’s off-subject. Charlie Wilson had the best situation ever. His constituents didn’t want any federal spending. So he could propose a project and then withdrawal it in exchange for future favors. With that under his belt, he could run his own war by cashing in those favors. Whatever you may think about what he did, he played Congress like a fiddle. Even Byrd must have been in awe.
December 14th, 2008 at 1:52 pm
How did that Solow prediction of growth rates converging work out, then?
How about the fact that the countries that have grown the fastest are the ones that have ignored the advice of economists and practiced mercantilism?
December 14th, 2008 at 2:17 pm
I would like to see a decade by decade breakdown of the decline in infrastructure spending since WWII.
December 14th, 2008 at 2:39 pm
Re: Our post World War II infrastructure is starting to decay, and we aren’t replacing it.
Anyone who drives would be surprised at this assertion, as it seems, in the summer at least, that a big orange tilted square with “ROAD WORK AHEAD” is the state flag of all 50 states.
Re: Other countries are racing past. China spends 9 percent of its GDP on infrastructure investment
China is starting from a much lower origin and, like the US earlier in the 20th century, is building stuff from the ground up, not just maintaining or exapnding existing infrastructure. This is simlar to the fact that undeveloped economies like Ireland and Estonia experience meteric growth with only minimal stimulus.
I’m all on board for (sensible) infrastructure projects both for their own sake and for economic stimulus, but I think we can do without these overwrought “We’re falling behind!” panics, whether in education, infrastructure, bombs and missiles, and everything else.
December 14th, 2008 at 3:11 pm
“I think we can do without these overwrought “We’re falling behind!” panics”
You’re probably right. But we are in a slowly decaying situation. If we were in a slowly growing situation, we’d probably be fine. We need to make the transition to the slow growth you’d expect from a mature economy. But that won’t happen until we scare the hell out of our politicians. A little panic will go a long way right now. Obviously, sensible policies would be preferable, but our Congress doesn’t do sensible. But if they do something, then some of what they do might make sense. And if we scare the hell out of them, they’ll do something.
December 14th, 2008 at 3:39 pm
People aren’t just using places like China for comparison because a good competition scare usually leads to some action (though it does). They’re also using that line of argument because comparing our investment in infrastructure to industrialized countries, which would be fairer, opens up the commenter to accusations that they are trying to turn us into Western Europe, the thought of which apparently sends many Americans into underground bunkers. So it’s more politically acceptable to compare ourselves to China, even though Western European countries are much more similar in almost every way, except population. Le sigh.
December 14th, 2008 at 6:04 pm
Matt,
The skew in infrastructure spending in America toward empty places can be explained simply by the NIMBY phenomenon. It’s easier to get big projects approved where there are few backyards than where there are many.
December 14th, 2008 at 11:50 pm
Everyone is acting like this is some newly discovered problem. Way back in January of 1990, I was the principle author of an article titled “Bridge to the Future – rebuilding America’s Infrastructure”. This was the lead article in the first issue of Minerals Today, a short lived monthly publication put out by the U.S. Bureau of Mines. The article pointed out that over 40% of all U.S. bridges needed to be repaired or replaced; that much of our highway system was in need of repair, and that half of the schools in our country were over 50 years old. Already by 1990, the U.S. was trailing behind Japan, Germany, France, Italy, the U.K, and Canada in public works spending. Unfortunately, we never even tried to catch up.
I believe that rebuilding our infrastructure is an incredibly positive opportunity that we must take. Up until now, it wasn’t politically sexy, but now it is. Amazing how the threat of a depression changes things. getting people to work, putting money into the economy, mostly win-win. Now, if we can just move all those new subdivisions off the sand and gravel deposits we’ve covered, we’ll be in business!
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