In his inaugural speech, President Obama rightly emphasized the importance of infrastructure. The question, however, is whether the Obama Administration will—or can—direct funds to the right kind of infrastructure. Expect a struggle between state and local governments, looking to use new federal aid for what amounts to minor maintenance improvements, and those who would rather allocate such money for much grander projects—with the promise not just to put a few contractors back to work, but to help create new economic possibilities.
“We will build,” promised the new president, “the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.” The focus is right. It reflects an economist’s understanding of government’s role in supplying public goods—the sinews that make growth possible. American history is filled with success stories of such projects.
Financed by New York State, the Erie Canal, for instance, facilitated trade from the docks of Manhattan to the emerging West, in the process helping make New York the world’s financial capital. After the Civil War, land grants gave the Union and Central Pacific railroad companies an incentive to build and expand—knowing that their tracks were making the once-worthless adjoining land valuable to the homesteaders, builders, and ranchers who soon followed. The interstate highway system had a similar impact a century later—this time through direct federal financing—and sparked the suburban building boom. Even during the Great Depression, spending on big projects opened new economic frontiers. Thanks to Robert Moses, New York garnered the lion’s share of the New Deal’s Public Works Administration funding to help build the engineering miracle of its time: the Triborough Bridge, which put thousands to work and linked the Bronx and Queens to Manhattan, opening new neighborhoods for construction and improving the flow of goods.
With the possible exception of an expanded electricity grid—which, ironically, may not actually need public funding—Obama’s talk of roads and bridges has promised little for new projects of such a grand scale. Instead, local officials are lining up at the trough of the looming “stimulus package” with laundry lists of “deferred maintenance” work and projects that resemble amenities much more than game changers. Consider the small-bore ideas suburban Westchester County has put forward, as reported in the New York Times: “Updating sewage treatment plants, buying hybrid buses and reducing Westchester’s toll on the environment by replacing energy systems, lights and windows in county buildings.” The wish list even includes “upgrading traffic signals.” These sorts of projects should be part of a standard, tax-financed capital budget. But they’ve been squeezed out in recent years as municipalities and counties have chosen instead to lard up their budgets with dubious social-services programs and porcine public-employee contracts, which offer long pensions and extensive benefits.
We hear nothing from Westchester, for example, about the long-deferred high-speed rail link to a potential fourth major New York-area airport on the site of the former Stewart Air Force base in Newburgh. Such a project could seed new business and real-estate development on a big scale. For that matter, we hear nothing from New York City about subway extensions—either to residential neighborhoods or to airports—such as those of which Singapore, Hong Kong, and Frankfurt all can boast. (In the Frankfurt airport, one can connect with the network of European train lines, and in Hong Kong with trains to South China and even Shanghai.)
Of course, these sorts of long-range, big-ticket projects won’t likely get serious consideration, even if proposed, because they’re not yet “shovel-ready”—and thus not able to put the unemployed rapidly to work. But even projects that have long been on the drawing board—such as a new Penn Station to bring trains to Manhattan’s West Side—are nowhere near ready for quick infusions of federal cash. That reality reflects the paralysis that has infected our planning—from the preparation of environmental-impact statements to the endless solicitation of the views of “stakeholders”—as well as the codification of an anti-development, anti-growth bias. Public officials have a strong incentive to settle for small stuff.
It wasn’t always this way. By all accounts, Robert Moses did not play well with others, but he built Jones Beach and the entire New York City parkway system and, when the New Deal came along, he had blueprints ready for the Triborough Bridge, the renovation of Central Park, and the building of hundreds of city playgrounds. We don’t want to go back to the Moses era, when engineers ruled supreme—woodlands, wetlands, and older neighborhoods be damned. But our paralysis has prevented the building of almost any new airports in the U.S. over the past several decades, during which time we’ve not even been able to modernize the air-traffic control system for existing airports. Worse still, when we’ve used public money for infrastructure, we’ve too often funneled it to narrow, private interests. We’ve chosen to fund specific projects (think: the new Yankee Stadium) rather than creating a whole new playing field for imaginative investors and developers, the way the interstate highway system did.
Our approach contrasts sharply with, for instance, China’s. Consider the Robert Moses-like vision motivating the soon-to-be-built Hong Kong-Zhuhai bridge, which will link Hong Kong’s Lantau Island (site of the city’s ultra-modern airport) with the Chinese mainland. The bridge will provide a direct highway link to exporters from as far away as Vietnam. Notably, though government will provide some support, the bridge will be a private, toll-financed project undertaken by the legendary Sir Gordon Wu, whose Hopewell Holdings has built such projects all over South China. By such efforts are economies energized.
This private financing model, which requires public approval but not outright funding, offers a promising approach for various “greenfield” public-works projects in the U.S. Private financing could provide the means, for instance, for extending and linking regional electricity grids into a higher-voltage national system capable of shipping solar, wind, and nuclear power to where they’re most needed. Utility executives like American Electric Power CEO Michael G. Morris assert that “investor-owned utilities” stand ready to finance the grid, but they’ll need the green light from state utility regulators across whose domains the lines will run. Investor-owned utilities could use some help from the federal tax system, too, which currently subsidizes wind and solar power but discourages investment in the grid that would be needed to get power to household outlets, according to a new Manhattan Institute report by Tufts economist Gilbert Metcalf.
If he’s serious about infrastructure, then, President Obama should do much more than turn on the funding spigot. He should encourage state and local officials to lean more toward approving, not delaying, ambitious infrastructure projects. Even when worthy projects move slower than planned, though, the results can ultimately be effective. Consider Boston’s Big Dig—mocked for its expense and delays, but a project that, with matching federal and state funds, completely remade Boston’s highway system and added a signature new bridge for good measure. To leave a lasting mark on the nation’s infrastructure—and not just push money down the same old sinkholes—the president will have to resist pressure from local officials and their congressional champions to fund projects they should pay for themselves. At the same time, he should ask them to think bigger. Much bigger.