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After The Fall: Saving Capitalism From Wall Street--and Washington

After The Fall: Saving Capitalism From Wall Street—and Washington

by Nicole Gelinas

The President’s First Roadblock
Yes, we can invest wisely in infrastructure—but how?
23 January 2009

In his inaugural pledge Tuesday to “lay a new foundation for growth,” President Barack Obama put “roads and bridges” at the top of the list. For America to get the modern infrastructure that it needs, though, the president will have to make sure that the stimulus bill he signs looks nothing like what the House proposed last week.

The most obvious problem with the House bill is that it won’t do much for the nation’s decaying road and rail assets, which were supposed to be among its major beneficiaries. The $825 billion bill allots just $40 billion—less than 5 percent—for transportation and transit. But it would take more than $70 billion annually in new spending even to begin upgrading such assets, according to the Department of Transportation. The bill also considers run-of-the-mill paving and surfacing work as core infrastructure investments; as my colleague Howard Husock notes, local governments are only too happy to put the federal money toward such small-bore efforts. The bill also prioritizes “shovel-ready” projects, directing states to “initiate” spending of roughly half of the infrastructure money within the first four months—or lose it.

But projects that best support the private-sector economy over the long-term might not be the easiest, quickest, and cheapest. Coupled with such tiny allocations—less than $1 billion per state—the House bill’s emphasis on speed and regular maintenance will enable us barely to keep up with current neglect, never mind make real improvements.

Another big problem the bill suffers from is a muddled definition of “infrastructure,” putting $15 billion worth of spending on public housing and other affordable housing investments in that category. “Investing” in public housing, of course, constitutes social spending on private benefits for relatively few households. Categorizing this as infrastructure spending requires a leap of the imagination.

Meanwhile, the bill would only devote $9 billion nationwide to mass-transit projects. Spending so little here would be a missed opportunity, when bottlenecked mass transit is among the biggest obstacles to increasing private-sector productivity in crowded metropolitan areas. Such areas are already hotbeds of productivity, as Harvard economic professor and City Journal contributing editor Edward L. Glaeser has written, and because of their density, they generate a disproportionate amount of the feds’ tax revenue. Updating their complex, aging assets to keep up with the rest of the world’s modern investments would add to that spectacular density and productivity.

So how should Obama and Congress rethink this bill? First, keeping in mind that we only get one chance to do this, they should encourage projects that most increase the private sector’s productivity for each dollar spent. Drastically cutting road and rail commute times through modern engineering technology accomplishes exactly that.

Second, Obama and the feds should encourage state and local governments to embark on at least a few technologically challenging projects. Boston’s Big Dig, for all of its flaws, for instance, offers huge benefits to far-flung infrastructure planners. It laid 21st-century technology over 19th- and 20th-century infrastructure, a feat that other cities badly need to emulate. Its engineering “firsts”—both successful and unsuccessful—provide a treasure trove of data for other locales looking to embark on similarly ambitious projects. By contrast, spending $20 billion refurbishing school buildings to make them “green” or “wired” doesn’t offer the same opportunity for dramatic, and badly needed, innovation, or the same potential data bank for future efforts.

Third, the bill should make the states prioritize their own spending so that they don’t neglect important infrastructure, as they consistently do now. State failures here have contributed to the current sorry situation of infrastructure disrepair in which we find ourselves.

As currently written, the bill does just the opposite. Most egregiously, it would devote $79 billion in operating aid to states, much of it to “prevent cutbacks in critical education” spending. But states like New York have long allowed education and medical spending to crowd out necessary infrastructure investment. Discouraging states and cities from making needed cuts in bloated programs now—and forgoing an opportunity to push them to rethink how they spend money, without results, on the most politically popular but ineffective parts of their budgets—will only make this problem worse. Just as bad, the bill does nothing to get states to examine their unsustainable labor costs. Fat union contracts have made states like New York unable to afford their physical assets.

At least with the auto-industry bailouts, the feds are muscling the Big Three into rethinking their generous contracts—something the auto companies had already started doing themselves. The same doesn’t apply, though, say, to New York’s public sector. (Speaking of New York, one positive aspect of the bill is its mandate that all contracts funded with federal dollars be posted on the Internet, letting the rest of us to see who in the make-believe “private-sector” contracting world—after all, it’s dependent on the public sector—is getting what with public dollars.)

Finally, states and cities should plausibly demonstrate that at least a few of the projects they build will achieve obvious results. This isn’t the same as being “shovel-ready.” With well-executed projects like new “express” bus lanes, separated by barriers from regular traffic for faster transit in cities and suburbs, taxpayers could see that they’re getting real bang for their buck. Then they’d be likely to insist on more regular infrastructure spending out of their own local and state tax money.

As it is, the current House bill would act as an inducement to maintain the status quo of slow infrastructure deterioration. That’s worse than doing nothing at all, because the public won’t be interested in a do-over if it sees billions of dollars wasted on poorly thought-out “infrastructure” projects. And with trillion-dollar deficits, the global bond markets—which are lending us all of this money—may not let us try again for another generation, at least.

Nicole Gelinas, a City Journal contributing editor and the Searle Freedom Trust Fellow at the Manhattan Institute, is a Chartered Financial Analyst.

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