Repairing infrastructure can help repair economy

ScreenHunter_07 Apr. 05 12.46

By Leith van Onselen

Barry Riholtz, author of The Big Picture, last night published an interesting article arguing for a substantial expansion of public infrastructure investment across the US:

Not too long ago, the infrastructure of the United States was the envy of the world. We had an extensive interstate highway system, deep-water ports connected to a well-developed rail system and a new airport in every major city (and most minor ones). Electricity was accessible to the vast majority of the nation’s residents, as was Ma Bell’s telephone network.

That was then. In the ensuing decades, we have allowed the transportation grid to get old and out of shape… The electrical grid is a patchwork of jury-rigged fixes, vulnerable to blackouts and foreign cyberattacks. The cell system of the United States is a laughingstock versus Asia’s or Europe’s coverage. There are very few things that are done better by government mandate than by the free market, but cell coverage is one of them. Broadband, almost as laughable as our cell coverage, is another…

Don’t take my word for it. The American Society of Civil Engineers recently issued a U.S. Infrastructure Report Card (see that reviewed key civil engineering projects on their quality and state of repair…

Overall, America’s infrastructure GPA was a “D”… To get to an “A” would require a five-year infrastructure investment of $2.2 trillion dollars…

A massive infrastructure program would have numerous benefits, not the least of which would be giving a boost to the economy when it could use one. The big advantage of infrastructure rebuilds is that they create a lasting effect by creating tools and platforms that the private sector can build upon. Consider the vast economic benefits we have enjoyed from the interstate highway system, DARPAnet and NASA, and you have a sense of what a massive infrastructure program can yield.

This sort of a program is in many ways vastly superior to the spending increases and tax cuts we saw in the American Recovery and Reinvestment Act of 2009. The limitation of most of the spending increases and tax cuts in the last rescue plan was that they were merely temporary fixes; they had no long-lasting effects. As long as the money flowed, they were stimulative; once the spending stopped, the stimulus stopped as well.

That’s the beauty of major infrastructure projects: They leave something worthwhile behind…

Our key economic competitors are spending very heavily in all these areas. Since World War II, both Japan and Germany have had ongoing infrastructure programs. If you prefer a different example, look at the Chinese: They are spending trillions to build out their entire nation.

We in the United States are willing to spend trillions in Iraq and trillions more bailing out reckless bankers. But when it comes to the most basic functions of civilization, we skimp on ourselves. Does that make any sense? Why not spend trillions on the national infrastructure, and generate economic gains instead?

Riholtz’ basic argument could just as easily extend to Australia, where the state of infrastructure is equally poor, degraded by decades of underinvestment and pushing-up against strong population growth, especially since the mid-2000s.

As noted earlier in the week, nation building was once a key feature of Australian government. However, the more recent addiction to running surpluses combined with the short political cycle has precluded such longer-termed investment, with most governments happy to take the sugar hit to growth from a growing population without concern for the negative longer-term consequences on infrastructure capacity, living standards, or productivity.

Just like in America, well targeted infrastructure investment offers the double dividend of supporting growth and jobs as the mining investment boom fades, whilst also expanding Australia’s longer-term productive base and improving living standards.

Going into debt to fund expenditure is not a problem provided that expenditure expands the productive potential of the economy, allowing the debt to be self-liquidating.

With the Australian economy facing a shock to both incomes and employment as the twin commodity price and mining investment booms unwind, policy makers will need to find ways to support the economy without worsening imbalances and stealing from the future. Well targeted, productivity enhancing infrastructure, is one answer.


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Unconventional Economist
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  1. I don’t believe in strong population growth. Neither does much of the electorate.

    I don’t want to pay higher taxes for population driven infrastructure.

    I used to accept that paying taxes was a necessary evil. Now I do everything I can legally to reduce them.

    • Ronin8317MEMBER

      Some of the bridges in the US literally ‘fell apart’, and many bridges in Australia that are not much better. Australia have a lot of infrastructure backlog that is simply ignored.

      • Infrastructure maintenance (necessary even with a stable population) and new infrastructure for population growth are separate, albeit at times inter-related, issues. We can save money on the latter with a stable population.

    • This article is about maintaining existing infrastructure in the US. The existing infrastructure rates D. The question of expansion is quite different, and a debate for another thread.

      We have not been paying enough to maintain our existing infrastructure. So the question is, do you want infrastructure to continue to deteriorate or not? If infrastructure is unimportant to you, then obviously agitate for lower taxes. And put up with the infrastructure we have getting worse and worse.

      I am looking to retire soon, so a crap ride to work won’t affect me. Nor will dropouts in my phone or broadband – I will just go make myself a coffee and wonder what the workers are doing. Or perhaps holiday somewhere where the infrastructure IS good. LOL. The possibilities are endless.

      The point being is that either we want better infrastructure and pay for it, or we don’t and shut up about it when the phone or power goes down and the trip to work takes ten minutes more than it did five years ago because of those effing roadworks and pot holes.

  2. I’d love for our Government to come up with a nationwide strategy for improving our infrastructure, instead of just piling more and more people into Australia and thinking eveything will just sort itself out.

    Everything is so backwards in this country. We decry housing affordability and availability, but then allow uncontrolled and over investment from foreign and local investors without expanding the housing base.

    We should be developing plans to build more cities, provide better transport networks and harnass more energy and water. It’s what a forward looking nation would do.

    • I’m glad you’re looking forward to a strategy. You looking forward to funding it with higher taxes?

      • No but I’d rather they have a strategy then just thinking expanding Australia for the sake of it. All Rudd said in the past is he wanted a Big Australia, you can’t say one thing and not do another.

        I’d prefer no population growth at all but unless people like the Stable Population Party get in and query the status quo, all we’ll end up with is a larger population and very expensive housing with no infrastructure improvements.

      • dumb_non_economistMEMBER

        If you believe in a Big Australia and expect the infrastructure to follow you’ll be sadly disappointed. Politicians haven’t got it right so far and I doubt they’ll get it right now.

        In this, past performance is indicative of future performance.

  3. The government had a chance to do this instead we got pink batts, school halls and a small smattering of actual infrastructure projects like the regional rail in victoria.

    • Zero,

      But Rudd had to blow the money big and fast. Perfect for another zero ie accountability.

      Those that wail for increased infrastructure conveniently refuse to factor in the additional tax costs or lack of accountability that comes from Govt ineptitude. If we want more infrastructure at reasonable costs and with limited waste we will need to find a completely different methodology of doing it. The current one is an unmitigated expensive disaster.

      • Tell that to the long suffering BHP shareholders what with the Hot Briquette plant and Olympic dam fiascos. They might be forgiven for thinking that incompetence transcends all ideological boundaries.

        This is in no way to defend any government incompetence. But to suggest that the private sector is any better makes me chortle.

    • Decent infrastructure takes five to ten years to plan and design. You know, do the needs and economic analysis, get the approvals, do the design, let the tenders. That sort of detail.

      So if you needed infrastructure to start in 2008, it had to be planned in the period 1998-2003.

      Absent any serious infrastructure planning in that period, a subsequent government needing to stimulate the economy has to resort to things like batts. The question of whether or not stimulation was required has turned into a political one, and obviously partisans of each side will hold different opinions. A fine argument indeed for another thread.

      However, the fault for the lack of shovel ready useful projects lay five years back from the period that the Batts started. Furthermore, given that we know that economies experience cycles of boom and bust inevitably, would it not have been prudent for those in power in the late 1990s to actually have some major projects economically evaluated, designed and shovel ready? It’s called planning.

      But let’s not get political, right?

  4. Alex Heyworth

    You would think this would be an issue that could actually generate bipartisan support in the parliament. If our politicians could stop playing childish political games for five minutes, and start looking at the real issues. Even without it, the current government has been bragging about passing 300 bills in the last parliament. You would think they might have found room for a bit of decent infrastructure spending beyond the NBN.

    Maybe it needs to be the focus of a separate ministry for a while, to get a senior politician completely focused on the subject.