Stop Bleating About Crumbling Infrastructure

The Amtrak tragedy has predictably elicited another round of jawing about the allegedly "disgraceful" condition of America's "infrastructure". If Washington only had the "courage" to spend and borrow itself silly----why the nation could leap out of its growth and jobs rut in a single bound. Or so goes the claim of mainstream politicians and pundits.

A recent jeremiad by one Philip K. Howard is par for the course. The latter is a lawyer and founder of a lobby group sporting a name---"Common Good"-----which is reason in itself to be wary.

But almost every category of U.S. infrastructure is in a dangerous or obsolete state — roads and bridges, power generation and transmission, water treatment and delivery, ports and air traffic control. There is no partisan divide on what is needed: a national initiative to modernize our 50- to 100-year-old infrastructure. The upside is as rosy as the status quo is dire. The United States can enhance its competitiveness, achieve a greener footprint and create upward of 2 million jobs.

That entire paragraph is pure hogwash. The overwhelming share of the nation's infrastructure is not obsolete or dangerous; is not being starved for dollars; and has virtually nothing to do with the dramatic trend-line of decline in main street growth, investment, good jobs and real living standards.

In the above quoted passage, Howard attempts to throw in everything but the kitchen sink in his list of purportedly crumbling infrastructure, but that's a ruse to deflect from the giant flaw at the center of the case. Namely, 98% of US infrastructure is either the responsibility of the private business system or state and local government.

Arguably, the only thing that Washington has any business being involved with is the interstate highway system. But the latter is generally in excellent shape along most of its current 47,000 miles of surface. In fact, it was the recipient of a huge dollop of largesse compliments of the $800 billion Obama stimulus, but most of these billions were wasted on pre-mature resurfacing of highways that didn't need it and low priority interchanges. There were simply few "shovel ready" and necessary projects to fund.

In any event, the interstate highway system could be more than adequately maintained for $30 billion per year. That's partly because its only a small piece of the highway pie, accounting for only 1.1% of the 4 million miles of streets, roads and highways in the entire nation. Indeed, the reason we have 89,000 units of state, county, municipal and township government in the US is precisely to take care of the 99% of road surfaces that the great Dwight D. Eisenhower said should remain a non-Federal responsibility----even as he pioneered the Interstate highway system and trust fund.

The unheralded truth, in fact, is the current gas tax generates more than enough to fund the interstate system-----that is, before two-thirds of the incoming trust fund dollars are dissipated on mass transit, bike paths, beautification, and state and local highways which should be funded by local users or taxpayers.

So if the interstate highway system could be maintained in high style for 0.17% of GDP, where's the beef?

It's certainly not in what Howard identified as the "power generation and transmission" sector. In fact, national investment spending has been running in the $90-100 billion range annually for the last half-decade----or more than double the level of the early 2000s. Even after accounting for a 20% rise in the GDP deflator over the last 10 years, current investment in the utility sector is up by 80% from its 2004 level.

The self-evident point is that there have been no blackouts, brownouts or power shortages of any kind that could plausibly have interfered with economic production and growth during that period. What the infrastructure hobbyists are really complaining about is economic outcomes they don't like. That is, only a tiny fraction of the ample utility power available to US businesses and households is generated by green fuel such as wind and solar.

But that's because it is not economically competitive, not because capital investment is being starved. After all, the overwhelming share of utility investment is accounted for by the private sector and is debt financed. Are we therefore not talking about bringing coals to Newcastle? Thanks to the Fed's misguided financial repression, long-term utility financing has never, ever been cheaper.

Indeed, the typical double-shuffle or hidden agenda of the infrastructure cheerleaders is revealed by Howard's curious claim that $30 billion is "wasted" each year due to inefficient power transmission. Now, how in the world does he know that?

Of course, there is inherent frictional power loss in the process by which central station bulk power is distributed through high voltage power lines and then across the local distribution grid. But its a matter of physics and economic trade-offs. If you invest a lot more in high performance transmission systems, you will absolutely get less power loss, but the investment may never pay for itself, either.

Indeed, that the crumbling infrastructure claim is really about a completely ulterior agenda is actually admitted to---even if inadvertently---by Howard:

The wasted electricity from the obsolete power grid is the same as the output of 200 average coal-burning power plants — causing an extra 280 million tons of carbon to spew into the air each year.

Right. Replace perfectly good conventional transmission capacity with ultra high cost advanced transmission technology. That way you can force the shutdown of perfectly serviceable coal-fired power plants, too!

Another category of alleged infrastructure starvation is waste water and sewerage treatment, and here the story is even worse. Ever since the EPA started making multi-billion grants for sewer plants during the early 1970s, municipalities have been been wasting massive of amounts of resources building over-sized plants, and then under-charging their business and residential customers for their use. So the truth in this category is not starvation, but economic obesity!

Accordingly, under a regime of full economic pricing for waste treatment services the infrastructure budget could be sharply reduced in this sector; unsubsidized prices at the municipal system intake pipe would cause an outpouring of technology innovation and practice changes among users that would dramatically reduce the capacity requirements and cost of end-system treatment plants.

Moreover, even under the current system of waste treatment socialism, there are no facts whatsoever that support the starvation argument.  Current annual spending for waste treatment of about $25 billion is 25% higher than a decade ago----even after adjustment by the 20% gain in the GDP deflator during the interim.

Now it is absolutely true that in selective localities in the US there are obsolete sewer treatment plants, just as in the case of roads and streets. But you can't blame that on inadequate spending. The real problem is local government corruption, inefficiency, pork barrel politics and the excessive power of the municipal unions and the construction trades.

In the local transportation sector, for example, the disgraceful condition of roads and streets in places like New York City and Philadelphia is owing to the fact that billions have been siphoned off by drastically overpaid union labor and deeply corrupted contract award processes.

As shown below, nation wide highway spending has averaged between $80 and $85 billion since 2009 or about 25% higher in real terms than a decade earlier. Moreover, if the voters really want better roads and streets throughout the localities of the nation there is one simple solution: Raise the gas tax and other user fees and tolls.

Stated differently, the proof is ultimately in the pudding. There is apparently nothing that Americans treasure more than their autos and the freedom to motor far and wide. If they can't be persuaded to pay higher road taxes and tolls, then by definition there is not a "shortage" of highway investment.

Finally, there is the mythology about crumbling bridges based on the occasional bridge failure that becomes a momentary cable news sensation, but is not representative of the actual facts. Indeed, the crumbling bridge myth deserves debunking especially because it has become a metaphor for the entire phony campaign for massive infrastructure spending and borrowing. I addressed this awhile back, but the points bear repeating:

It seems that after 32 years and tens of billions of Federal funding that the nations bridges are still crumbling and in grave disrepair. In fact, according to DOT and the industry lobbies there are 63,000 bridges across the nation that are “structurally deficient”, suggesting that millions of motorists are at risk for a perilous dive into the drink.

But here’s the thing. Roughly one-third or 20,000 of these purportedly hazardous bridges are located in six rural states in America’s mid-section: Iowa, Oklahoma, Missouri, Kansas, Nebraska and South Dakota. The fact that these states account for only 5.9% of the nation’s population seems more than a little incongruous but that isn’t even half the puzzle. It seems that these thinly populated country provinces have a grand total of 118,000 bridges. That is, one bridge for every 160 citizens—men, women and children included.

And the biggest bridge state among them is, well, yes, Iowa. The state has 3 million souls and nearly 25,000 bridges–one for every 125 people. So suddenly the picture is crystal clear. These are not the kind of bridges that thousands of cars and heavy duty trucks pass over each day. No, they are mainly the kind Clint Eastwood needed a local farm-wife to locate—so he could take pictures for a National Geographic spread on covered bridges.

Stated differently, the overwhelming bulk of the 600,000 so-called “bridges” in America are so little used that the are more often crossed by dogs, cows, cats and tractors than they are by passenger motorists.  They are essentially no different than local playgrounds and municipal parks. They have nothing to do with interstate commerce, GDP growth or national public infrastructure.

If they are structurally “deficient” as measured by engineering standards that is not exactly a mystery to the host village, township and county governments which choose not to upgrade them. So if Iowa is content to live with 5,000 bridges—one in five of its 25,000 bridges—that are deemed structurally deficient by DOT, why is this a national crisis? Self-evidently, the electorate and officialdom of Iowa do not consider these bridges to be a public safety hazard or something would have been done long ago.

The evidence for that is in another startling “fun fact” about the nation’s bridges.  Compared to the 19,000 so-called “structurally deficient” bridges in the six rural states reviewed here, there are also 19,000 such deficient bridges in another group of 35 states–including Texas, Maryland, Massachusetts,  Virginia, Washington, Oregon, Michigan, Arizona, Colorado, Florida, New Jersey and Wisconsin, among others. But these states have a combined population of 175 million not 19 million as in the six rural states; and more than 600 citizens per bridge, not 125 as in Iowa.

Moreover, only 7% of the bridges in these 35 states are considered to be structurally deficient rather than 21% as in Iowa. So the long and short of it is self-evident: Iowa still has a lot of one-horse bridges and Massachusetts— with 1,300 citizens per “bridge”— does not. None of this is remotely relevant to a national infrastructure crisis today—any more than it was in 1982 when even Ronald Reagan fell for “23,000 bridges in need of replacement or rehabilitation”.

Yes, the few thousands of bridges actually used heavily in commerce and passenger transportation in American do fall into disrepair and need  periodic reinvestment. But the proof that even this is an overwhelmingly state and local problem is evident in another list maintained by the DOT.

That list would be a rank ordering called “The Most Travelled Structurally Deficient Bridges, 2013″. These are the opposite of the covered bridges of Madison County, but even here there is a  cautionary tale. It seems that of the 100 most heavily traveled bridges in the US by rank order, and which are in need of serious repair, 80% of them are in California!

Moreover, they are overwhelmingly state highway and municipal road and street bridges located in Los Angeles, Orange County and the Inland Empire. Stated differently, Governor Moonbeam has not miraculously solved California endemic fiscal crisis; he’s just neglected the local infrastructure. There is no obvious reasons why taxpayers in Indiana or North Carolina needed to be fixing California’s bridges— so that it can continue to finance its outrageously costly public employee pension system.

And so it goes with the rest of the so-called infrastructure slate. There is almost nothing there that is truly national in scope and little that is in a state of crumbling and crisis.

What is crumbling politically is the case for deficit spending. At the end of the day, that's what the infrastructure brouhaha is all about. Its just another variation of the misbegotten Keynesian notion that the state can command economic growth via borrowing or printing money in order to fuel aggregate demand.

In fact, however, true economic growth and wealth generation stems from the supply side of the economy. That is, from the exertions and productivity of labor and the efficiencies, innovations and investments generated by entrepreneurs.

And that leads to the real reason for our present stall speed economy. Over the last 15 years, there has been a sharp decline in real net business investment (after depreciation of the existing capital stock), labor hours utilized by the business economy and net business formation and entrepreneurial activity. If Washington really wants to deal with faltering economic growth it should work on removing the regulatory, tax and welfare state barriers to the ominous trends shown in the graphs below.

Indeed, we do not need any more Federal subsidies for any category of infrastructure-----especially transportation. If we need more airport capacity or modernization than is being funded by the $36 billion per year we are already spending, for example, then the 10% of the population which accounts for 90% of air travel should pay for it in higher user charges on their tickets.

Likewise, if the $65 billion currently being spent to subsidize the capital and operating costs of local mass transit systems is not enough-----then let local taxpayers absorb the burden, not unborn generations which will inherent the nation's $18 trillion public debt.

And when it comes to enhancing real economic productivity and growth, nothing could be more inimical than to pour tens of billions into hopeless white elephants like Amtrak and the Obama high speed rail boondoggle.

In short, the infrastructure bleaters have it exactly upside-down. The economic crisis confronting the nation is owing to the state getting way too big, not because public spending on infrastructure or anything else has been shortchanged.



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