Infrastructure and the Jobs of the Future

Economist Matthew Slaughter argues that an improved infrastructure in the U. S. is essential to creating the jobs of the future:

There is a crucial connection between potholes and unemployment. America’s crumbling infrastructure is eroding America’s competitiveness in the global economy by eroding America’s ability to attract and retain global corporations and their high-productivity, high-wage jobs.

This was not always so. Over much of the 20th century, America’s strong infrastructure investment was a major factor attracting global corporations headquartered in other countries to invest and create jobs here. Rising U.S. standards of living were fueled by a strong infrastructure system that facilitated the growth of companies in America, both global and domestic alike: transportation systems to move people and products, electrical systems to power plants and offices, communications backbones to drive computers and creativity. By 2008, the U.S. subsidiaries of foreign companies employed over 5.6 million Americans — nearly 2 million in manufacturing — and exported $232.4 billion in goods. That’s 18.1% of America’s total.

Today is very different. America’s decaying infrastructure costs the typical American worker hundreds of hours in lost productivity. It also costs companies time and efficiency in moving their products around — and also out of — the country. This decay is particularly stark for global companies, whose executives are witness to the dynamism of emerging economies like China and India that present them with ever-widening choices for where to grow jobs and investments around the world.

Read the whole thing. Hat tip: Andrew Samwick.

I have misgivings about this prescription for any number of reasons. First, I don’t believe in a lump of infrastructure any more than I do a lump of labor or demand or GDP. The details matter. Without slighting Calhoun County, Illinois, will building another road or bridge in Calhoun County or repairing a decaying bridge there attract global companies there? I seriously doubt it. When I look outside my window, other than the unpaved road in front of my home, unpaved because the companies to whom the city has let the contract to repave it haven’t gotten around to it yet, I don’t seeing decaying streets and bridges. I do see highways that have a peak load problem and I have doubts that refurbishing a bridge or adding another lane to the Tri-State will have a great deal of impact on that. As I see it the greater problem is that where the jobs are located and where the people live are separated too far from one another. That’s not an infrastructure problem, at least not as the term “infrastructure” is generally used.

I do not doubt that there are decaying roads and bridges in the United States. I question that there is a straight line connection between the actual roads and bridges that are decaying, where the actual needs are, and attracting global corporations to put production facilities in the United States.

I also don’t believe that adding skyboxes to sports stadiums, rebuilding roads to improve the access to casino gambling, or a nicer Admiral’s Club at the airport, items also included under the heading of infrastructure spending, are likely to attract the jobs of the future.

There is little doubt that a significant number of our schools, particularly schools that aren’t located in newly-built suburbs, are in serious need of attention. Many were built around the turn of the last century and, despite the various improvements they’ve received since then, are still essentially designed with the needs as they were seen in the first quarter of the 20th century in mind. I’m skeptical that rebuilding them or refurbishing them is the right strategy. Unless you believe that technological change has ended (an argument for another day), we can no more envision the needs of a school in 2030 than the people in 1900 could envision the needs of a school today. IMO the strategy for bringing schools up-to-date should be targeted more at low cost, pre-fab modular construction than at largescale infrastructure building programs.

We are entering a period in which circumstances are very different than those of the last half century. American businesses and American workers face serious competition from overseas competitors, whole industries can arise and vanish equally quickly, change causes both skills and capital investments to grow obsolete with alarming speed, and the needs of the elderly are likely to consume a larger proportion of government spending at all levels than it has in the past. Spending thoughtlessly is a luxury we will be hard put to afford.

I would suggest several principles that should regulate government capital spending. First, we must choose prudently among available projects rather than funding 1,000 projects in the hope that one may prove to be worthwhile. Second, the projects we should select must prove worthwhile over their productive lives. That should be obvious but we have been funding infrastructure projects with productive lives of fifty years that are obsolete in ten or, worse, are redundant or obsolete from the time the first spade is turned. We can afford what we need but we can no longer afford bridges to nowhere.

Third, government infrastructure spending should be focused on projects the private sector will not address.

Finally, we need to embrace change rather than trying to avoid or retard it. World automotive productive capacity already exceeds any consumption we can envision for the foreseeable future. The overhang in housing inventory will keep the home construction industry recovering for three to five years at the most optimistic. We have a financial sector several times the size needed to service an economy of our size. Subsidizing these industries is a desperate grab at restoring the past, not preparing for the future.

Consistent with those principles, I think the infrastructure projects we need to concentrate our ever-scarcer tax dollars on are energy and information distribution projects. Unfortunately, these are not projects that will employ large work gangs of the unemployed or produce showy results you can use to point to your tax dollars at work. But they just might produce the jobs of the future.

7 comments… add one
  • PD Shaw

    IIRC from a link provided on this site a few weeks ago, the best roads in the country are in Georgia (all roads rated good or fair); the worst roads in the country are in D.C. and Alaska. I don’t feel like sending more money to D.C. or Alaska.

  • PD Shaw

    Some readers may not appreciate the Calhoun County reference. Calhoun is a thin peninsula formed by the convergence of the Illinois and Mississippi Rivers near St. Louis, connected to the outside world by ferries. Its best known for its rustic, wooded charm (and peaches). You can build roads and bridges to connect it better to St. Louis, but it would just likely turn the area into suburbs.

    I have an uncle who was an attorney in St. Louis, and he bought a farm in Calhoun County, and I remember the tortured drive out there to see . . . well we kind of thought he had lost his marbles. But he said he had decided to become a Jeffersonian farmer, which I guess meant someone else was going to farm while he worked in the city and got the credit.

  • Drew

    I’m generally sympathetic to your observation that “infrastructure spending” is the panacea its made out to be. Its just that its politically palatable.

    But you can go too far the other way. “I do see highways that have a peak load problem and I have doubts that refurbishing a bridge or adding another lane to the Tri-State will have a great deal of impact on that.”

    In NW Indiana they have cleaned up one of the greatest cost/productivity monstrosities of of the past half century: widening I-80. For those who are not locally familiar, the entire truck (and car) volume back and forth from Michigan, N Indiana, Ohio, into Chicago or around into Iowa, Wisconsin and Minnesota (ans the huge associated industrial and agriculture transportation base) was jammed through one highway that at one point was two lanes and then “fixed” by widening to 3. It was bumper to bumber morning, noon and night. Well, now its 6 lanes, with newly designed smooth flow producing exit and entry. A productivity boon.

    Note that when Modern Forge recently announced its move from Blue Island to Merrillville for tax and employment cost reasons (although I know this is an illusion – can’t happen) it chose a site that didn’t just solve those problems, but also afforded easy and productive shipping south (I 65) west and east (I 80) and around Chicago (80-88-355 or 80-35). Its a big consideration.

    ” IMO the strategy for bringing schools up-to-date should be targeted more at low cost, pre-fab modular construction than at largescale infrastructure building programs.”

    We looked at buying a manufacturer of just these type units a couple years ago. Not only are they more flexible, but they can be considered flexible and mobile capacity. Here in the Naperville school district we build taj mahal’s for schools……..and the property taxes reflect it. Elsewhere, especially in the south and Texas, they have adopted this pre-fab concept at great cost saving. Its one of the reasons when you hear about lack of education spending in the south you need to be careful – there’s a phony element to it.

    “Third, government infrastructure spending should be focused on projects the private sector will not address.”

    Of course, but good luck with that. The recent high profile solar bust is a perfect example. It was financed 2/3 with vc money, and then capped off by 1/3 govt guaranteed loan (read: below market pricing). That’s called classic stars in eyes vs economics / subsidy and cronyism / and raw political grandstanding.

    And now the money is vaporized. There a slew of simular boondoggles going on right now, especially in Michigan. Imagine that.

    .

  • Drew

    er, “not the panecea”

  • I’m not claiming that rebuilding roads is never effective, merely that we should not assume that it will be. Let me give a counter-example to your NW Indiana one: the rebuilding of the “Hillside Strangler” (the intersection of I294, I290, and I88 in Hillside, IL) was supposed to alleviate one of the worst points of congestion of the Chicagoland highway system. It had a lot less impact than expected. Too many cars, not enough road.

  • steve

    ” Its one of the reasons when you hear about lack of education spending in the south you need to be careful – there’s a phony element to it.”

    Everything about education is manipulated. It is hard to find good stats. However, rumor has it that these kind of pre-fabs are best in areas that do not face big snow loads.

    Steve

  • Drew

    “Let me give a counter-example to your NW Indiana one: the rebuilding of the “Hillside Strangler” (the intersection of I294, I290, and I88 in Hillside, IL) was supposed to alleviate one of the worst points of congestion of the Chicagoland highway system. It had a lot less impact than expected. Too many cars, not enough road.”

    That’s simply called under-engineering, a nice way of saying poor design. But it is government, now isn’t it.

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