Smart But Gullible

In response to Mohammed El-Erian’s plea for Congress to unite on an infrastructure spending bill at The Hill:

Infrastructure is an area that in the past has attracted broad-based support. By potentially enhancing supply and demand at the same time, it is one of the few policy areas that simultaneously benefits both companies and workers. And it is a promising area if the U.S. is to maintain its strong economic and financial performance.

Like other advanced economies, our country faces the challenge of supplementing its short-term cyclical growth impulse with longer-term secular contributors.

Absent the required structural reforms, the economy will eventually experience what both Europe and Japan are feeling now: a slowdown in economic momentum, the threat of falling back into stagnation and a higher risk of recession and destabilizing financial volatility.

An infrastructure modernizing plan would be one of the ways to improve the probability of a more powerful cyclical-secular handoff. It would upgrade aging facilities that increase business cost and lower business efficiency. It would place the economy in a better position to benefit from technological innovations and compete internationally. And it would help crowd-in other sources of demand, investment and production.

I can only point out:

  1. Under present law the federal government bears much of the cost of new highway and bridge construction while state and local governments foot the bill for most of their maintenance.
  2. We do not have a great need for new highway or bridge construction.
  3. Such problems as exist are maintenance problems. The federal government is in no position to adjudicate among competing priorities at the state and local levels.
  4. Congress could appropriate $1 trillion in the form of block grants to state and local governments and it would disappear without a trace and without substantially improving roads and bridges.

If you really want to modernize and you want it to be financed at the federal level, the way to accomplish it is with a much more tightly defined and structured plan. A federal program to improve the power grid, analogous to the Interstate Highway System, would be a good way to do that. We could really use a better, smarter, more redundant power grid and private industry won’t construct it.

Mohammed El-Erian reminds me of an old joke about a man who moved to a small Maine town at two weeks of age, lived to 92, and died. On his tombstone his neighbors carved the message: “He was almost one of us”. I think that Mr. El-Erian is a very smart guy but also extremely naive about the United States and its politics. We are an enormously large, very decentralized, and complicated country. Our infrastructure problems aren’t due to a lack of money. They’re due to differing priorities and how the priorities are established.

7 comments… add one
  • Gray Shambler

    When it comes to infrastructure, I’m intrigued by Elon Musk’s Boring Co. Sounds like he’s awaiting regulatory approval for his 2.7 mile L.A. tunnel, which he envisions using for autos and pedestrians and bicycles. Basically, commuters. I’ve long though that this is a perfect idea… for freight. Long haul, cross country fast, driverless freight. Right down the median of the interstate highways. Construction costs would be enormous, but maintenance low. And would lower maintenance costs of surface highways.

    Musk may or not be a hustler, but someone needs to push us past present inertia into the future.

  • Ben Wolf

    We need a new, national clean water and sewage initiative as well. Thousands of communities are drinking poisoned water.

    Also, there’s very good reason to include a mega-scale environmental restoration and protection program via direct employment.

  • We need a new, national clean water and sewage initiative as well. Thousands of communities are drinking poisoned water.

    The strategy most likely to result in accomplishing that is to stop extracting money from states and localities to redistribute it centrally through the federal government. The underlying reason for the neglect of local resources is the cultivated helplessness of centralization. Shorter version: they’re drinking poisoned water because Alexandria, Virginia is drinking champagne.

    After 80 years of that cultivated helplessness you can hardly expect a restoration of the status quo ante overnight.

    Also, I think you’ll meet major opposition to a “mega-scale environmental restoration and protection program”. Restoration to what? Genuinely restoring the environment to, say, pre-Columbian level would render large residential areas including most of California uninhabitable. I think the best we can accomplish is better stewardship. Restoration is beyond our grasp, at least not without a drastic decline in the population.

  • Ben Wolf

    The state governments don’t care if poor rurals don’t have clean water. And the federal government doesn’t net extract funds from states, it’s a net injector.

    Superfund sites. Heavy metals contamination of residential areas. Freshwater contamination from industrial agriculture. We can deploy whole armies just cleaning up our own filth. We need state-of-the-art filtration systems just to get rid of the immortal PFAS chemicals that our friendly neighborhood capitalsts dumped in our water supply to save on the cost of incineration.

  • “Net injector” doesn’t do much for Ohio, Illinois, or Minnesota. The federal government removes money from some states and puts it into others, adding a bit to some states.

    But not all states. The states above plus Delaware and a few others are net contributors.

    This is a question of priorities. Water and sewage treatment in Michigan and Illinois will never be a federal priority. We’re on our own. And from your comment

    The state governments don’t care if poor rurals don’t have clean water

    I gather you’d be surprised at the State of Illinois’s priorities. Here’s a spreadsheet (xls) of Illinois’s capital spending projects for 2019.

  • Andy

    Ben,

    How would that work in practice? From my experience (Primarily Colorado and Florida), most rural water supplies come from wells and municipal supplies are often well-based as well.

  • Gray Shambler

    If you are really concerned about drinking “poison” you don’t have to drink tap water. We have good ground water here in Lincoln, Ne. But I’ve noticed many of our newly welcomed Asian immigrants lug Five gallon jugs to the grocery store to purchase “Filtered water”. Well, that’s up to them, I’m comfortable with Tap for now.

    But, as the Climate worsens, I may have to reconsider.

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