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:
- 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.
- We do not have a great need for new highway or bridge construction.
- 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.
- 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.