I always find it frustrating when highly intelligent people with fantastic resumes reveal the limitations of their expertise when they venture outside their areas of expertise. I yield to no one in my respect for Mohamed El-Erian in matters of finance. Sadly, in his op-ed at Bloomberg View he reveals that his knowledge does not extend to politics or policy. Consider:
On the supply side, better infrastructure — addressing decaying parts such as roads, bridges, airports and ports, as well as expanding in new areas associated with the wider use of technological innovations, including artificial intelligence and mobility — enhances both private- and public-sector productivity. By also reducing the historically-unusual gap that has emerged over the last few years between the U.S. and some of its international competitors, particularly in Asia, this spending helps lift both the country’s actual and potential growth capabilities.
When the federal government builds a new highway, the federal government shoulders most of the expense. Once built the highway becomes the property of the state and the state is primarily responsible for its upkeep and maintenance. That’s why when you cross the border from Illinois into Iowa, Wisconsin, or Indiana the roads are so much obviously better maintained. Those states give higher priority to maintenance than does Illinois.
Additionally, how federal, state, and local governments spend money is rarely based on need but on political considerations. The squeaky wheel, etc. That’s why no matter how much we spend our roads and bridges never seem to get any better and never result in improved “private- and public-sector productivity”. It would be a remarkable coincidence if it did because that’s not the basis on which the money is spent.
Additionally, infrastructure spending programs are inevitably backwards-looking—devoted more to past needs than future ones. Unless nothing ever changes that means that such programs accomplish a lot less than they might.
I think that Mr. El-Erian is imagining a form of government that’s different from the one we actually have and that does not and never will exist. The question he needs to ask is why a mile of subway costs so much more in New York than it does in Paris or Tokyo. It isn’t because of how they’re designed. It’s because of how they’re executed.
“Once built the highway becomes the property of the state…â€
Been through KY lately? Let’s see, who do we know from KY…….
But I’m sure health care will be run like a Swiss watch.
I’m not sure of the letter of Dave’s critique, but I agree with the spirit.
I’m not sure the federal government actually builds many roads. Looking at the wikipedia for the Stan Musial Veterans Memorial Bridge, a new interstate bridge with a new section of interstate, Illinois and Missouri split the cost and the feds gave a grant. I think the states are the primary decisionmakers on highways and the federal government just offers subsidies and regulation. It’s probably better to think of the U.S. as having 50 interstate highway and bridge jurisdictions.
And its even worse, the picture on the article looks like a city street. It probably depends on the state, but usually that’s a pothole for the municipality to repair and fix.
He cites low borrowing rates, but while I’m told some states save money before they build anything new, Illinois borrows, probably not at the interest rate he quotes. The money being spent today on roads here is for roads built some time ago.
IIRC Illinois presently borrows at 6.5%—the highest rate of any state. For Illinois borrowing makes almost no sense. Borrowing can make sense under a variety of conditions. If your income tomorrow will be higher than it is today. If there will be more people paying back tomorrow than are borrowing today. If the dollars you’re paying back with are worth a lot less than the ones you’re borrowing.
In Illinois none of those is true. But what if the federal government borrows the money and gives it to Illinois? It is to dream. Illinois has a terrible ROI on federal spending. It doesn’t do a bit of good for Illinois for the federal government to take money from Illinois and give it to New Hampshire.
My basic point is that Mr. El-Erian may be a genius when it comes to finance but he pretty obviously doesn’t know anything about politics. We do not have a technocracy. We will never have a technocracy. We might have an aristocracy in which a bunch of incompetent jerks claim to be experts but that’s as close as we’ll ever come.
Had me worried at the stat there. If there is any group, besides lawyers, which think that because they are smart at one thing, the must be smart at everything, it is doctors. Well, engineers too.
Steve
The other issue I’d add is that the Federal Government doesn’t actually build anything – they contact the work out based on a pseudo-competitive bidding process. I’m not familiar with road-building, but if it’s anything like the contracting process in defense, it’s a litany of waste, fraud, abuse and incompetence.