Infrastructure repair is key to growth

 Barry Ritholz @ The Big Picture:

If you have spent much time traveling around the United States, you likely have noticed that our infrastructure looks a bit worn and tired and in need of some refreshing. If you spend much time traveling around the world, however, you will notice that our infrastructure is shockingly bad. So bad that it’s not an exaggeration to declare it a national disgrace, a global embarrassment and a massive security risk.Not too long ago, the infrastructure of the United States was the envy of the world. We had an extensive interstate highway system, deep-water ports connected to a well-developed rail system and a new airport in every major city (and most minor ones). Electricity was accessible to the vast majority of the nation’s residents, as was Ma Bell’s telephone network.

That was then. In the ensuing decades, we have allowed the transportation grid to get old and out of shape. Our interstate highway system is in disrepair; our bridges are rusting away, with some collapsing now and then. The electrical grid is a patchwork of jury-rigged fixes, vulnerable to blackouts and foreign cyberattacks. The cell system of the United States is a laughingstock versus Asia’s or Europe’s coverage. There are very few things that are done better by government mandate than by the free market, but cell coverage is one of them. Broadband, almost as laughable as our cell coverage, is another.


Consider that we consume more than 34 billion liters of bottled water a year — about 50 billion bottles — at a cost north of $8 billion dollars. What does that say about America’s confidence in its water supply?

Don’t take my word for it. The American Society of Civil Engineers recently issued a U.S. Infrastructure Report Card (see infrastructurereport-card.org) that reviewed key civil engineering projects on their quality and state of repair. The society graded aviation, bridges, dams, drinking water, energy, hazardous waste, inland waterways, levees, public parks and recreation, rail, roads, schools, solid waste, transit and wastewater.
Overall, America’s infrastructure GPA was a “D.” We earned our highest grade in solid waste — a C+ (insert your own infrastructure joke here).

To get to an “A” would require a five-year infrastructure investment of $2.2 trillion dollars. You can understand why recent proposals of $50 billion were so underwhelming. That is 10 percent of what is required to return the United States to a competitive level with the rest of the developed world. Even the emerging world outshines us in these areas.

A massive infrastructure program would have numerous benefits, not the least of which would be giving a boost to the economy when it could use one. The big advantage of infrastructure rebuilds is that they create a lasting effect by creating tools and platforms that the private sector can build upon. Consider the vast economic benefits we have enjoyed from the interstate highway system, DARPAnet and NASA, and you have a sense of what a massive infrastructure program can yield.

This sort of a program is in many ways vastly superior to the spending increases and tax cuts we saw in the American Recovery and Reinvestment Act of 2009. The limitation of most of the spending increases and tax cuts in the last rescue plan was that they were merely temporary fixes; they had no long-lasting effects. As long as the money flowed, they were stimulative; once the spending stopped, the stimulus stopped as well.
That’s the beauty of major infrastructure projects: They leave something worthwhile behind.

We still enjoy the benefits of the interstate highway system, which allows goods to be moved cheaply around the nation. Innovations at NASA led to many new products and industries, including innovations in the semiconductor, satellite and mobile computing sectors. And DARPAnet? You might recognize that as today’s Internet. All three are massive economic wealth generators, filling a role that is too long term and too expensive for the private sector.

Give me a trillion or two dollars to invest in the economy so the next expansion could proceed, and here is what I would do:

Electrical grid refurbishment. This is both an economic and national security issue. The electrical grid is an unreliable mishmash of public and private ownership, vulnerable to both blackouts and cyberattacks. It needs to be upgraded yesterday. While Congress has approved several billion dollars to begin work on the U.S. grid, it is not nearly sufficient to complete the job.

How to pay for it: A 1-cent per kilowatt-hour grid tax will fund the entire grid upgrade.

Roads, bridges, tunnels. We may love big construction projects, but we seem to dislike the maintenance. Most of the transportation grid in the United States is in need of massive repair. It won’t take much to bring it up to standards, but if we want to be competitive with places like Germany and China, we need to commit more to maintenance and to better design.

Smart road grid. Too many of our roadways are dumb. By that I mean not driven by data and lacking in real-time intelligence. You need only sit too long at a red light in the middle of the night to know that our system can be technologically wanting. Road sensors integrated with lights and other signal controls will move traffic around quickly, more efficiently and more safely. This is just as true in urban areas as it is in the suburbs. Sitting at red lights wasting time and money when no one else is coming should be a thing of the past.

How to pay for it: Infrastructure gasoline tax of 5 cents a gallon; usage tolls on roads, ports, bridges and landing slots.

Airports. Older U.S. airports are simply awful, compared with European and Asian facilities. I would say that some U.S. airports look like they are from Third World countries, but I have been in Third World countries, and they eat our lunch in terms of facilities, speed and gleaming cleanliness. Heaven forbid you have to check a bag on a flight into New York City; you can expect to waste 30 to 60 minutes at LaGuardia or JFK.

Ports. We are checking too little of the cargo coming into the United States. Since 9/11, we simply have not upgraded our port security sufficiently, and we remain vulnerable to attack by a dirty bomb or biological weapon. As long as we are discussing security, our chemical plants and petroleum processing centers could use a good security upgrade as well.

Alternative energy. Gains in the basic science of solar energy conversion, battery storage and biofuels have been incremental. The private sector does not have the patience or money for a decade-long research and development program performing research into fundamental sciences. We should be working on a very fundamental level, aiming for the kinds of scientific breakthroughs that create entire new industries.

How to pay for it: License patents to private sector; tax base improvement from new industries.

Our key economic competitors are spending very heavily in all these areas. Since World War II, both Japan and Germany have had ongoing infrastructure programs. If you prefer a different example, look at the Chinese: They are spending trillions to build out their entire nation.

We in the United States are willing to spend trillions in Iraq and trillions more bailing out reckless bankers. But when it comes to the most basic functions of civilization, we skimp on ourselves. Does that make any sense? Why not spend trillions on the national infrastructure, and generate economic gains instead?

Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture.

Failing U.S. infrastructure - The grades from a civil engineers group: Aviation D  Bridges C  Dams D  Drinking water D-  Energy D+  Harzardous waste D  Inland waterways D-  Levees D-  Public Parks and Recreation C- Rail C-   Roads D-  Schools D  Solid Waste C+  Transit D  Wastewater D-