September 18, 2016

WE ARE ALL NEOCONOMISTS NOW:

If You Build It . . . : Myths and realities about America's infrastructure spending (Edward L. Glaeser, Summer 2016, City Journal)

The progressive romance with infrastructure spending is based on three beliefs. First is that it supercharges economic growth. As President Obama put it in his 2015 State of the Union address: "Twenty-first century businesses need twenty-first century infrastructure." Further, by putting people to work building needed things, infrastructure spending is an ideal government tool for fighting unemployment during recessions. Infrastructure should also be a national responsibility, progressives believe, led by Washington and financed by federal tax revenues.

None of this is right. While infrastructure investment is often needed when cities or regions are already expanding, too often it goes to declining areas that don't require it and winds up having little long-term economic benefit. As for fighting recessions, which require rapid response, it's dauntingly hard in today's regulatory environment to get infrastructure projects under way quickly and wisely. Centralized federal tax funding of these projects makes inefficiencies and waste even likelier, as Washington, driven by political calculations, gives the green light to bridges to nowhere, ill-considered high-speed rail projects, and other boondoggles. America needs an infrastructure renaissance, but we won't get it by the federal government simply writing big checks. A far better model would be for infrastructure to be managed by independent but focused local public and private entities and funded primarily by user fees, not federal tax dollars. [...]

The third prominent infrastructure illusion is that transportation should be a centralized, tax-funded federal responsibility, rather than decentralized, user-fee-funded local responsibility. The most pressing problem with federal infrastructure spending is that it is hard to keep it from going to the wrong places. We seem to have spent more in the places that already had short commutes and less in the places with the most need. Federal transportation spending follows highway-apportionment formulas that have long favored places with lots of land but not so many people. For example, Alaska received $484 million in the 2015 highway-aid apportionment, which included support for metropolitan planning and air-quality improvement. This works out to about $657 for each Alaskan. Massachusetts received $586 billion, which amounts to roughly $87 per person. New York State received $1.62 billion, or $82 per person. Do these spending patterns reflect far greater transportation needs in Alaska than in New York City or Boston? No: the average commute time in Anchorage is 23 minutes, less than the national average, while the averages in Boston and New York are 30 minutes and 36 minutes, respectively.

Alaska's federal highway-aid haul is all too typical, unfortunately. Recovery Act transportation aid was twice as generous, on a per-capita basis, to the ten least dense states than it was to the ten densest states, even though higher-density areas need more expensive infrastructure (retrofitting New York with tunnels and bridges, for example, is far costlier than building in the greenfields of the West). Low-density areas are remarkably well-endowed with senators per capita, of course, and they unsurprisingly get a disproportionate share of spending from any nationwide program. Redirecting tax dollars across jurisdictions is rarely fair--and it isn't right, either, that poorer, lower-density regions should subsidize New York's subway and airports.

Washington's involvement also distorts infrastructure planning by favoring pet projects. The Recovery Act set aside $8 billion for high-speed rail, for instance, despite the fact that such projects would never be appropriate for most of moderate-density America. California was lured down the high-speed hole with Washington support, but many voters now seem to regret that they took the bait. In a 2015 poll, 53 percent of respondents said that they would vote for "a ballot measure ending the High Speed Rail project and spending that money on water storage projects." Only 31 percent said that they would vote against that measure.
Idiosyncratic, foolish projects existed long before the Obama administration. Detroit's infamous People Mover Monorail would never have been built without federal aid. Alaska's $400 million Gravina Island bridge to nowhere was a particularly notorious example of how Congress abuses transportation investment. As the Office of Management and Budget noted, during the Bush years, highway funding was "not based on need or performance and has been heavily earmarked."

The Recovery Act largely left decisions about individual projects to the states, but it required them to move quickly. In some cases, this led to simple maintenance projects, like repaving, which usually make sense. But when it came to larger-scale investments, the push for speed ran the risk of poor planning. The Dulles Corridor Metrorail Project, the costs of which greatly exceed its potential benefits, seems unlikely to have moved ahead without the $900 million in federal assistance that it received in 2009.

Funding infrastructure with general tax revenues removes the discipline that comes when projects need to pay for themselves. If every new road or rail project had to fund itself, the projects that deliver the greatest benefits would be the ones that move ahead. If people are willing to pay to use infrastructure, we can assume that that infrastructure provides social value.

A user-fee approach is also fairer. With general tax financing, every American must pay for new highways in Montana, regardless of whether they drive or have ever been to Montana. It's much fairer for the people who use roads to pay for roads.

User-fee financing is even more attractive because it helps reduce congestion. Building more highways will never decongest America, for counterintuitive behavioral reasons. Economists Gilles Duranton and Matthew Turner have empirically identified the Fundamental Law of Road Congestion, which is that highway miles traveled increase roughly one-for-one with highway miles built. If we build it, people will drive it. The correct fix for crowded roads is to charge people for the social costs of their choices. Singapore instituted congestion pricing in 1975, and now operates state-of-the-art electronic road pricing, with tolls that vary by usage and time of day. London has now had congestion pricing for a decade. Both cities have eased traffic as a result. Yet America still acts as if charging drivers is a crime. For decades, federal rules prevented the levying of tolls on interstate highways. The Obama administration deserves credit for supporting the possibility of tolling the system.

The federal role in transportation should be limited to certain key tasks. Washington can certainly help coordinate local investments to improve the functioning of a national transport network, as it did when building the Eisenhower Interstate Highway System. The federal government should maintain safety and maintenance standards, on the road and in the air, and can nudge localities to maintain their infrastructure. Finally, it can encourage transportation, especially buses, that helps the poor find jobs. But none of this requires a massive national spending spree.

Many tasks of government have nothing in common with private enterprise. Neither our military nor our courts should be in the business of extracting revenues from, respectively, foreign powers or litigants. Aid to the poor and to the elderly is meant to be money-losing. But infrastructure is different and has much more in common with ordinary businesses. After all, infrastructure provides valuable services, the use of which by one individual typically crowds out the use by someone else. E-ZPass technology has made it simple to charge for transportation. Why not, then, establish a business model for transportation infrastructure?

Posted by at September 18, 2016 8:15 AM

  

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