[M II A II R II K]

The American Jobs Plan Will Make Our Infrastructure Crisis Worse


April 12, 2021

By Charles Marohn

Read More: https://www.strongtowns.org/journal/...e-crisis-worse

A decade ago, in the wake of the housing crisis, there was one of those news cycles where seemingly every major outlet ran a story about Chinese “ghost cities”: places that had been fully built only there was nobody living there. I’ll admit being fascinated by these cities full of skyscrapers, parks, transit systems, and all the elements of place, often with pretty good design, that had a surreal vibe because of the lack of humans. Part of the narrative was the gross inefficiency of China’s autocratic system. Only in a country without market feedback mechanisms, one where party bosses and their cronies controlled and directed the country’s capital, would resources be wasted so spectacularly. Or so the story went.

- I read the Fact Sheet for the American Jobs Plan recently released by the White House and found it difficult not to feel depressed by the approach. As advertised, it is bold, but when it comes to spending on infrastructure that boldness lies in its size, not its vision. It reflects the Washington consensus that more roads with more lanes are good, that when we fix bridges we should also expand them, that transit investments should primarily serve auto-based development patterns, and that simply building more is the path to making us richer. In other words: no difficult choices. No meaningful reform. Nothing that is going to substantively change the trajectory of the North American development pattern. — The American Jobs Plan posits a dichotomy between the United States approach to infrastructure and that of the Chinese, setting up our approach as rivalrous to theirs. According to the plan, it will “position the United States to out-compete China.” It will prevent us from “falling behind countries like China.” I find these assertions bizarre. — Ghost cities were a "symptom of the problem" of how the Chinese economy worked, where growth was driven by debt. We're now in a position in the Chinese economy where so much debt has been accumulated in the interest of building an incredible amount of waste, whether it be empty housing, empty factories, infrastructure in cities where the local authorities can never repay it…that sort of model of economic growth cannot continue.

- Chinese leaders are trying to “wean the economy off debt” and “come up with a new driver of growth.” Meanwhile, our leaders are embracing debt throughout all of society for governments, for corporations, and for families and small businesses and the idea that the most important thing we can do right now is to go big on building infrastructure, ignoring how we got to such a massive infrastructure backlog in the first place. I agree that we should be thinking big, and I agree that we are going to have to spend significantly more on infrastructure, but we first need to come to grips with what infrastructure spending is supposed to do. — Create jobs? Yes. Grow the economy? Yes. Add to our overall capacity? Yes. These are the things that economists cite and they are all important, but they are easy. Too easy. So easy that an autocratic government can do it by building ghost cities. So easy that a democratic government can put people to work short-term building frontage roads, interchanges, commuter trains, and big box stores and see gross domestic product increase. None of this is hard. — What is difficult, but what is essential that we do, is make sure these investments are productive. Our investments in infrastructure must be more than a transaction. More than a GDP blip. They actually have to make us better off, creating far more long-term wealth than they create in future obligations.

- The first threshold for a productive investment is that it needs to pay for itself. The revenue the government receives as a result of the investment must cover the cost of the investment, otherwise it’s not an investment. It’s just consumption. That is the first threshold, and the easiest one, yet we rarely meet it. — After generating enough revenue to cover its own cost, an infrastructure investment must then create enough financial productivity to pay for its ongoing operations and maintenance. That is a cost generally born by local communities, so the burden here is even more urgent. If the infrastructure investment does not cross this threshold, it’s a bad investment, and it will make the community poorer, regardless of what it does for GDP and unemployment in the next quarter. — The third threshold is that the infrastructure investment must create enough wealth that can be taxed so as to pay for the eventual rehabilitation or replacement of that infrastructure. In the 2010 stimulus package, my community received millions for a new road. Guess what? That gave us some short-term construction jobs, but now my community has a new overengineered, overbuilt road to maintain. Forever. This is what infrastructure is: a forever obligation. — If an infrastructure investment can meet all three of these thresholds, it still can’t be called an “investment” unless it meets a fourth: It has to create enough wealth, enough ongoing revenue to make our communities more prosperous than they are now.

This is what it means to make a productive investment in infrastructure. With the financial returns from the investment, we:

• Cover the costs of the infrastructure investment,

• Pay for the ongoing operations and maintenance of that infrastructure,

• Create enough wealth to ultimately pay for the rehabilitation and replacement of that infrastructure, and

• Provide a return so that our communities can increase their consumption (i.e., improve their quality of life).

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And is there anyone here in the United States who can honestly evaluate the waste of a Chinese ghost town—a vacant yet fully functional city in a country that nets 8 million new people a year and suggest that somehow the American approach makes more productive use of resources? Surely no one who has been to places like these: