June 11, 2010
Author and co-founder of New America Foundation gives his insights regarding the U.S.'s crumbling infrastructure and provides tangible ways the federal government can address the situation.
If you talk to Michael Lind about infrastructure needs in the U.S., prepare to get the truth, the whole truth, and nothing but the truth. As policy director of the Economic Growth program at the New America Foundation, a nonpartisan research institute that examines aspects of public policy, both foreign and domestic, he focuses much of his efforts on infrastructure as a means for recovery from the financial crisis and as something that can stimulate long-term economic growth. And there are opportunities for growth and improvement, all right, but they may not be the ones you’re accustomed to reading about.
In a recent interview with Practical Welding Today®, Lind shed some light on what he believes to be infrastructure’s top issues and what the federal government needs to do to fund these improvements in an effort to spark economic recovery.
The most pressing issue from an economic point of view is freight and transportation. It’s the container that is coming from Asia or going to Asia or the rest of the world from factories or firms or mines from the U.S. If it’s traveling through Chicago, for example, there’s enormous congestion because of their outmoded rail system. In other places the locks on the Mississippi need to be repaired. About one-third of our freight travels by inland waterways like the Mississippi and its tributaries and the Intracoastal Waterway along the East Coast. Again, these haven’t caught the public’s imagination, but if you can shave off time and delay from the transportation of bulk goods—whether it’s silicon chips, grain, or liquefied natural gas—this has enormous potential impact on the economy. This doesn’t get the publicity that mass transit or high-speed passenger rail or some of these other commuting-type infrastructure projects get.
People also are not aware of the extent to which rail and inland waterways work together with trucking and overall freight manufacturing systems. This is one area that is not very glamorous but where investment would have the greatest effect on the economy as a whole. Unfortunately, the high-profile projects tend to be the downtown monorails or high-speed passenger rail, which are of dubious value in most of the country unless you have densely populated regions like the Amtrak corridor.
Ports, harbors, freight rail, inland waterways, and cargo airports—those are arguably more important in terms of generating economic growth than improvements in commuting, although that’s important too. If commuters are stuck in traffic, then they’re wasting time and money.
Financing. The problem with the federal highway tax is it was frozen and Congress has not allowed it to increase with inflation, so it’s actually shrinking in real absolute dollar terms. When it comes to some of these other infrastructural things that don’t pay for themselves, including some of the bridges and mass transit, you need a federal or state investment. The problem is the federal government, unlike the states, does not have a capital budget and does not issue the equivalent of municipal bonds for particular projects.
The two ways to address that would be to create a national infrastructure bank, which the president has supported and many other people support. This involves issuing bonds and then using the proceeds to invest in infrastructure of national significance. The national infrastructure bank [idea] hasn’t gone anywhere, mainly because members of Congress don’t want to give up their control of the process of deciding where projects are.
The alternative method, which is more successful at the moment, consists of federal subsidies for state and local bonds used for infrastructure, and the most important are what’s called Build America Bonds. This is a new category of tax credit bonds that was created in the American Recovery and Reinvestment Act of 2009 in the stimulus bill. Within the last year since it was created, states have issued $70 billion worth of these bonds.
You can do it either way. If the federal government doesn’t create an independent agency, it can authorize municipal bonds to determine these things. Most states have some sort of infrastructure authority and they use bond finance. So this Build America Bond approach is the most promising thing in years, in my opinion.
Yes. You want to have the scientists, engineers, and skilled workers to be able to do these things in the U.S. rather than elsewhere. You have to ask yourself, however, if companies are outsourcing because of the lack of skilled workers, or are they using the alleged lack of skilled workers as an excuse? If you look at a lot of outsourcing decisions, they aren’t driven by the lack of engineers or workers in the United States. It’s the fact that they’re getting massive subsidies from China, where China is manipulating its currency. A lot of these other countries are deliberately intervening in the market to lure American-based multinationals.
My other bit of skepticism is when you pay people more, the job becomes more attractive. The U.S. and other developed countries cannot compete with developing countries on the basis of wage costs. We simply can’t as long as we have a minimum wage that’s higher than what workers in a foreign country would make. Therefore, the American industries need to cut costs by other ways. Government can help them cut the taxes they pay and give them property tax relief and things like that, but I don’t think it’s realistic to think that we can compete with other countries, particularly poor countries, on the basis of wages. So the U.S. will have to compete on the basis of technology and quality instead.
In terms of worker shortages, I think one thing the government could do is subsidize training. The industry has to pay wages that will attract people. But if it’s going to do that and attract them from other sectors, it makes much more sense for the government to pay the employer the costs of training the worker rather than having our lottery system that we have now, where it is entirely up to the student or the potential worker to guess whether he or she will have a job in a particular sector, let’s say welding, 10 or 20 years from now.
Germany, which was just recently replaced by China as the world’s largest exporter, has a quite different system where their manufacturing industries pool their resources into an apprenticeship system. You go to work for the machine tool industry or the welding industry, for example, and they train you. You don’t have to guess if there might be a job for you after you’ve completed state college or community college training. You actually get the job and then they educate you—so it’s either on-the-job training or it’s paid for. I just think it’s a good idea to learn what they’re doing.
The federal government spent much more as a percentage of GDP on infrastructure from World War II up until the 1970s. You just have these tax revolts, beginning with the Reagan era. We’ve had these permanent deficits because successive governments have cut taxes without cutting spending.
Then there’s this concern that the deficit has been created by cutting taxes. We can’t cut entitlements—and we shouldn’t, in my opinion, other than reining in health cost inflation that affects Medicare—so therefore we cut discretionary spending; even President Obama has proposed this. Well, discretionary spending is infrastructure spending. This has been a problem for 20 or 30 years, and I think it will continue to be a problem. The only way to get around it is bond finance, so that you use bonds, whether they’re federal or state municipal bonds, to finance most infrastructure. The states already do this, so it may just be a matter of using devices like the Build America Bonds to subsidize state bonds.
Generally, you want to use debt finance for programs where the upfront costs are enormously expensive. You purchase an asset which will provide services over many decades, and that’s the perfect definition of most infrastructure. In that sense for a society, infrastructure is what a car or a home is for an individual. It’s an asset that makes sense to pay for, and you pay down the debt in installments over many years. You don’t want to use debt finance for ordinary functions of government. What has happened in the United States since the 1980s is we’ve been using debt finance to fund ordinary functions of government, like wars. So things that should be on a pay-go basis—pay as you go by tax revenues every year—are not paid for because we don’t want to raise the taxes.
The federal government actually lacks the capacity to have a separate equivalent of a municipal bond program that is used only for investment for tangible long-term assets, which most states, counties, and cities have. So the combination of the antiquated nature of the federal government’s way that it finances things and this chronic tax revolt, which is starving the government of revenue even while spending goes up, means that infrastructure is the first thing to be sacrificed whenever there’s concern about the deficit.
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