Last Tuesday, Americans elected Donald Trump the next president of the United States. While it’s not clear what’s in store for the economy under a Trump administration, one thing is certain: The commander-in-chief has promised a large package of infrastructure spending.
On the campaign trail, Democratic candidate Hillary Clinton had also promised to invest in infrastructure — with a plan to spend $275 billion over five years. Not to be outdone, Trump said he wanted to double the amount of infrastructure spending proposed by his Democratic opponent.
Why the bipartisan interest in infrastructure? For one, we have failed to address it in the past. According to William Galston in the Wall Street Journal, “Over the past three decades, America has systematically underinvested in infrastructure by about 1 percent of GDP each year, resulting in a shortfall of trillions of dollars.”
As a result, we are a nation of bridges, roads and airports that the American Society of Civil Engineers gives an overall grade of D+. Despite ranking third on the World Economic Forum’s Global Competitiveness Index, the United States ranks 11th on infrastructure. In 2013, the American Society of Civil Engineers estimated that the United States needed to invest $3.6 trillion by 2020.
The timing of these demands may not be bad, given today’s tantalizingly low interest rates. U.S. 10-year Treasury bonds are yielding less than 2 percent. At some point, rates will rise, resulting in the need to pay more interest on borrowed money. But financial costs are not the only consideration. As Philip K. Howard writes in the Fiscal Times, “Delays due to infrastructure bottlenecks cost about $200 billion per year on railroads, $50 billion per year on roads and $33 billion on inland waterways.” Not fixing crucial conduits of commerce exacerbates everyday inefficiencies.
The benefits from investing in infrastructure would be numerous. First, it could give the economy a much needed and almost immediate boost during a time of stubbornly low growth. According to one paper, “In the short-run, a dollar spent on infrastructure construction produces roughly double the initial spending in ultimate economic output.” Infrastructure investment could also boost long-term growth. Over 20 years, the authors of that paper note, every $1 spent on infrastructure can generate $3.20 worth of economic activity. And investing dollars in this way could “boost GDP by about 1.3 percent” and create 1.5 million jobs, according to McKinsey.
A second, less-discussed benefit of investing in our physical infrastructure is it would likely help fight climate change. According to a report summarized in the Guardian, “60% of the world’s greenhouse gases are associated with ageing power plants, roads, buildings, sanitation and other structures.” This means that investing in clean energy and improving our transport system might have a needle-moving impact on the challenges of climate change.
It sure sounds like spending on infrastructure is a no-brainer, right? Not so fast.
For one, as Politico’s Danny Vinik points out, there are already widespread labor shortages in the construction industry, so a wave of new projects might simply shuffle resources rather than generate net new economic activity. According to the National Association of Homebuilders, the U.S. currently has 200,000 unfilled construction jobs. A survey conducted by the Associated General Contractors of America found that 69 percent of contractors were “having difficulty filling hourly craft positions.” And imposing new demands on a tight labor market may generate higher wages and stoke inflation, disproportionately affecting small and medium-sized businesses.
Another limitation is the massive challenge of actually implementing infrastructure investments. Many projects funded by the 2009 stimulus package took much longer to get off the ground than anticipated. As President Obama admitted, “there’s no such thing as shovel-ready projects.” Of course, this is not an argument against pursuing them, but it probably does limit the speed at which these projects will impact the economy. Notable exceptions, Larry Summers points out, include deferred maintenance projects, which “do not require extensive planning or regulatory approvals.”
Regardless of the difficulties, however, there is no doubt that the United States is in massive need of infrastructure investment. One barrier to making it happen, notes comedian John Oliver, is that it’s not “sexy.” As he points out, millions of us head to the movie theaters each summer to see movies that depict “our infrastructure threatened by terrorists or aliens.” But, Oliver adds, “we should care just as much when it’s under threat from the inevitable passage of time. The problem is, nobody has made a blockbuster movie about the importance of routine maintenance and repair … Or they hadn’t — until now.” Oliver then presents a movie trailer rendering of what a Hollywood endeavor focused on infrastructure upkeep and investment might look like.
Hollywood blockbuster or not, the infrastructure boom is coming. It won’t solve all of our economic problems, and it may even exacerbate some situations, but it’s needed.
But perhaps the best thing we can all do is to stop thinking about infrastructure investing as an economic tool. Instead, as Roger McNamee of Elevation Partners advises, we need to “start thinking about it as a strategy … economic stimulants produce Bridges to Nowhere. Strategic investment in infrastructure produces a foundation for long-term growth.”