I wanted to follow up on a post of mine from last week regarding infrastructure spending, on which there were a considerable number of good comments.
As I mentioned previously the president is pushing infrastructure spending as part of his job creation plan and Republicans are balking at the idea because of the costs associated with infrastructure spending. The reason the president keeps coming back to infrastructure spending is because it has a good return on investment when compared with other actions the government can take. According to Moody’s the Bush tax cuts return $0.29 per dollar spent, while infrastructure has a return of $1.59 per dollar spent.
The conservative think tank the American Enterprise Institute reported that Americans gained more than $788 billion of economic activity a year from transportation infrastructure while spending only $185 billion a year for that infrastructure.
It should also be noted that the federal and state governments are currently underspending on infrastructure thanks to a poor economy and the belt tightening that has come with it, which is having unintended consequences.
For example, Chicago is leasing out all of their parking meters to an investment group working through Morgan Stanley with a state owned investment arm of Abu Dhabi owning a significant share and possibly a majority stake. To make matters worse, shortly after the sale, the price for parking jumped by as much as 300 %. Additionally the city has had to pay millions of dollars for times when the parking meters were unusable. So while the mayor gets to claim it’s a great deal for the Chicago taxpayers because they get an immediate influx of cash, the reality is that if the city had maintained control of the meters and just changed the rates they could have had a long term return much higher than their one-time deal.
In Virginia, the city of Chesapeake considered closing a bridge because they couldn’t afford to fix it or tear it down. In the end they sold the bridge to a private company which plans on nearly doubling the toll to pay for the fixes.
Perhaps the real problem here is that the government doesn’t charge enough for its services. Take the U.S. Postal Service for example. Data shows that shipping via USPS is significantly cheaper than using UPS or FedEx, regardless of the package. But try and raise the cost of a stamp and people go nuts. Their first reaction is that postal employees are overpaid or this is just another government organization wasting money while completely ignoring the revenue side of things.
We used to take pride in our world-leading infrastructure projects like the Hoover Dam and the Erie Canal but with today’s obsession for austerity and keeping tax rates low, we are not only losing our standing as a country with the greatest infrastructure in the world, we are also losing out on the economic activity that this infrastructure provides.
The reality is that like it or not, infrastructure spending is going to happen, and if Americans aren’t willing to pay for it with taxes then they will pay for it with tolls, which will include a profit margin that the government doesn’t reap. If we are lucky these profits will go to American companies but recent reports suggest other countries like China are interested in investing heavily in American infrastructure. Who would have thought that it would be the communist country making the best use of capitalism? And all at the expense of the American taxpayer.