Choices, choices

Much of the ideological debate in the US revolves around the question of size of government.  Size matters, but so do lots of other things.  Let’s take infrastructure.  Here are some data on government spending as a share of GDP:

Singapore:  17.0%

China:  20.8%

Chile 21.1%

Switzerland 32.0%

US 38.9%

Brazil 41.0%

Let’s compare China and Brazil for a moment.  China has lousy infrastructure.  So does Brazil.  But China is rapidly building a first class set of infrastructure, and Brazil decided long ago to put their money into social programs, lavish pensions for public employees, etc.  China’s already ahead of Brazil in infrastructure, and will soon be far ahead.  Brazil is still richer than China, but will soon fall far behind. It’s hard to leave the middle income trap with horrible infrastructure. I added Chile simply for comparison purposes.  Brazil’s level of government spending is high for a Latin American country (Mexico is at 23.7% and Argentina is at 24.7%).

America has decent infrastructure, but I consider it rather poor quality for a country as rich as the US. Why is this?  It’s certainly not because we are a low tax economy.  Switzerland has excellent infrastructure, and universal healthcare and all sorts of other excellent public services, and has a much smaller government than the US.  So does Singapore.  It’s all about where you allocate the money, and how effectively you spend it. America allocates lots of money to social programs, and to national defense.  The money we do put into education, infrastructure, etc, is not spent very effectively.  That’s why even high income tax states like New York and California have such lousy infrastructure (Although California to its credit does have excellent universities).  Even when we try to build high speed rail, we fail. (Or are about to fail, as in California, where the dream of truly high speed rail has already been abandoned.)

America has two political parties:

1.  One is so anti-government that they refuse to do serious thinking about how to make government work.

2.  The other is so pro-government that they refuse to make the tough choices necessary to make government work.

As a result we may increasingly resemble Brazil, not Switzerland.

PS.  Tyler Cowen recently had this to say:

Last night I read the new and excellent Michael Pettis book Avoiding the Fall: China’s Economic Restructuring.  It is the single best treatment I know for understanding the dilemmas of the current Chinese economy and the need for restructuring.  My favorite bits are those comparing the current Chinese economy to the Brazilian growth of the 1960s and 70s, also investment-driven, and lasting longer than most people thought possible, and culminating in the crack-up of the 1980s, which turned out to be a lost decade for Brazil.

In my view the China of 2013 is quite unlike the Brazil of the 1970s, for all sorts of reasons.  One is infrastructure.  Another is education.  Another is culture.  Another is macro policy.  Another is non-commodity trade competitiveness. Brazil never seriously tried to become a developed country. They never really tried to build a developed country infrastructure. China is trying. They certainly may fail, but if they do fail it will almost certainly be for reasons unrelated to Brazil’s failure. China’s not about to stop building high speed rail and put 40% of GDP into things like public employee pensions.

Chinese people don’t make jokes like “China’s the country of the future, and always will be.” They are deeply ashamed of their poverty, and they know how to end it. That’s not a knock on Brazil—in lots of ways I prefer the Brazilian culture. But not for wealth accumulation.

PPS.  China is not a good development model.  Singapore and Hong Kong are much better models.

PPPS.  Here’s some data on infrastructure as a share of GDP:

Screen Shot 2013-07-23 at 7.39.32 PM

 


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55 Responses to “Choices, choices”

  1. Gravatar of TravisV TravisV
    21. October 2013 at 05:48

    Prof. Sumner,

    The premise that the Republican Party is “anti-government” is wrong.

    The Republican Party wants government benefits to flow into the financial, energy, defense, healthcare, agriculture and patent industries.

  2. Gravatar of Morgan Warstler Morgan Warstler
    21. October 2013 at 06:03

    Increasingly, I’ve come to believe the optimal GOP strategy is to become the party of “No Strings.”

    http://www.morganwarstler.com/post/64032782980/there-is-no-reason-for-conflict-in-modern-gop-1

    This is a far more swallowable version of State’s Rights.

    The RNC ought to act like Grover Norquist, and only provide support and funding to candidates who sign a pledge, that they will never vote attach strings to legislation and never vote for any bill that includes earmarks.

    The GOP response on Obamacare, Medicare, Medicaid, Welfare, Infrastructure, etc. is “Sure we can vote for any Federal Program,” but it has to be:

    1. block grants to states
    2. run on open source software

    States working under compact would have software platforms that seamlessly fit together, so smaller poorer states would be able to join the Republic of Texas, or the Totalitarian regime of California, etc.

    DC would die bc the money would not be appropriated there, States would get a pile of money for Obamacare, and if they want to cover massage, or mental health, or abortion, or MRIs, they can decide for themselves.

    This would allow the GOP to field TRUE regional conservatives, without any ideological noise, they would be cheery fighters to ensure their own state could become what the GOP of that state desire.

    You are more electable, bc you are less likely to need to vote NO, if the Federal collected money is going back to your Red State, and it will be free to cut it’s own state taxes if it so chooses.

  3. Gravatar of TravisV TravisV
    21. October 2013 at 06:14

    Ryan Avent fights the good fight against Paul Krugman……

    “Why is the liquidity trap?”

    http://www.economist.com/blogs/freeexchange/2013/10/monetary-policy-2

  4. Gravatar of Vivian Darkbloom Vivian Darkbloom
    21. October 2013 at 06:46

    “Switzerland has excellent infrastructure, and universal healthcare and all sorts of other excellent public services, and has a much smaller government than the US.”

    The remark about “universal healthcare and all sorts of other excellent public services” is potentially misleading. One of the most misunderstood terms in the lexicon is “universal healthcare” which, strictly speaking, is a system in which every citizen is covered by health insurance, public or private, basically because they are required to be insured. Progressives in particular like to point to “universal health care” in Europe and mistakenly think that means a system run by government. That’s hardly the case in most European countries (the UK excepted). Scott’s wording above, unfortunately, could lend itself to this misinterpretation due to the grammatical linkage between “universal healthcare” and “other public services”. In fact, health insurance and care are good examples of “non-public services”. While its citizens are required to be insured, their system is indeed “universal” but that system is largely privately run and financed and consumer driven.

    Per the following, Switzerland’s government(s) spent 2.4 percent of GDP on healthcare in 2011, compared with 7.4 percent in the US (which lacked a “universal health care system”!:

    http://www.forbes.com/sites/theapothecary/2011/04/29/why-switzerland-has-the-worlds-best-health-care-system/

    This is, of course, one of the reasons Switzerland has a “much smaller government than the US” as measured by government expenditures as a percentage of GDP.

  5. Gravatar of mpowell mpowell
    21. October 2013 at 07:26

    I agree that neither political party is an effective advocate of better or more efficient government spending, which is really sad. My impression is that the Republican party used to be a much better advocate for this issue. I also agree with your characterization of the two party’s deficiencies to the degree that one sentence can summarize the situation.

  6. Gravatar of Brian Donohue Brian Donohue
    21. October 2013 at 07:28

    How does Canada do on high-speed rail?

    Yeah, population density.

  7. Gravatar of @YoungEcon @YoungEcon
    21. October 2013 at 07:31

    For the last several years my response to a person asking about my politics has been,

    The Republicans are the party of no ideas and the Democrats are the party of bad ideas.

  8. Gravatar of A.W. Carus A.W. Carus
    21. October 2013 at 07:32

    “In my view the China of 2013 is quite unlike the Brazil of the 1970s, for all sorts of reasons. . . Another is culture.” (Scott Sumner on 21 October)

    “Culture is endogenous.” (Scott Sumner on 2 October)

  9. Gravatar of W. Peden W. Peden
    21. October 2013 at 07:46

    A. W. Carus,

    Not a contradiction: it’s possible to think that Chinese culture is different because of economic differences, and that this has a major impact on their future prospects.

  10. Gravatar of Greg Greg
    21. October 2013 at 07:47

    I find it strange that South Afica has the second highest infrastructure stock as a percentage of GDP. I think of South Africa as being much more like Brazil, i.e. most spending is on social programs and government employee salaries.

  11. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    21. October 2013 at 07:54

    Maybe if we cut out the middle man;

    http://www.seattlepi.com/local/article/Tax-preparer-who-bilked-IRS-out-of-4M-for-poor-4907803.php

    ———–quote———-
    [Cleo] Reed would cast himself as a man who answered a “spiritual calling” to help “he underemployed, disabled, and veterans of this great land” by cheating tax collectors.

    “As I see it, these are real people, doing real work and they should be entitled to the same rights and privileges as every other working American,” the University Place tax preparer said in a letter to the court. “Being the humanitarian that I am, I felt it was my constitutional responsibility to inform the poor and underemployed of their patriotic obligation to report all earned income to the U.S. government.”

    Reed, operator of We B Tax Services and scheduled to be sentenced Friday in U.S. District Court at Tacoma, went on to give himself credit for helping others pay their child support and debts, and for stimulating the economy.

    Charged in June, Reed was caught in a sting in 2010 after the IRS noticed he was filing unusually large numbers of tax returns that included claims for payment under a tax credit targeted at low-wage workers with children.
    ————endquote———–

  12. Gravatar of John John
    21. October 2013 at 07:57

    The only way to make government “work” is to make it smaller so that they actually have to think about how to get the most bang for their buck instead of throwing money at every single problem a majority of the electorate considers important at any given minute. I still hold to Jefferson’s saying that the government that governs best governs least.

    There are a whole range of government services that could be privatized as well and that would be a big step in the direction of making government work better. The amount of waste caused by traffic jams is mind-boggling and history tells us that private roads are not only possible but better.

  13. Gravatar of John Thacker John Thacker
    21. October 2013 at 08:05

    Also, a point that Scott has made often is that the US government spending includes a tremendous amount of money recycled amongst the middle and upper middle class.

  14. Gravatar of Tom Tom
    21. October 2013 at 08:51

    I agree that fiscal efficiency is important. But I’m more inclined to view fiscal policy as endogenous to culture, if anything.

    Chinese and Brazilian fiscal choices are the ones you’d expect the Chinese and Brazilians to make. As the US goes through a period of racial polarization (conservative whites vs minorities and socially liberal whites) we shouldn’t be surprised that fiscal policy ends up a politicized mess.

    Of course, there are other factors; culture and ethnic makeup aren’t fate. Ideological backwardness in China, for example, prevented it from leaping forward with the rest of Northeast Asia after WWII.

  15. Gravatar of Mark_H Mark_H
    21. October 2013 at 09:02

    Does that 38.9% figure include tax expenditures? If not, it would be interesting to see them included. I’m sure the figure would be much higher.

  16. Gravatar of Kevin Dick Kevin Dick
    21. October 2013 at 09:26

    I’d be curious to know why you think the US’s infrastructure is in some way lacking given its wealth. What metrics are going into your objective function?

    You mention high-speed rail, but that’s clearly a boondoggle on economic grounds in the US (cost per passenger mile). Our freight rail system is very efficient by world standards (cost per ton mile). Our bridges are better than ever in terms of structural adequacy. It’s hard to know what economic metric to use for highways, but traffic congestion has been the same since 2000.

    Yes, the ASCE says our infrastructure is a D+. But that’s hardly dispositive given the obvious incentives of civil engineers to gauge the need for their services. The WEF rankings are pretty much an opinion poll, but even then the US does well for a country of its geographic size.

    Is there a standard set of infrastructure metrics somewhere? That actually seems like it would be a good data product for someone to provide.

  17. Gravatar of Vivian Darkbloom Vivian Darkbloom
    21. October 2013 at 09:32

    Mark_H,

    I’m sure the figure excludes “tax expenditures”.

    If one’s measure of the size of government is “spending as a percentage of GDP” and if one expects that all “tax expenditures” as defined by the JCT constitute “spending”, then it would add about 8.6 percent per a 2008 study by Edward Kleinbard.

    http://taxvox.taxpolicycenter.org/2009/09/15/big-government-much-bigger-than-you-think/

    Personally, I don’t buy the argument that everything the JCT defines as a “tax expenditure” constitutes “spending” but some clearly are, such as refundable credits. But, is “accelerated” depreciation? A 15 percent rate on dividends to partially alleviate double taxation? The “base case” is from a “normal tax system” as defined by the JCT (or Treasury) and the distinctions are often quite arbitrary and have become highly politicized as well. If the government took all our money and turned around and wrote us checks for exactly the same amount as our tax bill, we’d be spending about 100 percent of GDP! That said, tax expenditures that truly do constitute spending would add to the number Sumner cited. Other countries have “tax expenditures”, too.

  18. Gravatar of Vivian Darkbloom Vivian Darkbloom
    21. October 2013 at 09:47

    Another thought on the tax expenditure issue:

    On the revenue side of the ledger, statistics *never* to my knowledge, include tax revenues before “tax expenditures” are taken into account. Tax revenues as a percentage of GDP are always the “net” amount collected. Yet, when it comes to “spending”, one often hears the argument that spending should include those “foregone” tax revenues. If one follows this inconsistent approach, the books would never balance (even with an accounting entry for a *real* deficit). Consider the extreme example above. Assume “income” and “GDP” are the same amount of $100 and the total government “collection” of “tax” is $100 and it turns around and “spends” $100 on “tax expenditures”. Under this inconsistent “tax expenditure accounting”, we’d be hearing about tax revenues equalling 0 percent of GDP and spending equalling 100 percent.

  19. Gravatar of Tom Tom
    21. October 2013 at 10:08

    I think if you ask any liberal if they would trade the governmental policy of the US for the governmental policy of Switzerland, the answer would be a resounding yes.

    And with the utter disaster the replacement of defined benefit pensions with 401k’s has been, Republicans should be thanking their lucky stars for Social Security.

  20. Gravatar of ChargerCarl ChargerCarl
    21. October 2013 at 10:33

    Kevin you said:

    “You mention high-speed rail, but that’s clearly a boondoggle on economic grounds in the US (cost per passenger mile).”

    Isn’t that the reason why our infrastructure sucks? In Europe and Japan the costs are much lower, so more and better infrastructure gets built.

  21. Gravatar of ChargerCarl ChargerCarl
    21. October 2013 at 10:41

    And of course traffic congestion hasn’t increased since 2000, Americans are driving less and less:

    http://cdn.static-economist.com/sites/default/files/imagecache/290-width/images/print-edition/20120922_FBC127.png

  22. Gravatar of Tom Tom
    21. October 2013 at 10:44

    And why does it always seem Republicans sole mission is take away “free stuff” from the poor?

    “Big Government” is constantly redistributing wealth from the poor to give to the rich and we don’t hear a peep from the Republicans about it. Take Optometrists for example. How much money has been redistributed from the poor to them because of ridiculous licensing requirements. I mean really, do we need 8 years of schooling so that an eye “doctor” can have you read a chart and say you need glasses? And then, of course, you need a prescription to get the darn glasses. Let’s see the Republicans take on those big government issues.

  23. Gravatar of Edward Edward
    21. October 2013 at 10:58

    Tom,
    Exactly!

    Things like this are why I stopped being a Republican

  24. Gravatar of Kevin Dick Kevin Dick
    21. October 2013 at 11:00

    @ChargerCarl. You should look up the costs per passenger mile in the France and Japan. I believe France is highly subsidized. I don’t know about Japan. But Japan’s geographic and population topology is much different than ours.

    And the fact that our freight rail costs are among the lowest in the world seems pretty suggestive that it’s not an infrastructure issue.

  25. Gravatar of Jim Glass Jim Glass
    21. October 2013 at 11:13

    >And why does it always seem Republicans sole mission is take away “free stuff” from the poor?

    Who is the Democrats’ dominant mission insisting on transferring mass amounts from the poor to the rich?

    When Warren Buffett said on Charlie Rose that he favored a (very small) income tax increase, he also held up his tax return and said “The government is paying me Social Security benefits, plus Medicare expenses that I don’t even have to report on this return. It is absurd and wrong.” (His employees paying for his benefits through their payroll taxes is *why* his secretary paid a higher tax rate than he did.)

    The left immediately went hog wild with stories “Warren Buffett supports a tax increase!” but didn’t say peep about “Warren Buffett favors means-testing the rich out of Social Security and Medicare benefits”.

    Surely if the Repubs fighting tax increases on the rich is bad, then the Dems supporting tax transfers from the poorer *to* the rich has to be worse!

    No? I mean, how “progressive” is that?

    And we ain’t talking about just a few billionaires here. We are talking about millions of well-off boomers starting to sail off on their yachts, paid for by these subsidies transferred from the poorer.

    That pretty much trumps redistribution to optometrists, IMHO (though I’ve never seen Dems object to that either).

  26. Gravatar of rbl rbl
    21. October 2013 at 11:42

    I’d say that the characterization of the Democrats as “so pro-government that they refuse to make the tough choices necessary to make government work” is about half right. Democrats generally want the government to do more, but they are so scared of being called the party of big governemnt and high taxes that they often make up Rube-Goldbergian legislation with a ton of regulations and loopholes rather than doing the simple, more effective route. For example, cap and trade rather than the simpler and more effective carbon tax, and the ACA with its mandates and subsidies and regulations rather than just universal Medicare/Medicaid eligibility.
    The liberal base is also so tired of the antigovernment wing of the GOP seeming to win that any suggestion that certain regulations are harmful and lead to more rent-seeking than anything else is seen in certain quarters as party treason. I admit as a liberal it is maddening to see people jump on Matt Yglesias whenever he points out that land use and occupational licencing regimes are tools of relatively affluent specialists to extract additional rents.

  27. Gravatar of Jim Glass Jim Glass
    21. October 2013 at 11:49

    Isn’t that the reason why our infrastructure sucks?

    As to the myth peddled by the American Society of Civil Engineers that US infrastructure “sucks”, stakes have been driven into the heart of the thing by, among others, Evan Soltas, Dave Leonhardt in the NY Times, and an ineresting recent podcast by Clifford Winston of Brookings at Econtalk, none of whom are exactly right-wingers. But don’t expect it to die any time soon.

    In Europe and Japan the costs are much lower, so more and better infrastructure gets built.

    No. Winston covers this, pointing out that because populations are much denser in Europe and Japan more passenger rail transportation gets built — but it is hugely expensive, the costs are higher and picked up by taxpayers much more than in the US.

  28. Gravatar of benjamin cole benjamin cole
    21. October 2013 at 12:18

    Singapore: Small government yet 85 percent of population lives in public housing and they have universal health care…how do they do it?

  29. Gravatar of benjamin cole benjamin cole
    21. October 2013 at 12:24

    Morgan: 3.5 million Americans get monthly disability checks from the federal government. The VA, that is. That is four times the number employed by the Defense Department, itself gugantic with more than 700,000 employees.
    Who wants smaller government?

  30. Gravatar of Tom Tom
    21. October 2013 at 12:47

    Jim Glass,

    Dems oppose means testing for 2 reasons. The first is that unless you get much lower down the income scale than people sailing off in their yachts, you just don’t save that much money.

    The second and more important reason is that if you means test, you turn the program into welfare and that of course is the first step to elimination of the program altogether.

  31. Gravatar of rbl rbl
    21. October 2013 at 12:58

    Tom,
    Another reason to oppose overzelous means testing is that it leads to really high effective marginal tax rates on the working poor. If working enough additional hours to make $5000 more per year pretax means that I lose out on $1000 of medicaid benefits then I have an aditional 20% effective tax rate on that income.

  32. Gravatar of Kevin Dick Kevin Dick
    21. October 2013 at 13:08

    Thank you Jim!

  33. Gravatar of rbl rbl
    21. October 2013 at 13:09

    Jared Diamond has a theory that the success of society depends on the elites not being insulated from the consequences of her actions. I suspect this might explain part of why small nations like Luxembourg and Singapore are run so well, because in sufficiently small nation elites can’t really avoid the consequences of her actions by moving elsewhere without expatriating.

  34. Gravatar of Matt C Matt C
    21. October 2013 at 13:55

    I certainly agree with the need to invest in infrastructure. It seems to be a necessary condition to be a developed countries.

    There are some things, however, that stuck out to me about this article.

    1. I think we have to be careful talking about culture. Michael Pettis made a good point in his last book that people used to blame Chinese culture for their existence as a third world country. It was said the Chinese were lazy (the exact opposite of what is said about them today).
    As for the Brazilian quip, I think that is more a sign of frustration with poor policy than anything else.

    2. Professor, would you really call NY’s infrastructure lousy? I mean I guess if we consider the whole state and not only the city we could come to that conclusion, but it seems NYC has an expansive subway system, as well as connecting lines to New Jersey. Also, why did you say California has good schools without saying the same about New York. Columbia, NYU, Cornell, and Fordham are all very well respected.

  35. Gravatar of Brian McElroy Brian McElroy
    21. October 2013 at 16:37

    Scott,

    Switzerland’s GNP is $449.8 billion, the GDP is $632.2 billion. Given the large difference between the two, might it be more appropriate to use government expenditures/GNP?

    That calculation gives you 211.1/449.8 = 46.93%, quite a bit more then 32%.

  36. Gravatar of ChargerCarl ChargerCarl
    21. October 2013 at 16:37

    Jim Glass,

    You’re wrong, infrastructure is indeed much more expensive in the U.S:

    http://www.bloomberg.com/news/2012-08-26/u-s-taxpayers-are-gouged-on-mass-transit-costs.html

  37. Gravatar of ssumner ssumner
    21. October 2013 at 16:38

    Everyone, I agree with many of the comments, both on the right and the left.

    Vivian, Yes, I know all that, and it was exactly my point. If you spend a lot on stuff like healthcare, you won’t have much infrastructure.

    Youngecon, You said;

    “The Republicans are the party of no ideas and the Democrats are the party of bad ideas.”

    Excellent!

    AW, Yes, endogenous, but also somewhat inertial.

    Kevin, When I travel to other developed countries the airports, roads, subways, rail, etc often seems better. But not dramatically. As I said, the US infrastructure is certainly not horrible.

    Tom, In my view defined benefit plans are a disaster and 401ks are a success. Imagine working for a company that goes bankrupt. You lose your job, and your pension. With 401ks you can take your pension with you when you switch jobs. I love my 401k.

    Matt, I agree that we need to be very careful when talking about culture. I often point out that North and South Korea are essentially the same culture, or at least were at one time.

    As for NYC, where do I start. Some roads seem to have more potholes than pavement. And the subway system is little more than a giant sewer with trains running through it. I could write a whole book on my experiences with their subways, and I’ve only taken it maybe 20 times. Perhaps 4 or 5 were an utter fiasco. It must be the worst subway in the world.

    Then there are their 3 airports, all utterly dysfunctional. Perhaps you’ve never visited New York. I agree they have some good universities, I was focusing more on the publicly supplied infrastructure. It’s awful.

  38. Gravatar of ssumner ssumner
    21. October 2013 at 16:42

    Brian, Why is Switzerland’s GNP lower than their GDP. That makes no sense.

    Chargercarl, I agree. In Boston we spent $16 billion building one mile of interstate highway. The high school my daughter attends costs $200 million. The waste is enormous.

  39. Gravatar of ChargerCarl ChargerCarl
    21. October 2013 at 17:13

    Here’s some good comparisons:

    https://pedestrianobservations.wordpress.com/2011/05/16/us-rail-construction-costs/

  40. Gravatar of ChargerCarl ChargerCarl
    21. October 2013 at 18:44

    Our inability to control costs isn’t just limited to infrastructure or healthcare either, it’s also threatening our military superiority:

    https://medium.com/war-is-boring/5c95d45f86a5

  41. Gravatar of A.W. Carus A.W. Carus
    21. October 2013 at 21:59

    “AW, Yes, endogenous, but also somewhat inertial.”

    Perfect! (Was that your basic idea before you turned back to monetary economics?)

  42. Gravatar of Vivian Darkbloom Vivian Darkbloom
    21. October 2013 at 22:57

    “Dems oppose means testing for 2 reasons. The first is that unless you get much lower down the income scale than people sailing off in their yachts, you just don’t save that much money.”

    I doubt many Dems will honestly speak out on this one; however, the above “reason” is rather inconsistent with Dem “thinking”. We could turn that around and say that we won’t “save much money” by taxing people sailing off in their yachts, but that sure doesn’t prevent the Dems from strongly advocating that policy. And, the fact that either policy doesn’t save or raise as much money as we need isn’t per se a reason not to do it. What law of budget arithmetic says that there must be a single policy action to solve the budget problems? What is needed is a basket of policies that add up to what is needed. One could cite a number of other instances in which this fallacious thinking is used to thwart good policy change by using the reasoning “it won’t save much money” or “it won’t solve the entire problem”. The first one that comes to mind is tort reform, particularly as regards to medical malpractice.

    The second reason given is certainly valid.

  43. Gravatar of Jim Glass Jim Glass
    21. October 2013 at 23:29

    Jim Glass, You’re wrong, infrastructure is indeed much more expensive in the U.S.

    (1) Ha! You are telling *me*, a NYCer, that I am being overcharged on that black hole of NYC tax funds since the 1930s (well before physics knew black holes existed) the Second Avenue Subway! Thanks for the news flash! 🙂

    New “mass transit” in the USA is pretty much the definitional example of epic waste. As I am happy to be the first to tell anybody. So why do governments keep pursuing it so…? Instead of the many much more cost efficient alternatives? Hmmmmmmm. However…

    (2) Since when does “mass transit” = “infrastructure”? What about the The US freight railroad system, which is far more important to the economy than mass transit, and is so far ahead of the rest of the world’s that pretty much nobody is in second place. That’s infrastructure too.

    (3) You don’t mean I am wrong, you mean Evan Soltas, Dave Leonhardt and Cliff Winston are wrong. But you are wrong in saying they are wrong, because they debunked the claim that the US has *underinvested* in infrastructure, that the US’s infrastructure “sucks”.

    Well, actually, both Leonhardt and Winston *did* say something about cost — that gov’t infrastructure investments often are costly boondoggles (why Leohhardt’s Times story is headlined “Piling Up Monuments of Waste”) while Winston details how the typical popular mass transit schemes make no sense for US cities, which is *why* they lose epic amounts of money. (A good part of the reason why, with management by politicians compounding that problem. Europe is far ahead of the USA in privatizing transport services. But if you don’t think mass transit is very expensive in Europe and Japan too, you can argue with him about that as well.)

    Winston also makes an important fundamental point almost always missed: One can’t reasonably judge the appropriateness of infrastructure investment until after *prices* are considered.

    E.g., say NYC politicians impose residential rent controls that destroy much housing stock and result in the hoarding of a good deal of the rest of it, as they really do. The resulting housing shortage obviously shows that the city govt invests too little in housing infrastructure. So it then invests billions of dollars in govt-owned housing, as it really does. This housing stock is managed by politicians — so the city govt becomes by far the biggest slumlord in the nation, which it really is. This proves there’s an even *bigger* shortfall in the city govt’s investment in housing infrastructure that must be made up, obviously … right??

    Surely it does, as the politicians all are agreeing here right now in this year’s election campaign. Even more city govt investment in housing is needed! Although other cities that invest zero in housing have no such shortage of investment in housing infrastructure, because they have market prices.

    So maybe “too little” investment in infrastructure can be a sign of *too much*. It all depends on *prices*.

    There is massive govt intervention in the pricing of transport and other infrastructure in the USA, as I’m sure we all realize.

    (Though, interestingly enough, the US freight railroads escaped that intervention through deregulation a generation ago, and since have risen in quality to become the class of the world — somehow, with no such infrastructure shortage or cost-of-infrastructure problems. Go figure.)

    BTW, The Economist last week noted the same thing about China — that “for decades the country has been ruled by engineers, many of them hydraulic engineers (including the previous president, Hu Jintao). Partly as a result, Communist leaders have reacted to water problems by building engineering projects on a mind-boggling scale”, at immense financial and environmental cost “rather than making sensible and eminently doable reforms in pricing”.

  44. Gravatar of gofx gofx
    22. October 2013 at 04:45

    I’m guessing that a higher mix of variable-rate mortgages and the ability to fractionally own real estate (REITS) for 2006 vis-à-vis the 1970s may be factors. Not sure of magnitude.

  45. Gravatar of James in London James in London
    22. October 2013 at 06:30

    There must be some strange accounting in that last table. Italy can’t have that much infrastructure stock relative to GDP. Or, if accounts show it to be the case then you have to somehow measure the productivity of that infrastructure stock.

    Does Italy’s include the value of that built by the ancient Romans, their sewers, acqueducts and roads?

  46. Gravatar of ssumner ssumner
    22. October 2013 at 08:35

    AW, Yes.

    Jim Glass, You said;

    Since when does “mass transit” = “infrastructure”? What about the The US freight railroad system, which is far more important to the economy than mass transit, and is so far ahead of the rest of the world’s that pretty much nobody is in second place. That’s infrastructure too.”

    I should have clarified that I was thinking in terms of public infrastructure. That’s why I started off with G/GDP rations, so show government spending in total. I agree the US has an excellent freight rail system.

    James, I noticed that too.

  47. Gravatar of Augusto Teles Augusto Teles
    22. October 2013 at 08:52

    “They never really tried to build a developed country infrastructure. ”

    I disagree with this statement. Through the military goverment period (60’s, 70’s and early 80’s), there was a lot of efforts to develop the Brazil’s infraestructure. However, the high inflation in the end of the military period and, principally, with the return of the democracy these development plans were set aside. The democracy demanded focus in the social side that really cracked up with the past developments projects.

  48. Gravatar of Floccina Floccina
    22. October 2013 at 10:26

    What is considered infrastructure? The USA Federal Government spends only 4% of its budget on transportation. Is infrastructure much broader than transportation?

  49. Gravatar of Jim Glass Jim Glass
    22. October 2013 at 11:52

    Jim Glass, You said: Since when does “mass transit” = “infrastructure”? … I should have clarified that I was thinking in terms of public infrastructure.

    But this matters. Does the distinction make sense? Winston goes into this. E.g., again, NYC clearly is hugely short of public infrastructure in housing while spending billions on it, while other cities that spend zero on such housing infrastructure have no lack of it at all. Paradox? No.

    Europe is far ahead of the USA in privatizing transport systems (airports, subways, etc.) and as they do their infrastructure shortages evaporate, and become much less costly to close where they exist.

    The US freight rail system is the class of the world and has zero infrastructure shortage. But if it was a monopoly run by Congress as a subsidiary of Amtrak it is easy to suspect that our lying eyes looking at its level of performance would tell us it suffers a massive infrastructure shortage (not unlike the famous example of the NYC subways after the city govt seized control of them from their private operators versus before it did.)

    “Public” versus “private” infrastructure, not such clear-cut categories in my mind.

    (along with no price controls

  50. Gravatar of mbka mbka
    23. October 2013 at 00:22

    James, Scott, re: Italy’s infrastructure.

    Italy has a massive freeway network (privately built, owned, and kept in excellent condition) and dense rail network too (not so pristine but oh well). Both were expensive to build because Italy is quite mountainous. In some areas both train and freeway are exclusively tunnels and bridges, over 100s of kilometers.

    (this just from personal experience, I didn’t try to look up data).

  51. Gravatar of ssumner ssumner
    23. October 2013 at 05:46

    Augusto, I should have been clearer. I meant they did not persist with an effort.

    Floccina, More than transport–water, gas pipes, electric power, etc.

    Jim Glass. Good points.

    mbka, Thanks for that info.

  52. Gravatar of James in london James in london
    23. October 2013 at 12:41

    Not sure about that Italian freeway being in “excellent condition”. Been round Rome or Naples recently?

    Am wondering whether the towering Japanese figure is actually a monument to twenty years of failed fiscal stimulus? All those bridges to nowhere and empty bullet trains coming up against zero nominal GDP growth.

  53. Gravatar of mbka mbka
    23. October 2013 at 21:20

    James,
    the ring connectors around large cities may be public and not so great – haven’t been to Rome in the last decade. The intercity freeways are private (toll roads) and spotless even down to Rome. I drive through Italy on occasion since the 1980s and the Italian intercity freeways (which are private) tend to be in better shape, and repaired more frequently, than say in Austria or Germany (where they’re public). Gross generalization of course. Same btw goes for France: private intercity freeways, and they often look so new as if they were built yesterday. Private enterprise, when it is allowed to exist, works in Europe too.

  54. Gravatar of xtophr xtophr
    10. November 2013 at 05:40

    @Matt C
    NYU, Cornell, Columbia, and Fordham are all private. California has an excellent public university system (two actually: UC and CSU.)

  55. Gravatar of Browsing Catharsis – 10.22.13 | Increasing Marginal Utility Browsing Catharsis – 10.22.13 | Increasing Marginal Utility
    21. February 2015 at 19:31

    […] -Scott Sumner, “Choices, Choices.” […]

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