The US should have crappy infrastructure

I recently did a post over at Econlog that discussed Larry Summers speech on interest rates and bubbles.  (BTW, Ryan Avent did a much better post on the same speech.)  Summers basically claimed that growth is likely to stay low (true), and that this means interest rates are likely to stay low (true), and that the proper response to this situation is not a monetary regime aimed at promoting full employment but rather an expansionary fiscal policy, with lots of new infrastructure being built (doubtful.)  Summers worried that the private sector would respond to low interest rates with wasteful investment.

Matt Yglesias has a couple good posts that indirectly relate to this issue.  One of them begins by discussing a Japanese proposal to built a maglev train from DC to Baltimore at a cost of (don’t laugh) $8 billion:

The only problem is there’s no way you could build a D.C.-Baltimore maglev for that kind of money. New York’s Metropolitan Transportation Authority is building a tunnel that would let Long Island Railroad trains go to Grand Central Station and that costs $8.76 billion. Amtrak wants $7 billion to renovate Union Station. The Silver Line of D.C. Metro going from suburban Virginia to Dulles Airport is costing $6.8 billion.

Now let’s be clear””these civil engineering costs in the United States are totally insane and way out of line with what other developed countries manage to achieve. Reform of the issues at the root of these sky-high costs ought to be a high priority. But the issues appear to me to be fairly deep, tied to the nature of the common law legal system, the craft union tradition in American labor, relatively weak central government, etc. Until something is actually done to fix this stuff, the various versions of maglev dreams are just dreams. Given the actual structure of American civil engineering costs, many fewer projects pass a cost-benefit test than would be true if we had French, Spanish, or Japanese construction costs.

Matt’s right of course, but I’d go a bit further.  In America the GOP is not willing to pay higher taxes to pay for more infrastructure.  But that’s not really the main problem.  Republican Texas builds lots more infrastructure than Democratic California, probably more than even moderate Florida (although I’m not certain on that point.)  Another problem is that Dems aren’t willing to cut social spending on people in order to spend more on infrastructure.  That’s why infrastructure is lousy even in cities where the Dems are basically in charge (New York City, LA, etc.)

But that’s not the entire problem either.  As Matt points out construction costs are much higher in the US.  Not slightly higher, but radically higher.  That means that far fewer infrastructure projects can pass the cost/benefits criterion.  We should build much less infrastructure!  We should have crappy infrastructure.

Now you might say that we should reduce those costs.  Weaken labor unions, reduce environmental regulations that (when combined with common law) leads to NIMBYism.  In other words, we should become more like Texas.

Yes, we could do that.  But we won’t.  The reason I like reading Yglesias much more than Paul Krugman is that Yglesias has a much more nuanced view of the world.  For Krugman everything is black and white.  The evil GOP keeps us away from a Nordic-style social democratic utopia. Yglesias has pretty similar (liberal) policy views to Krugman, but sees (or at least is brave enough to say out loud) that American progressivism itself has lots of contradictions.  Here’s an example from his previous post:

He [Lane Kenworthy] argues against the right’s notion that these policies are unaffordable, saying that broadly higher taxes and then even higher taxes on the highest earners should be compatible with continued economic growth. At a time when more and more left-wing people are inclined to deride welfare state capitalism as “pity-charity liberalism,” Kenworthy also argues against the further-left’s notion that what we actually need is a revival of trade unionism, a rollback of globalization, or much more extensive labor market regulation. In a few brief but forceful sections, Kenworthy also makes the case that progressives need to start caring more about the cost-effectiveness and quality of public services and not simply see things like schools and transit systems as means for creating highly paid public sector employment.

As readers of this blog know, these are exactly my political opinions so it’s no surprise that I loved the book. If you’re interested in reading a fleshed-out, coherent, book-length account of this kind of politics rather than a scatter-shot blog form of it, this is the place to go.

There is, however, an interesting difference in framing here. Kenworthy calls his agenda “social democracy” arguing, roughly that the idea is to bring U.S. public policy closer into line with what’s practiced in social democracy’s traditional Nordic homeland. I think most social democrats would say that what Kenworthy’s pushing here is neoliberalism. Perhaps left-neoliberalism or progressive neoliberalism, but explicitly not social democracy””not an effort to reshape the machinery of capitalism.

Again, this is excellent.  But I also think that Yglesias overstates the ability of the Dems to achieve many policy goals through higher taxes.  There are simply too many internal contradictions.  In Britain the conservatives recently proposed limiting public benefits to no more than the median income.  What could sound fairer!  Surely poor people should not receive more in welfare benefits than the typical person earns from a job!  And yet Labour strongly opposed the initiative. Not surprisingly the public sided with the Conservatives.

In a sense Labour was hoisted on their own petard.  For years the left in America and Britain has been citing completely bogus income inequality data to make policy arguments.  Now the right realized that that same phony data can be used against the left.  In neither America nor Britain is the “median income” actually the income of a typical middle income family.  Not even close.  It’s distorted by the fact that income from students, and retired people with part time jobs are thrown into the mix.  The Conservatives realized that voters would picture typical jobs like cops, nurses, etc, and think welfare recipients were being paid just as much.  Of course most “middle income” jobs pay much more than the median income.

Matt’s posts expose the tension that split the Dems in the 1970s.  During the FDR era the Dems were the workingman’s party.  By the 1960s the working class had become middle class, and the Dems switched to being the party of the poor, and government workers.  The working class then switched and became Reagan voters.  The entire “we are the 99” movement is an attempt to stitch the coalition back together again.  But it will never work because the numbers simply don’t add up. The MTR on top earners in America is already close to 50%, not far from Nordic levels.  The money simply isn’t there unless you go after the middle class, and that would reopen the split that happened in the 1965-1980 era.

Over the next few decades, improvements in technology will reshape the American economy.  That will pose challenges and also present opportunities to both the Dems and the GOP.  Neither party is going anywhere with their current ideology.  The winner will be the one that can harness the technological change for their agenda.  I have no idea which party will succeed.  But I am pretty sure that current members of both parties will fail.  We won’t be Sweden and we won’t be a libertarian utopia. The winners will be in the next generation of policy wonks.

PS.  Here’s another wonderful internal contradictions example.  On the left there are calls for helping college grads with their student loans.  College grads are of course at the top of the income distribution.  Needless to say liberal economists who understand basic logic are appalled by these ideas.  But this is where you end up once you start down the “inequality” road.  Inequality isn’t about inequality, as Robin Hanson might say.



60 Responses to “The US should have crappy infrastructure”

  1. Gravatar of hattip hattip
    8. January 2014 at 09:23

    Let me correct you here: “Dems will not stop buying votes from the lumpen-proletariat they have willfully created for just this purpose.

    Please stop painting the perfidy of the Democrats as “helping people” and the GOP as “greedy”–it is just as absurd as it is intellectually dishonest.

    The only times that the Dems are interested in “infrastructure” is when they want to throw some cash at one of their clients or patrons, in this case the unions.

  2. Gravatar of TravisV TravisV
    8. January 2014 at 09:33

    The fact that commenters here that lean left (like me, Ben Cole and Mark Sadowski) get along so well with people that lean right (like Bonnie Carr, Marcus Nunes and Morgan Warstler) is a huge inspiration to me. In fact, you guys have moved several of my views to the right over the past couple years.

    I do have one question for Bonnie, Marcus and Morgan, though: Prof. Sumner has said several times that he shares the utilitarian values of those on the left (he just thinks they miscalculate costs vs. benefits very very frequently).

    Bonnie, Marcus and Morgan, do y’all also share those utilitarian values?

  3. Gravatar of Brett Brett
    8. January 2014 at 09:54

    This is why the labels “conservative” and “liberal” are so maddening in the US economic context. Stuff like this:

    what we actually need is a revival of trade unionism, a rollback of globalization, or much more extensive labor market regulation.

    is why many Democrats should actually be described as economically conservative, since they’re trying to preserve an older system of rules and privileges against disruption.

    . . . In any case, I’m not convinced that we’ve reached the limit on taxation possibilities for progressive projects. There are other options than increasing the marginal tax rate on income – the US could pass a VAT or national sales tax just like most western European countries. You might even be able to shrink the income tax burden with it and still get the programs you want.

  4. Gravatar of J Mann J Mann
    8. January 2014 at 10:47

    Can I answer, Travis?

    – I think I’m generally utilitarian, in that I generally support policies that would pass Rawl’s veil of ignorance test. I believe that from our current position and as a general rule, economic growth tends to be better than regulation or redistribution in the long run under this test, and I’m sceptical about top down solutions from a perspective that probably aligns most closely with Hayek.

    – There are a few beliefs I have that conflict with pure utilitarism on what I suppose must be moral grounds, mostly around the value of liberty as a good in and of itself. So even if our Rawlsian policy selector would choose and be made better off by censorship of disturbing political opinions, I’d probably lean more towards liberty than a pure utilitarian might.

  5. Gravatar of TravisV TravisV
    8. January 2014 at 10:57

    Thanks J Mann!

    Prof. Sumner: “As far as I know I have roughly the same (utilitarian) values as most liberals, and yet I think we would do better with a much smaller government. However I would shrink the government mostly by reducing complexity and regulatory reach; less so on the spending side.”

    Below are some more posts from Prof. Sumner on utilitarianism:

  6. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    8. January 2014 at 11:23

    I can’t help but laugh at people who support Democrats–like Jamie Dimon–and reap the benefits;

    ‘The investigation underscores how J.P. Morgan’s legal headaches are far from over, even as it shells out billions to resolve numerous probes. The largest U.S. bank has agreed to roughly $22 billion in payouts over the last year to end a slew of lawsuits and investigations into many aspects of its business, including the 2012 “London whale” trading debacle and alleged failures to stop Bernard L. Madoff’s massive fraud.

    ‘J.P. Morgan still faces federal probes into alleged manipulation of currency and interest-rate benchmarks, as well as its overseas hiring practices.’

    Remember when Barack was a young Columbia grad with a job working on a bond newsletter, which he describedd as being behind enemy lines, in his autobiography?

  7. Gravatar of JohnB JohnB
    8. January 2014 at 11:36


    What do you think of the idea of moving subsidies away from bad behaviors-single parenthood and unemployment being the two most important–and towards the direction of subsidizing positive behavior? For instance, my idea off the top of my head would be to get rid of the minimum wage but pay anyone who can prove that they work 35 hours per week enough to bring their average income up to $45,000 a year or some figure like that. Another example would be a lump sum (say $20,000) to people who got married and had a kid plus another lump sum (say $50,000) to those who stayed married until the kid turned at least 18. Obviously, I haven’t thought through all the details but what do you think of the general idea?

  8. Gravatar of Matt Matt
    8. January 2014 at 11:40

    Scott, a quick google search says that America collects 25% GDP per capita whereas Nordic Countries collect about 40. Are these numbers an accurate measure and do you think it is not feasible to get to around 40%?

  9. Gravatar of o. nate o. nate
    8. January 2014 at 11:46

    Some interesting points, but also a lot of questionable assertions, especially when it comes to the crystal-ball predictions. GOP the party of the “working class”? Maybe of the white working class. But unfortunately for the GOP that slice of the pie is shrinking. Also, Yglesia’s views seem pretty mainstream Dem, about as moderate as Obama himself, I’d say. The “further left” view he opposes himself to is a bit of a strawman. This also conveniently overlooks the fact that the “further right” segment of the GOP is much, much more influential on that side of the aisle than the “further left” group is on its side. So I’d definitely give the advantage to the Dems if they play their cards right, since they seem to be currently the more reality-based of the two parties.

  10. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    8. January 2014 at 12:02

    Over a century ago, NYC finally allowed a profit-seeking businessman (August Belmont) drill a tunnel under the city for a subway. Which he did sucessfully with 19th century technology.


  11. Gravatar of TallDave TallDave
    8. January 2014 at 12:13

    I remember a while back at Megan’s we found that the environmental impact studies on expanding the Tappan Zee bridge actually cost more in real dollars than the original Tappan Zee cost to build.

  12. Gravatar of Doug M Doug M
    8. January 2014 at 12:15

    Why is infrastructure always “crumbling”?

    Why do politicians suggest that we have been neglecting to maintain our infrastructure, when infrastructure investment as a share of GDP has held fairly constant?

    a couple of local anecdotes….

    In 1989 the Bay Bridge was damaged in an earthquake. The bridge was 53 years old at the time. The damaged section was repaired. The Bridge was retrofitted such that it would not be similarly damaged in another quake. Plans were created to replace the span that was damaged (and repaired, and retrofitted). These plans were endlessly debated, in 2002 a plan was accepted, and proposed and funded at a $1 billion budget. The final cost was $6.5 billion, and the final completion was 2013…11 years construction time, 24 years end to end.

    The original bridge (only half the bridge was replaced) was built in 3 years at a cost of $77 million ($1.4 billion current).

    Now the state is trying to sell us on high-speed rail. The voter approved a project at a slightly less than $10 billion cost. 5 years later, nothing has been build, but current estimates for the project are at $160 billion and 2029 completion.

    And what for? to compete with a $100 round-trip air fare for an equivalent flight…

    These anecdotes make me feel like we just can’t pull-off big projects any more.

  13. Gravatar of J Mann J Mann
    8. January 2014 at 12:51

    Doug M writes “Why is infrastructure always ‘crumbling’?”


    Now if only the GMO opponents would allow my plan for a self sustaining species of transport nano-creatures, the infrastructure could be evolving as we speak, fed by nothing but sunlight and possibly the bodies of people who throw lit cigaretes out of cars.

  14. Gravatar of Adam Adam
    8. January 2014 at 13:27

    Is there data on why infrastructure costs so much more here? Does Japan really pay a lot less for labor (seems unlikely)? Do they really pay less attention to protecting the environment (also seems unlikely)?

    Or is the real challenge the cost of getting the land needed? Not that it necessarily can be changed either, but it would still be interesting to see the drivers of differential costs.

    As for Dem controlled areas and the quality of their infrastructure, Portland seems to be doing pretty well. For their faults (mostly related to age), Chicago’s and New York’s rail systems work pretty well. One might argue that the real problem was the half decade reign of the car, the road building for which sucked up a huge portion of infrastructure spending that we’re only starting to revise our thinking about.

  15. Gravatar of benjamin cole benjamin cole
    8. January 2014 at 13:32

    I didn’t know that I lean left!
    True, I would cut national security outlays in half but also SSDI.
    Is being for Market Monetarism leftist?
    The price signal fails when it comes to pollution…that is classic economics.
    I will admit I like good public schools and libraries. And national parks.
    Maybe I am lefty-ish!

  16. Gravatar of Gordon Gordon
    8. January 2014 at 13:45

    Scott, maybe the next book you write should be about economics and public policy in the U.S. I remember you said you were having issues with the publishers of the current book you’re trying to release. Hopefully, that doesn’t sour you on future book writing. Or maybe you could go the self-publishing route as I believe that Amazon has mechanisms that make it easy to sell self-published e-books.

  17. Gravatar of Floccina Floccina
    8. January 2014 at 14:09

    BTW: Transportation is less than 4% of the federal budget.

  18. Gravatar of Benny Lava Benny Lava
    8. January 2014 at 15:18

    I’d say that it is true that America will not necessarily become more liberal or more conservative. However I suspect that spending is constrained by demographics. Once the baby boomers die of in 20-30 years the country will start spending again because it won’t be constrained with all those pensions.

    I tend to think of identifying with liberal or conservative labels as soft minded. Just look at politics in America and see those liberals in big cities fighting against the labor unions to cut pensions. Or all those conservatives fighting against businesses over immigration.

  19. Gravatar of JohnB JohnB
    8. January 2014 at 15:18

    Ben Cole,

    It isn’t the price signal that fails when it comes to pollution, it is the laws defining property rights that have failed. English and American law makers in the 1800s and into the mid-1900s decided to prioritize industrialization over property rights by tolerating pollution and refusing to award damages except for grievous violations. It was a problem of cronyism rather than the market.

    In a market with defined property rights, companies emitting harmful chemicals would have to face class action suits in situations where those chemicals cause demonstrable harm. This would put pressure on businesses to invent and use less polluting technologies in order to maximize profits.

    Polluting obviously does diminish the value of property and it is an important part of private property to recognize that. That said, I do think that plaintiffs should have to show actual harm from pollution. You shouldn’t be able to sue GE because you lost your house in a hurricane that you blame on global warming.

  20. Gravatar of JohnB JohnB
    8. January 2014 at 15:24

    Also, good public schools? That’s almost an oxymoron. The only good public schools are ones with rich students and parents. There is no segment of the economy where inequality is worse than in segments completely controlled by the government. People living in poor neighborhoods can buy high quality groceries, food, and cars but have a much tougher time buying a good education from their children or physical safety.

    Ironically, the areas of the economy that the government controls in order to help the poor end up being the ones where the poor get the worst treatment (education and safety). Poor people can and do buy items provided by businesses like clothes and food that are of the same or nearly the same quality as those that rich people buy. I’d be willing to bet that if the government got completely out of the education system you would see much more egalitarian outcomes as well.

  21. Gravatar of ssumner ssumner
    8. January 2014 at 15:46

    JohnB, I don’t consider single parenthood and unemployment to be bad behavior, but I agree that we should stop subsidizing it. I would not subsidize marriage, but of course ending the marriage penalties would help married people, especially poor and rich married people.

    Matt, No, those numbers are not accurate. The figure is higher than 25% in the US. The US could collect more as a share of GDP, probably even more in total. But not by taxing the rich. The European countries do it with huge taxes on gasoline, VAT and other ideas that would split the Dems right down the middle. That was my point. The US could not collect 40% of GDP without seriously damaging the economy, we are nothing like the Nordic countries. If you are going to compare us to the Nordics, why not to Switzerland? If we could get Nordic results with Nordic taxes, why can’t we get Swiss results with Swiss taxes?

    O. Nate, I don’t think I said the GOP is the party of the working class. That’s not my view.

    Yglesias may be as far left as Obama governs, but he’s obviously not as far left as Obama thinks. Yglesias is basically a neoliberal.

    It makes no sense to talk about one party winning and the other losing. In the 21st century each party will win about 1/2 of the elections, just as in the 20th century. That’s how 2 party systems are structured. The only interesting issue is what will the parties believe. The views on various issues have flipped quite often over the course of American history, and will do so again. It’s very possible that in 50 years the GOP will favor more social spending and legalized abortion, and the Dems will oppose.

    I agree that the GOP is more incompetent at the moment.

    Doug, Good example.

    Adam, NYC subways, roads and airports are some of the worst I have seen anywhere in the developed world. Chicago’s not that great either.

    Gordon, We’ll see.

    Benny, I hate to disappoint you, but very few boomers have retired yet. It will get much worse before it gets better. You better hope that technological improvements allow us to build infrastructure much more cheaply.

  22. Gravatar of Doug M Doug M
    8. January 2014 at 15:50


    Why does it cost so much to build infrastructure in the US?

    My hunch is that it stems from so much of or our regulatory regime being based on litigation. The EPA doesn’t make a top-down ruling on the environmental impact, then decide whether proceed or not proceed based on a cost benefit analysis. Instead, anybody can sue. And, anyone can delay a project nearly indefinitely. Construction delays are costly in themselves, as there are people being paid to not work. And, there are lawyers being paid litigate. This can also lead to a variety of kick-backs to various special interests to get a project off-the-ground.

    I have heard people blame Davis Bacon for our high infrastructure costs, but I don’t really think that the union wage is the culprit. It can to some perverse things, though. Davis-Bacon says that on all public projects the state must pay the “prevailing wage.” The prevailing wage is set by the unions. If you are building a bridge across, say, the Ohio River, the workers on the Kentucky side of the project are paid substantially less than the workers on the Ohio side of the river.

  23. Gravatar of TravisV TravisV
    8. January 2014 at 16:51

    “There’s A Huge Bullish Story On Energy And The Economy And It’s Sitting Right Below The Radar”

    Read more:

  24. Gravatar of Mike Sax Mike Sax
    8. January 2014 at 17:17

    “On the left there are calls for helping college grads with their student loans. College grads are of course at the top of the income distribution.”

    If you got a student loan how does this mean you’re at the top of income distribution? If you were you wouldn’t have needed a loan. I honestly have no idea where you get this claim from. I have six figures of student loans and am certainly not rich. Are you assuming that college grads all have rich parents?

    Today college is not just for the rich. Everyone goes to college as it’s believed you have to to get a decent job. Yet, many after getting out of college don’t get the job the college assured them they’d get-so they have no income or low income and they owe 6 figures.

    One market reform I’d agree with is for the govt to stop subsidizing student loans-why are these the only loans in the country that the creditor is guaranteed to recover in full?

  25. Gravatar of Morgan Warstler Morgan Warstler
    8. January 2014 at 17:42

    Travis, I’m “pragmatic” – and what that means is I have two competing wants:

    1. I have very strong “radical” absolutes that anchor my beliefs. Money isn’t a tool of the state. All growth apart from population comes from real productivity gains. Atomic property rights exist by personal force alone. Digital property rights (enforced by government) do not / cannot exist. The top 1/3 are always in charge.

    2. I also want talkers to please just shut up and do something. I like trial and error, I’m a A/B testing junk mailer at heart. I look at the talkosphere and find it very telling that most people who talk for a living, don’t want to split the country up into 50 little test beds and see WTF works.

    A lot of these terms are too gooey, and I love debate where all terms don’t float around…

    And Scott or you may disagree, but I view pragmatism as the rational choice of radical ideologues, because of #2. I crave seeing new memes / policies fly. Only invention solves.

    Right now, in libertarian circles you get a lot of the destinationists vs directionalist yammering, and frankly I think people who won’t make small incremental policy changes towards reducing the absolute size (staff) of government to be vanilla milquetoast lightweights, no matter how aggressive they talk in moral absolutes.

    It’s the same problem I have with all ideologues (talkers), we all sit around saying “man if only we had a prediction market!” “then people could bet money and see what they really believe!”

    That’s nice. We don’t need that. We can tell who REALLY BELIEVES in the ideas simply based on whether they will let Texas be Texas, so that NYC can be NYC.

    I suspect Scott’s a normal pragmatist. I consider myself to be one only because I want to find out who is really is right.

  26. Gravatar of Saturos Saturos
    8. January 2014 at 17:49

    “In Britain the conservatives recently proposed limiting public benefits to no more than the median income. What could sound fairer!”

    Well, whom would such a cap on benefits actually be binding upon? The severely disabled, whom you could argue deserve to receive more money than the average worker, as social insurance for their extraordinary plight?

    I find your posts on the income inequality data to be more coherent than anything else I’ve read on the web; perhaps you could eventually put out another paper for Mercatus on this topic? Especially now that (according to Lars Christensen) the task of market monetarism is less urgent in 2014…

  27. Gravatar of Steve Steve
    8. January 2014 at 18:26

    “The money simply isn’t there unless you go after the middle class, and that would reopen the split that happened in the 1965-1980 era.”

    Welcome to Obamacare.

  28. Gravatar of Jim Glass Jim Glass
    8. January 2014 at 19:44

    The basic premise is faulty, in that there is nothing particularly wrong with US infrastructure and it is not getting worse. See Evan Soltas, Dave Leonhardt in the NY Times, and an interesting podcast by Clifford Winston of Brookings at Econtalk — none of whom are exactly right-wingers. (Winston also offers some interesting insights on oft-repeated meme that infrastructure is so much more expensive in the US elsewhere … well, maybe not so much after all. Never trust Yglesias on anything — he’s the master of passing on the superficially attractive but unexamined notion, from the magical benefits of land tax on. If one must trust, verify.)

    The rotting US infrasructure meme is a political red herring invoked over and over to justify pork and change the political discussion topic of the moment. (Not unlike the recent sudden resurrection of great interest in some other perennial topics I could mention.)

    But beyond that, I agree completely with the larger point of this essay, that “Yglesias overstates the ability of the Dems to achieve many policy goals through higher taxes” (that’s the way to see through that guy!) and “Dems aren’t willing to cut social spending on people” to do it either.

    People on the left everywhere right now are hailing the election of DeBlasio (and his cohort of neo-socialists) as the model of a new liberalism nationwide that will fight a true war on income inequality by “sticking it to the rich”.

    But Russ Douthat had a fine column in the NY Times yesterday, (The Contradictions of Liberal Populism”) saying “look closer”: DeBlasio promised to fund his big war on income inequality by taxing only those who make more than $500,000* annually — after Obama increased *his* definition of the rich in his tax-the-rich policies from those making over $250,000 to those making over $400,000, when he and the Dems made 99% of the Bush tax cuts permanent. (And then headed back to the likes of the minimum wage and midnight basketball to address the issue.)

  29. Gravatar of ssumner ssumner
    8. January 2014 at 20:11

    I’ll take most of the comments tomorrow,

    However, Jim, I said crappy not rotting. The NYC subways and airports work, but no one can deny they are much worse than similar infrastructure in other leading cities around the world. I agree the collapsing bridge stuff is overdone.

  30. Gravatar of Jim Glass Jim Glass
    8. January 2014 at 20:23

    However, Jim, I said crappy not rotting. The NYC subways…

    It’s a big country. Why do you keep picking on NYC? You are going to hurt my feelings.

  31. Gravatar of Jim Glass Jim Glass
    8. January 2014 at 20:28

    @ Mike Sax

    “On the left there are calls for helping college grads with their student loans. College grads are of course at the top of the income distribution.”

    If you got a student loan how does this mean you’re at the top of income distribution? If you were you wouldn’t have needed a loan. I honestly have no idea where you get this claim from.

    You have no idea that college graduates are far up on the income scale above the rest of the world of not-college graduates? Where have you been residing after leaving us all behind here?

    I have six figures of student loans and am certainly not rich. Today college is not just for the rich. Everyone goes to college

    No, they do not. How Pauline Kael-like. Just because everyone you know goes to college does not mean everyone goes to college. Check the numbers.

    And you illustrate — personify — the larger point about the Dems’ problem perfectly! “We are not rich. No matter how far above average our income is, people like us are not rich. ‘The rich’ are those **richer than us**. Tax *them*! They are the ones causing all the inequality!”

    Which is why DeBlasio and his self-proclaimed neo-socialists who just took over the government here in NYC have promised to fund their “war on income inequality” (so inspiring to liberals across the nation) by taxing only those making over $500,000 annually. And why Obama increased the definition of the rich he wanted to tax from $250,000 annually to $400,000 annually, as he made 98% of the Bush tax cuts permanent — and then turned to fighting income inequality with the mighty weapon of minimum wage.

  32. Gravatar of Saturos Saturos
    8. January 2014 at 20:36

    Shinzo Abe on the Japanese economy:–pay-

  33. Gravatar of Saturos Saturos
    8. January 2014 at 20:46

    Final remarks by Bernanke:

  34. Gravatar of Brett Brett
    8. January 2014 at 20:53


    Is there data on why infrastructure costs so much more here? Does Japan really pay a lot less for labor (seems unlikely)? Do they really pay less attention to protecting the environment (also seems unlikely)?

    This is a pretty good essay from Bloomberg on why US construction costs are so high. It’s a mix of reasons, not surprisingly –

    1. Almost systemically poor management in terms of oversight of contractors, combined with a whole ton of bloat and expenses paid out to consultant after consultant.

    2. Procurement rules that were actually designed to avoid corruption, but which make the planning process byzantine and almost always based on lowest-bidder requirements (even if the bidder has a history of being lousy).

  35. Gravatar of dtoh dtoh
    8. January 2014 at 23:36

    Some random comments.

    1. IMHO, Japan does not have a lot of infrastructure, but a lot of what they have is pretty spiffy and looks quite nice.

    2. If you did a straight comparison of identical private projects, I suspect Japanese construction costs would come out higher, but part of that at least is a difference in quality.

    3. I have an acquaintance who is the number two guy at a major Japanese construction company. He used to run their NYC operations. He would say the issue in NYC is unions and organized crime.

    4. I’m appalled by how crappy a lot of infrastructure is in the US. IMHO, it’s partly due to the fact that Americans are sloppy and partly due to the fact that the governments in the US are pretty incompetent at most things.

    5. I love HSR, but it’s not viable in the US and would be a total debacle.

  36. Gravatar of Ralph Musgrave Ralph Musgrave
    9. January 2014 at 00:07


    Your assumption that higher taxes are needed to pay for more infrastructure is debatable.

    On Summers’s assumption, namely that there is slack in the economy, and that that slack can be taken up by infrastructure spending, no additional taxes are needed. Effectively Uncle Sam just prints dollars and spends the money on infrastructure.

    Of course you could argue that there is a sort of indirect opportunity cost sort of tax. That is, assuming there is slack in the economy then the money spent on infrastructure is money that could have been channelled into households pockets to enable them to buy more consumer items like cars, houses, etc.

    Also the multiplier is relevant. If there is no multiplier from the infrastructure spending, then the above “no additional taxes are needed” point would hold. On the other hand if the multiplier was significant, and government was determined to get the economy up to capacity PURELY VIA infrastructure spending, then the additional potential spending coming from the multiplier would need to be taxed away.

  37. Gravatar of Full Employment Hawj Full Employment Hawj
    9. January 2014 at 00:24

    “if we had French … construction costs”

    That certainly raises doubts that American labor costs are the source of the problem. I do not have data on what French workers in the construction industry are paid, but I would conjecture that the French workers, with their strong labor unions, 6 week paid vacations, and paid maternity and sick leaves cost more than American workers.

  38. Gravatar of Full Employment Hawk Full Employment Hawk
    9. January 2014 at 00:38

    “In America the GOP is not willing to pay higher taxes to pay for more infrastructure.” “Another problem is that Dems aren’t willing to cut social spending on people in order to spend more on infrastructure.”

    So the problem, if we are going to have more spending on infrastructure, is whether the money is going to come from raising taxes on the rich or cutting social spending. So the issue is a question of class warfare. The issue is going to have to be decided by the voters. And everybody has to decide, which side they are you on, the rich or working people and the poor?

  39. Gravatar of nickik nickik
    9. January 2014 at 02:02

    The problem with infrastructure you see in lots of places. I live in Berlin, and here they are trying to build a new airport, and its a debacle of massive scales. People stopped believing that it will ever actually finish. There is talk of just starting new things are so bad.

    I highly doubt that the US pays more because of people or regulation or anything like that. I belief its bad management and cronyism. Government contractors and consonants get fat pockets, lawyers get involved and get fat pockets and so on.

    To improve this you need markets, this is however not directly possible. So lets use the next best thing and simulate some of the features of a market. When a 200 million dollar production bombs in Hollywood the heads roll. Why does this not happen in government? Why does no one even bat a eye if a project is 500% over? Its almost normal to be 500% over budget. Most people are happy it isn’t 5000% (and that actually happens quite a lot).

    I don’t know the US pays more for infrastructure then Germany or Switzerland but I doubt they pay less. I do however know that Switzerland and Germany generally pay to much.

    These issues can be worked on but it needs relatively radical changed in organization of project like this.

  40. Gravatar of Lorenzo from Oz Lorenzo from Oz
    9. January 2014 at 03:03

    Zoned Zone is likely to be more infrastructure deficient than Flatland. Driving up the price of land increases the cost of infrastructure and reduces the fiscal benefit of creating it.

  41. Gravatar of Lorenzo from Oz Lorenzo from Oz
    9. January 2014 at 03:07

    Texas is Flatland, NYC and LA etc are Zoned Zone.

  42. Gravatar of ssumner ssumner
    9. January 2014 at 05:44

    Mike Sax, You said in reply;

    “On the left there are calls for helping college grads with their student loans. College grads are of course at the top of the income distribution.”

    If you got a student loan how does this mean you’re at the top of income distribution? If you were you wouldn’t have needed a loan. I honestly have no idea where you get this claim from. I have six figures of student loans and am certainly not rich. Are you assuming that college grads all have rich parents?

    Today college is not just for the rich. Everyone goes to college as it’s believed you have to to get a decent job.”

    Most Americans are not college grads, and thanks for proving my point that ordinary liberals and economists who understand logic look at this issue quite differently.

    Saturos, When you add the cost of Medicaid, housing subsidies, food stamps, welfare, etc, it can really add up. And Britain has even more generous programs than the US.

    Jim, I think our roads are worse than in many other developed countries, all throughout the US. They are more full of potholes.

    Saturos, The wage push is silly, hope it’s just smoke and mirrors.

    dtoh, The data shows that Japan has far more infrastructure, FWIW.

    I agree with most of your observations.

    Ralph, You said:

    “Your assumption that higher taxes are needed to pay for more infrastructure is debatable.”

    That’s my assumption only if the Dems refuse to switch money over from social spending. The Singapore case shows you can have low taxes and good infrastructure.

    FEH, You said;

    “So the problem, if we are going to have more spending on infrastructure, is whether the money is going to come from raising taxes on the rich or cutting social spending.”

    No, the extra money will have to come from the middle class (as in Europe) not the rich.

    Lorenzo, I agree.

  43. Gravatar of JJriverrun JJriverrun
    9. January 2014 at 06:15

    Avent has a new post on national vs global inequality.

    Would love to see a follow up post.

  44. Gravatar of Dan W. Dan W.
    9. January 2014 at 06:28


    We may not agree about money but we agree on politics. As you wrote: “Neither party is going anywhere with their current ideology.”

    Urban US infrastructure is crappy. It is rotting and while somewhat functional it is not anything for a 1st world nation to be proud of.

    On the other hand the US takes care of its poor better than any other nation on earth. Put another way, there are a lot of people in America who would be living in abject poverty if not for the abundant income transfers they receive. Through this redistribution America’s poor have the opportunity to be educated, to have health care, to live in adequate housing and to enjoy all the technology the middle class has (ie cell phones, cable TV & the Internet).

    This quality of care costs a lot of money. Building and maintaining efficient transportation systems costs lots of money. Politically, there is not enough money to do both and the current arrangement is the compromise. I don’t think it is a very stable one either.

  45. Gravatar of dtoh dtoh
    9. January 2014 at 07:07

    Be interested in seeing how and what they measure.

  46. Gravatar of Floccina Floccina
    9. January 2014 at 07:26

    Our infrastructure is in pretty good shape seehere.

    And BTW shouldn’t we raise the gasoline tax and airport fees, train ticket prices etc. to fund more infrastructure?

  47. Gravatar of SG SG
    9. January 2014 at 07:52

    Scott, I assume you’ve seen Noah’s latest on the great 2013 non-test of market monetarism.

    Noah, predictibly, takes a “we can know nothing from this” view of the economic data from 2013. I disagree, and I believe this ignores the fact that the failure of job growth to crater falsifies the Keynsian argument that we are in a liquidity trap and monetary policy cannot offset fiscal policy.

    Krugman’s counterargument- that increased household spending and a rising housing market have offset the fiscal stimulus without any help from the fed- is bogus, and I think you should hammer this home. Market monetarists claim that monetary policy can and does offset fiscal policy, especially contractionary fiscal policy. Obviously the growth has to come from somewhere, and housing/ personal consumption seems like a pretty plausible source. In other words, Krugman is taking the very thing that Market Monetarists would expect to happen as a result of monetary offset and trying to spin it as a reason for why monetary offset never took place.

  48. Gravatar of TravisV TravisV
    9. January 2014 at 09:31

    Morgan Warstler,

    Thanks for the thoughtful reply!

    I’m a huge fan of yours (along with Bonnie and Marcus Nunes). Like I said, the fact that such a diversity of viewpoints can find common ground here is a huge inspiration to me!

  49. Gravatar of Dan W. Dan W.
    9. January 2014 at 11:38


    Did Charles Lane’s travels take him across the George Washington Bridge? Or did he take Amtrack on a cold, snowy night? The ability for people and freight to cross America is an engineering accomplishment. But the inability for people to travel between Washington & Boston without risking huge delays is an infrastructure failure.

    Gov. Christie’s Bridgegate is a topical reminder of how poorly NYC highways are handling growing traffic demand. The Cross Bronx Expressway (I-95), of which the George Washington Bridge is one end, is renowned for being one of the most congested roadways in America. Traffic demand certainly exists to expand it. But the political will does not.

  50. Gravatar of Adam Adam
    9. January 2014 at 11:53

    The main reason the NY subway is not as nice as many of the leading cities of the world is that it’s old. The similarly aged parts of the London Tube (I’m thinking specifically the District and Circle lines) are actually worse (i.e., no AC).

    The Paris system seems like it would be similarly aged, and I’d rate it better than NYC, but not by that much. Both systems are stronger in coverage and usability than a lot of newer systems with which they can’t compete on amenities (e.g., DC).

    I can’t think of any other systems I’ve used that aren’t at minimum 50 years newer, if not 100. I’ve only ridden a few times, so I don’t have a strong view, buy my sense of the U-bahn in Munich is that it’s not meaningfully better despite being much newer.

    I’ll grant you the airports, though. NYC has terrible airports.

  51. Gravatar of Steven Kopits Steven Kopits
    9. January 2014 at 12:51

    Some random comments:

    Spending on infrastructure is really only meaningful if it increases capacity in bottlenecked or under-served area. You can do a cost-benefit analysis sitting in a traffic jam on the Connecticut Turnpike just about any time of day and derive a return on investment there of 25-33%. Now, who’s willing to expand I-95 north from New York City? It’s not a matter of money, but political will.

    On the other hand, re-paving the New Jersey Turnpike, which is already well-paved, has a benefit limited to its impact on transit time and vehicle wear-and-tear. In many cases, the benefit thus defined is marginal. Further, re-paving the Turnpike does not increase GDP; it prevents GDP from going down.

    This is also true, for example, for adding an extra train tunnel from NY to NJ. Sometimes there are delays, but not too often. How much more would I pay than my already pricey $414 monthly pass? Zero. Another tunnel, while it provides some risk insurance and perhaps somewhat shorter rates on some days, probably has very little incremental value to the average commuter. If they want to charge me more, install wifi on the train. That has value; more or better infrastructure, at this point, does not.

    Finally, transit times on the Northeast Corridor are limited by local speed limits, not infrastructure capacity. Sit in the Princeton Junction train station and you can read this on a plaque pasted on the wall:


    Today, the average ACELA speed between NY and DC is 89 mph. It’s not primarily a matter of technology or infrastructure.

    And how big is the high speed market? Let’s assume a high speed train would cut off an hour each way from NY to DC and back. That would increase the average transit speed from 90 to 140 mph–no mean feat in the NE corridor. (Oh, and by the way, 45 year-old Metroliner cars could do that.)

    Assuming that most people on the Acela would be willing to upgrade and pay $100 more per ticket, then over twenty years, the incremental revenue would amount to about $4.4 bn. And for that two hours round trip savings, you’d need an incremental $100,000 in income compared to the average income of current Acela passengers to make it worth their while.

    There doesn’t seem to be too much of a value proposition there.

    On the other hand, you could probably save a half hour by upgrades to current equipment and changes to certain sections of track. But then can you really charge more for a ticket?

    And there’s the rub. Amtrak is 2-5x more expensive than the bus, and that’s because the Northeast Corridor subsidizes other parts of the Amtrak system. Therefore, the price points are already very high. Thus, any movement in price point up from current levels really thins out the incremental market. If Bolt Bus were to shave 60 min off its schedule by doubling its fares, there are probably a fair number of customers ready to pay that. If Amtrak wants to do that, it’s already priced so high that the incremental market is pretty small. Thus, the incremental revenues to be gained from adding high speed rail are pretty small, I think.

    In short, if we’re going to talk about infrastructure spend, remember that i) it doesn’t have much value unless it debottlenecks something meaningful–re-paving an existing road doesn’t increase GDP beyond the labor involved, ii) investments are more likely obstructed by union costs or NIMBY considerations than cash; and iii) technology and infrastructure is often not the binding constraint on performance, and iv) any meaningful investment has to have a value proposition–if there’s no market for the service, investing in it makes no sense.

  52. Gravatar of Adam Eran Adam Eran
    9. January 2014 at 14:54

    There’s a lot to get to here, I apologize if I leave anyone out, and for the length of the post.

    First, the writer and many commenters are under the illusion that government (with sovereign, fiat currency and floating exchange rates, whose debts are denominated in its currency) is funded by taxes and/or borrowing. This is obviously not so.

    In the U.S, where would tax payers or lenders-to-government get the dollars to do those things if government didn’t spend them out into the economy *first*?

    This is basic Modern Monetary Theory (MMT). I recommend the following links to you for further study:

    MMT economists correctly predicted the Great Recession (and the failure of the euro) while many neo-classical economists, from Krugman to Mankiew, were caught flat-footed.

    Understanding this stuff is essential to understanding the funding side infrastructure. It turns out we’re as poor as we want to be.

    …and MMT is neutral about whether to spend or not on a particular project. But, on the other hand, there’s literally nothing preventing government from spending enough to provide a job guarantee (JG). The JG would provide work to everyone who wanted it. Such programs have been tried in the U.S. (WPA) and Argentina with success.

    One brief aside for those who are saying “But such government spending would cause [hyper-] inflation!” While it’s *theoretically* possible for government to bid up the price of goods or services when it competes with the private sector, who would it be competing with if it employed the unemployed?

    FYI, a Cato (libertarian, right-wing) think tank study of 56 historical episodes of hyperinflation demonstrates that government “over-printing” was behind these events…zero times!

    As for the possibility of using “rational expectations” to steer or engineer social consent “subsidizing positive behavior,” “sending price signals” etc. This is not always useful. For an in-depth look at the limitations of this, Steve Keen’s “Debunking Economics” looks at many of the supposed certainties promoted by neo-classical economists like the supply / demand curves. Turns out there’s not much empirical evidence of such things, and as often as not, the choice has enough dimensions to be not at all clear cut.

    Since one commenter brought up schools, consider also the recent school “reform” effort from the sadistic, billionaire-funded Michelle Rhee (“Students First”). Her rational-seeming strategy: merit pay, (union-busting) charter schools, and testing the kids frequently to ensure teachers are “adding value” in the process of education.

    First, science does not affirm any of these tactics work, when studied. Nevertheless, Rhee and her “reformer” friends even funded a propaganda film: “Waiting for Superman” to promote them.

    Waiting for Superman touts the Finns as the ones to emulate. It neglects to mention that Finnish teachers are well-paid, tenured and unionized, though. Gosh, could they have an agenda?

    Meanwhile, what is actually, scientifically correlated with better educational outcomes? Answer: Childhood poverty. In Finland it’s 2%; in the U.S., 23%. Gosh, could this entire “reform” movement directing its laser-like focus exclusively to teachers rather than the social setting be misdirection?

    Oh yes, and “Students First” lobbied NY State to end defined-benefit pensions for teachers. Yup, they’re that interested in students.

    I also note that the “big government” meme gets a lot of play on this blog without so much as a peep in answer. But U.S. government is actually tiny. If you figure either taxes or spending as a percentage GDP, the U.S. ranks 25th out of the 30 OECD economies (says a 2007 study). Remove the egregious military expense and I’d bet U.S. government would be smallest, or close.

    And would ending the tax or regulatory burden on corporations really accomplish anything? Corporate tax collections are at a 60-year low, while corporate profits are at a 60-year high. How much more can we do? (And where are the jobs, BTW?)

    A more fruitful distinction, IMHO, is between productive enterprise and economic rent-seeking. Keynes notoriously proposed we “euthanize the rentiers.”

    The enormous, record-breaking size of the financial sector is a symptom of an economy and public policy apparatus dedicated to paper shuffling and financialization rather than productive activity. Infrastructure shortfalls occur because, frankly, profit is all that guides such decisions.

    Here’s what financialization looks like: GM is a mortgage company (GMAC) that makes cars on the side. Ford decides it’s cheaper to pay the liability claims for the Pinto gas tank exploding than to fix the tank.

    Financialization corrodes social ties, and makes collective decision making far more difficult. See Michael Sandel’s instructive talk here:

    And public policy is important. Why else would so many plutocrats fund the relentless propaganda that says it’s disgusting, corrupt and icky! Pay no attention to the man behind the curtain!

    Incidentally, the propaganda has been quite successful in persuading people that our Kenyan Socialist president is a lefty, too. This is a guy whose signature legislative achievement was first proposed by Nixon, codified by the (right-wing) Heritage Foundation, and first implemented by Romney in Massachusetts.

    Far from left-ifying Romneycare, the White House killed the only proposed left-leaning component (the “Public Option”) when they had the votes in the House and Senate.

    Obama governs to the right of Richard Nixon, but is called a “socialist” — and this is brilliantly effective in moving public policy discourse rightward.

    As for whether the government ought to subsidize public transportation, or the bullet train in California… I wouldn’t object if they didn’t as long as they didn’t already subsidize petroleum-fueled transport. (As for the train itself, I’d rather they funded pedestrian-friendly neighborhoods and working local transit.)

    The World Resources Institute estimates the annual subsidy to petroleum at $300 billion, including tax breaks like the depletion allowance, subsidized roads, etc. The Financial Times published a $600 billion annual figure for the worldwide subsidy.

    I also don’t buy the argument we need to de-regulate even further. Science has known since the 1920s that lead in paint was harmful to humans. So they stopped producing lead paint right away, right? Nah! It took a Carter administration lawsuit to stop lead paint (1978). But paint companies still had to pay for liabilities incurred, and had a $2 billion judgment hanging over their heads…until Justice Roberts vacated it a couple of years ago.

    Yep, that’s our draconian regulatory setup! Wow! (And where are the prosecutions of the banksters? The breakup of the banks engaged in fraudulent foreclosures, or LIBOR manipulation?)

    The “less litigation” argument about infrastructure fails for me because litigation is seldom effective elsewhere. This is the same story we’re told about medical care (“If only we didn’t have to pay those malpractice claims! Medicine would be so much cheaper!”)

    The truth is the cost of torts is 0.5% of the total bill for medical services.

    So…I don’t have a similar figure for infrastructure, but have serious doubts about whether regulation to preserve wetlands is really the issue.

    The final bit of business here is that we know quite well what we need to build. For example, the renewables energy infrastructure described by Amory Lovins here:

    And if the public doesn’t own it, the rentiers will financialize the infrastructure, essentially making society into a series of toll booths whereby they’ll extract all economic surplus. That’s the goal. Ask a Greek (German banks requested they mortgage their ports and the Parthenon. Economist Michael Hudson called it conquest without armies.)

    The vehicle for the predominance of the plutocrats is “Disaster Capitalism” that consists of 1. the Ponzi inflating of values (dot com stock, real estate, etc.), then 2. the collapse during which vulture capitalists pick up assets, both public and private, on the cheap. Then the attempt to 3. re-inflate the bubble (QEternity!). Rinse and repeat.

    That’s what we can expect.

    There is an alternative. Keynes’ great discovery was that demand is king, but in modern economies, productivity is so great that household demand cannot possibly keep up with productive capacity. This leaves the only fiscally-unconstrained player in the economy–government–as the potentially beneficial provider of demand, expanding public services, and increasing its share of the economy.

    So pick one: socialism or bubbles and busts, trickling wealth upward to those financially well off enough to survive the turbulence.

    Please note that I’m not claiming government is simon-pure, or not prone to corruption. I’m just saying both public and private sector are equally culpable. One (potentially) serves the public and the other serves the rentiers, that’s all. Of course the public sector can serve the rentiers, as present circumstances demonstrate. I’d say the public sector has more potential for serving the public, though, despite all the well-funded propaganda to the contrary.

  53. Gravatar of dtoh dtoh
    9. January 2014 at 15:09

    Hate to say this but you’re wrong. Tokyo Ginza line was built within thirty years of of the first IRT line. Take a ride on the Ginza line today. Compared to NYC, you’ll think you’re on a different planet. Many of Tokyo’s lines are of comparable age to NYC, but they’ve spent money to modernize and upgrade.

  54. Gravatar of dtoh dtoh
    9. January 2014 at 15:16

    Steven Kopits,
    The fundamental problem with HSR in the US is that the population density and distribution don’t work. Fundamentally, you need an extremely dense bipolar distribution with poles somewhere between 500 and 800 miles apart. Tokyo Osaka works because it moves 20,000 people/hour in each direction. Potential Boston/NYC/DC traffic is less than a 1/10 of that.

    I tend to think the future of intra-city mass transit in the U.S. will be automated buses or automated trains on existing lines.

  55. Gravatar of Adam Adam
    10. January 2014 at 08:30


    I’ve not been to Tokyo, but it’s not really a surprise that Japan is vastly out performing the U.S. on infrastructure.

  56. Gravatar of ssumner ssumner
    10. January 2014 at 14:20

    Adam, NYC subways (in my experience) are dramatically worse than London and Paris. It’s not even close.

    Steven, Good points, but on the Boston NYC section it’s bad track that holds down speeds. It takes almost 4 hours to go 200 miles. 3:20 on the rare days with no delays. That’s a 1 hour trip in China.

    I agree that HSR doesn’t work for a country like the US. But we ought to have better roads and airports.

    Adam Eran, MMT? I think you are in the wrong blog.

  57. Gravatar of Full Employment Hawk Full Employment Hawk
    10. January 2014 at 16:41

    “No, the extra money will have to come from the middle class (as in Europe) not the rich.”
    If taxes on corporations and the rich were returned to what they were in the 1950s and 1960s, where potential output was growing more rapidly than since the 1970s, there would be plenty of money to pay for investment in infrastructure. One can certainly argue that such a policy would be counterproductive. But my point is that this shows that it will not HAVE TO COME from the middle class.

  58. Gravatar of Full Employment Hawk Full Employment Hawk
    10. January 2014 at 16:56

    Actually there is a tertium quid here that needs to be considered: Since the investment in infrastructure will increase the economy’s output and therefore the government’s tax base, the investment should be financed by borrowing. Neither state government nor private firms finance productive investments exclusively out of current revenue.

    State governments are virtually all required to balance their budgets by their constitutions. But the budget they are required to balance is their CURRENT budget. They have separate capital budgets that permit them to finance capital expenditures by borrowing, and not out of current tax revenue. Since the U.S. government does not have a separate capital budget, balancing the U.S. budget requires productive investments to be finaced out of tax revenues instead of borrowing, which leads to a temporally inefficient underinvestment in infrastructure and other productive investment. Since the U.S. government does not have a separate capital budget, the budget should not be balanced even at potential output regardless of any Keynesian stimulus considerations. Therefore the government should reverse the deterioration of our infrastructure by setting up an infrastructure investment fund outside of the budget and sell bonds and finance investment in infrastructure with the money so received.

  59. Gravatar of ssumner ssumner
    11. January 2014 at 08:34

    FEH, You said;

    “If taxes on corporations and the rich were returned to what they were in the 1950s and 1960s, where potential output was growing more rapidly than since the 1970s, there would be plenty of money to pay for investment in infrastructure.”

    Not so, those 90% tax rates of the 1950s did not actually collect much money. We collect far more today with lower rates.

    Corporate taxes are not paid by the rich, except in the sense that excise taxes on gasoline are paid by oil companies.

  60. Gravatar of dtoh dtoh
    11. January 2014 at 09:27

    I would not say out of hand that Japan is vastly out-performing the US on infrastructure. Some of what Japan does, they do very well, but they spend a lot of money on projects that have negative returns, and a lot of time they invest in a Mercedes, when they should buy 5 Corollas instead.

    I agree with you on roads and airports. A really interesting question for developing countries is how to time investments in transportation infrastructure. Early on the pay-off may be too low. Later the cost of land acquisition and NIMBYs gets to be very high.

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