Commentary

Restructuring a Nation

The United States currently taxes like a small government whilst spending like a large one. This is an entirely unsustainable trajectory. The United States’ national debt stands at approximately $16.2 trillion, or 104 percent of GDP, and it is increasing at an alarming rate. According to the Mercatus Center at George Mason University, for every dollar the U.S. spends, 43 cents are borrowed. Structural reform of government spending must be agreed upon in order to prevent a severe debt crisis and escalating bond yields, the results of which can be seen in Portugal, Greece and Spain. Yet at the same time, the U.S. needs to stimulate its economy. Perhaps the only solution to our budgetary and economic woes is massive infrastructure expenditure, coupled with structural reform of the budget. In order to improve the investment climate and prevent loss of confidence in the dollar, this infrastructure spending would have to be coupled with long-term debt reduction. Because infrastructure spending has the greatest appeal to Democrats, and structural reform has greatest appeal to Republicans, it could be used as a political bargaining chip to strike a deal that would enable the United States to manage down the deficit while stimulating the economy. As a result of the debt crisis, the U.S. has continued to struggle, with GDP growth last quarter at a sluggish 1.3 percent, according to the U.S. Bureau of Economics. The unemployment rate stands at 7.8 percent. In particular, the construction sector is very depressed. If you include those who want work but have given up looking in the unemployment statistics, the figure stands at 11.6 percent, according to the bureau of labor statistics. Infrastructure spending would be an excellent way to stimulate economic growth and employment, and it need not expand our debt. History has shown us that infrastructure spending is an effective and powerful way to stimulate the economy. According to U.S. News, during the 1930s Roosevelt’s public works programs helped pull the country out of the Great Depression. In 1933, when the New Deal began, the U.S. GDP was $635 billion. By 1940, America’s economy was worth $1 trillion. In the 1950s, the Eisenhower administration conducted the largest public works program in U.S. history: the interstate highway system. As David Auschauer, a former professor of economics at Bates College, wrote in his essay “Why is Infrastructure Important?,” “recent empirical evidence…suggests that infrastructure expenditures may well have been a key ingredient to the robust performance of the economy in the ‘golden age’ of the 1950s and 1960s.” Investment in infrastructure would be a cost effective way of providing real short and long-term economic benefits today, most significantly by increasing employment and productivity. The United States labor force, specifically the construction sector, has plenty of slack. Therefore, initiating infrastructure projects now would not pull people away from other construction jobs. Many workers who would be employed by new infrastructure projects would be otherwise unemployed and likely taking benefits from the government. Mark Zandi, chief economist at Moody’s Analytics, sums it up well, saying, “Infrastructure development has a large bang for the buck, particularly where there are so many unemployed construction workers. It also has…long-lasting economic benefits.” Most impressively, for every $1 invested in infrastructure, the economy receives a boost of $1.44, according to the Center for American Progress. Not only is infrastructure spending necessary, but also it is imperative that it begins soon. The United States has underinvested in infrastructure for decades. America spends a third on infrastructure, as a percent of its GDP, compared to what it did in the 1960s. The American Society of Civil Engineers issued a “report card” for America’s infrastructure which rated each aspect of infrastructure (drinking water, schools, airports, etc.) and estimated the amount of investment that would be needed to restore all of them to good quality. The results were astounding. As of 2009, the United States required $2.2 trillion of investment to return our infrastructure to good quality. Even more worryingly, that figure is up from $1.6 trillion in 2005, according to the American Society of Civil Engineers. As we sit idly by, our infrastructure is getting more expensive to repair, rebuild and improve. In the long run, a big benefit of infrastructure spending is increased productivity. The World Bank states, “[infrastructure services] raise total factor productivity by reducing transaction and other costs.” Greater productivity equates to more economic output because each individual is able to create more value for the economy as a whole. And this important benefit would lead to increased tax revenue and a further increase in cost effectiveness. Therefore, the real cost of a large infrastructure program would be significantly lower than at first glance. Further increase in value for money could come from private-public partnerships. Toll roads are an example of such a private-public partnership, and they allow infrastructure to be built using private funds. Such a measure allows the government to avoid furthering the deficit. Currently, the political forces in favor of infrastructure spending are mainly on the left, while the political forces for structural reform are mainly on the right. A grand bargain is possible in a way that will help our economy achieve both short and long term growth coupled with deficit reduction. There is no other clear coalition of policy that is likely to unite our country at this time. A wise Obama administration should not hesitate to pursue such a grand bargain. A long-term debt reduction plan would restore confidence in the United States’ ability to pay down its debt and give business and Americans the confidence they need to invest, spend and create a life in America. In conjunction with large short term spending on infrastructure, the economic dividend would be unprecedented. In short, a trillion dollar infrastructure program coupled with long term budgetary reform would put people to work and prevent a collapse of our economic system. Tennyson Teece is a two-year Lower from Berkeley, CA.