On the Record

Infrastructure: What and How?

Clifford Winston

Clifford Winston join other experts in an important and timely discussion of something that will affect both the immediate economic progress of the U.S. and our economic viability for generations to come: infrastructure, on NewTalk moderated by Amy Resnick.

Amy Resnick:
Good morning and welcome to the NewTalk online forum, Infrastructure: What and How?

I’d like to thank NewTalk for gathering this group of experts to participate in an important and timely discussion of something that will affect both the immediate economic progress of the U.S. and our economic viability for generations to come. My role as moderator over the next few days is to direct the conversation and hopefully arrive at some consensus that can contribute to the ongoing national debate.

In 2009, infrastructure finance is at the center of plans for national economic stimulus. How quickly Congress acts and what projects are selected will affect this field for decades to come.

And this is also the year in which critical federal legislation authorizing long-term funding for road and transit infrastructure, along with airport funding, are due to be renewed. It will be key to see how, or if, the funding of the stimulus impacts the urgency with which Congress addresses the long-term programs.
Due to the enormity of infrastructure funding needs, the debate on the role of private investment in public assets, efforts to encourage non-traditional investors – like pension funds – to expand their role in funding such assets, will also be critical this year. Other debates will include: What should be the source of federal funds for infrastructure investment? Should there be changes to the kinds of credit enhancement available to state and local borrowers for these kinds of projects? And how could changes to the federal tax code facilitate investments?

I’d like to use a broad definition of infrastructure in the discussion here, including not just transportation, but also water, sewer, and power generation, and transmission assets.

To get things rolling, I’ll pose some broad questions to the group: How much federal infrastructure investment should be part of the stimulus package? What form should this funding take and how should it be distributed? Tomorrow, I’d like us to focus the conversation on ideas for long-term changes to the ways in which infrastructure investments are prioritized and funded. On Thursday, we’ll conclude with a discussion on how to make those ideas a reality.

Thanks again for your participation.

Clifford Winston:
A standard problem set question in economics is: suppose the government wants to increase employment, is the most efficient way to accomplish its goal to subsidize (or reduce taxes) on labor, capital, or output? Under reasonable assumptions, the conventional answer is to subsidize (or reduce taxes on) labor. But these are not conventional times, so the government’s stimulus package includes subsidies for capital (aka infrastructure investment) and tax reductions.

Of course, the U.S. government has made infrastructure investments for centuries. All levels of government are currently spending some $250 billion on transportation alone. The fundamental change that the government must make in the stimulus package is to make efficient infrastructure expenditures that are not compromised by inefficient pricing and regulatory policies. Details of those inefficiencies are explained in my recent Wall Street Journal op-ed.

If the government focuses on improving the efficiency of its infrastructure spending, it will set in motion a process that will help increase employment efficiently in the short run and eliminate hundreds of billions of dollars of waste in the long run. The key measures of its performance will be the rates of return on its expenditures. Unfortunately, government’s recent performance on this score has been abysmal.

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