Thoughts on Some "Bold" Approaches

Yesterday I discussed an article from the New York Daily News that called on America to spend more money on infrastructure as that was the "one hope" we had to turn our economy around. My argument was that we already have more infrastructure that we can afford to maintain and that this imbalance, combined with the massively inefficient development pattern it has induced, is the real drag on the economy. Building even more infrastructure on this same model is simply digging the hole deeper.

The obvious response is: okay, what should be done then? If our politicians in Washington are insisting on spending money to stimulate the economy (whether that is the best approach is not something I am going to debate - I'll leave that to the macro-economists), here are some truly bold ideas that would put America on a renewed path to economic prosperity.

• Require that any community that receives federal subsidies for infrastructure improvements performs an audit on their systems and identifies components that provide a low rate of return. Those parts of the system that cost more to maintain than they generate in tax revenue need to have a plan for either a) generating new growth to pay for the infrastructure, or if and when that growth fails to materialize, b) abandoning or privatizing those segments that are too inefficient to pay for themselves.

• Require states receiving federal money for transportation improvements (there are 50 of them) to perform the same analysis on their transportation systems. Prioritize funding based on the rate of return that infrastructure investment provides.

• Invest only in the maintenance of existing infrastructure or in key improvements that can demonstrate a REAL return on the investment (not the imaginary cost/benefit analysis that engineers routinely do, but a financial analysis of the real improvement in property value). Let's not build anything new that we need to maintain but instead make better use of the immensity of what we have. I would target those areas that have the highest rate of return in the state and local analysis that have been performed.

• Target whatever subsidies we are going to have for purchasing a home to those geographic growth areas that have been identified as having the highest rate of return. We should no longer subsidize inefficient development patterns that will cost us more money to sustain than they produce in return.

• Put money into retrofitting communities to be Strong Towns. This would mean transforming neighborhoods to be mixed-use with complex, urban streets. Roadways connecting neighborhoods would need to be simple and efficient, which would likely require the closing (purchasing) of accesses and reconfiguring intersections (read our post on the difference between roads and streets). In addition, grossly inefficient areas that have no realistic hope of generating a reasonable level of investment should be proactively abandoned or their infrastructure privatized.

• Abandon "cap-and-trade" schemes. Instead, build a smart grid that would allow for "congestion-pricing" of energy demand. Sit back and watch the market create massive levels of efficiency.

• Eliminate the gas tax. To fund roadway improvements, adopt a tax on Vehicle Miles Traveled (VMT) and add congestion pricing tolls to our most congested highways. Sit back and watch the market create massive levels of efficiency.

• Consider game-changing megaprojects, like a 300 mph train we discussed earlier this year.

• Put money in people, not infrastructure. It is small business filling needs in the market that will get us out of this long-term. There is no way to know what those needs are today - only innovators and entrepreneurs on the ground can figure that out. Small businesses do not require new infrastructure or massive investments in systems. If we are going to subsidize something, I would pay 75% of the salary of a new hire before I would extend unemployment benefits again.

These are my quick thoughts. They by no means encompass the entirety of a Strong Town approach, but you can see the direction we would head. We do these things and, over time, we start to transform our economy into something where new growth generates real prosperity, not simply short-term gains coupled with massive long-term liabilities. We would be using the strengths of a free market to build efficiency and produce returns instead of fighting those strengths by subsidizing inefficient, competing systems.

I'd welcome reaction and any other Strong Towns ideas our readers may have in the comments section.

Comments

[Ross Williams]

1) The problem with a VMT tax is that vehicle miles traveled is only loosely related to the cost of the roads used.To create an accurate market signal, the location and time of day need to be considered. Having the government track those raises some serious privacy issues. The gas tax does send a fairly accurate market signal reflecting the relative burden a motorist places on the atmosphere. The problem is that we have made gas tax receipts into a dedicated slush fund for road building, instead having roads compete for funds with other public investments as part of the normal budget process. Replacing that with another dedicated funding source is a bad idea. Of course, politically, taking away the road builders piggy bank is going to be tough.

"Require that any community that receives federal subsidies for infrastructure improvements performs an audit on their systems and identifies components that provide a low rate of return."

What is the "rate of return" on parks or sidewalks or public art for that matter? Is that even the right question?

I think the idea that these are purely economic decisions is the fallacy that ultimate brought down the Soviet Union. They built houses and other infrastructure based on economic "efficiency" and peoples "objective" needs, rather than weighing human desires. The advantage of democratic societies is that we don't subscribe to phony objective decision making. We have a way to arrive at public decisions that balances a wide range of interests.

"If we are going to subsidize something, I would pay 75% of the salary of a new hire before I would extend unemployment benefits again."

The problem is that there are two businesses that will take advantage of that subsidy. One, the already successful business, will pay employees it would have hired anyway and the owners will pocket the subsidy. The other group will be businesses that can't profitably employ people without a government subsidy. Those businesses will survive only so long as the subsidy is available for their inefficient use of workers. They will compete against companies that are more efficient in their use of employees. In short, you will be rewarding inefficient companies at the expense of the more efficient and innovative.

"In addition, grossly inefficient areas that have no realistic hope of generating a reasonable level of investment should be proactively abandoned or their infrastructure privatized."

I think you could make an argument that would apply to most small towns in rural Minnesota. They grew up to support an agrarian society and they don't have the critical mass to compete for industry. But again, efficiency is not the only value. And there is a lot of infrastructure that is already built up that is being underutilized.

[Charles Marohn]

Good comments, as always, Ross.

I'm out of town at a conference and can't answer some of your points/questions fully at the moment (maybe a future post), but I do want to quickly address the idea of an ROI on sidewalks, parks and public art.

On the first two - sidewalks and parks - if they are strategically located and serve a valuable function, they most definitely have an ROI. What is the ROI on Central Park in Manhattan? Tremendous, because it is well located, well connected and adds real measurable value to all properties in the community. In Minnesota, we can say the same thing about Lake Harriet. The problem is that we today locate parks, sidewalks and other more-social infrastructure in places where we can get either cheap or free land, which means they most often are located where the value they provide is nominal and people have to drive to get there. To make public spaces functional, they need to be properly located. If you properly locate them and design them, they provide ROI.

Read our placemaking principles for Strong Towns, number six of which is:

6. A Strong Town utilizes a system of interconnected parks and civic structures to provide value to property owners within the community. Parks, greens, squares and civic buildings provide value when they enhance the public realm, create memorable landscapes and provide for spontaneous gatherings.

http://www.strongtowns.org/placemaking-principles/

This is not Soviet-style efficiency (which was not really efficient) - the exact opposite. We are suggesting that the true costs of development be felt as close to the cause of that expense as possible in a free market. If we did that, then we as a society would insist that our costly investments in infrastructure (or parks, sidewalks and art) actually provide a benefit that justifies the expense. All the subsidies in the system today distort this natural mechanism and have given us a system that is very inefficient (not market-based) and costly to maintain.

I attend three or four small town government meetings a week and see how decisions are made. A "balancing of interests", as you suggest, is one of the more optimistic views. I would like to embrace that vision, but see no reason why we could not do that within a framework of smart financial decisions (in fact, I would argue we would actually have more involvement and do it better).

One final thought on VMT. Not perfect - I agree, but like cigarette and alcohol taxes, when we tax something for competing purposes, the end result is policy nonsense. For gas, we are taxing gas to raise revenue for road construction AND to encourage gas efficient technology. Those interests compete. The more gas-efficient we make cars, the more people will drive but the less revenue/VMT we have to maintain the roads. VMT need not include big gov't knowing where you are. In the same line we recommend congestion pricing on congested roads, which is already being done in places - there is no reason to know time of day and location for roads that are not congested.

Good conversation.