Do We Really Need More Infrastructure?

The New York Daily News published an article Tuesday by Nouriel Roubini titled, "The worse is yet to come: Unemployed Americans should hunker down for more job losses." The article was spot-on in its analysis of the near-term outlook for changes in employment trends. To summarize,

  • Our economy is still shedding 200,000 jobs per month. While this is an improvement over the 700,000 per month we were dropping earlier in the recession, it is still more than the 150,000 a month we were losing in the last recession (2001). In other words, we've slowed the loss, but we're still losing and the trend is aggressively downward.
  • Job gains lag economic recovery. If the economic recovery has started, it is going to be another year at least before we see an end to layoffs. With unemployment over 10% and more than 17% of our workforce looking for work, that means a long time with some real pain.
  • The employed are taking significant hits as well, with reduction in hours and furloughs the norm. When things start to recover, there is a lot of slack to be taken up amongst the employed before we start to add new jobs.

With a consumption-driven economy such as ours (75% of GDP), the fact that nearly 1 in 5 Americans have income only from unemployment combined with the fact that much of the other 4 in 5 are seeing significant cuts in their income, there is some real question on where recovery is going to come from.

We're not just in a recession. Our economy is massively out of balance. It is going to take years - perhaps many, many years - of painful transition to unwind these imbalances.

What I found fascinating in the article, and what I have been continually frustrated with, is the kneejerk remedy that nearly everyone seems to propose. I'll quote Roubini from the article:

There's really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers.

We have one hope and it is more infrastructure. Seriously? Our sole way out of this is to build yet more infrastructure?

This so-called "bold" prescription is not bold in the least. In fact, it is what America has been doing for the past 80 years to spur economic growth (read our writeup on the "Mechanisms of Growth"). The only thing bold about it is the sheer audacity to think it may actually solve the problem. The reality is that this approach is the problem.

Building infrastructure was a great idea for America in the 1930's because we had none. The returns on those investments were tremendous. Spending on infrastructure not only put people to work, it created a foundation for economic growth that helped propel us to superpower status once the Great Depression ended. 

Infrastructure spending in the 1950's to build the interstate highway systems had a similar impact, but instead of solely providing jobs along with a stronger foundation, highway spending changed the land use patterns of the country. Early-suburbanization was a natural response a rising country would have to growing affluence, despite its other flaws. The new highway systems fueled this.

We've been riding this train ever since, putting more and more infrastructure in the ground in the flawed belief that more infrastructure means more growth means more jobs and more prosperity. The reality is the opposite. We're being crushed economically by the tremendous burden of maintaining all of this infrastructure.

What's worse, as we've seen diminishing returns from each new infrastructure investment, we've continued to double down on the approach. We've pumped more and more money into infrastructure, inducing a ridiculously inefficient pattern of growth that is now crumbling before our eyes. To quote Einstein, doing more of this same approach and expecting a different result is the definition of insanity.

In an economy that depends on growth, growth has shut down. Building more infrastructure will put some people to work, but it will not set us up for long-term prosperity. If we want out of this mess, we need to fix the imbalances in our economy.

Tomorrow I will provide some examples of a Strong Town approach to getting America moving in the right direction.



Some related reading from the Strong Towns blog:

  • Our Current Situation, which details some of the tremendous challenges that exist in maintaining our existing infrastructure.