Now available: guaranteed high-return investments

Downtown Street and Bus Stop Repairs Originally uploaded by Thomas Le Ngo

In his New York Times blog yesterday, Edward Glaeser asks for nuance and careful thinking on the question of whether countries should spend their way out of the recession: there’s no one answer, and we need to look carefully at the situations different countries are in. Similarly with different kinds of public spending. Some work, some don’t.

It’s a good argument, but one he then fails to apply to infrastructure. “[P]ublic spending on roads or high-speed rail can be extremely wasteful,” he writes, lumping them together. “Infrastructure is serious business, and it is impossible to spend quickly and wisely.”

Certainly it is possible to waste money on roads or tracks. But it is simply untrue that we can’t spend both quickly and wisely, and one wonders how it is possible to both recognize that infrastructure is important and then speak so falsely about it.

The quickest way to invest in infrastructure and economic recovery is also the wisest.

The first American Recovery and Reinvestment Act (“stimulus”) transportation projects were repair, and got underway just days after the Act was signed. Repair delivers remarkably high returns on investment: it prevents the need to spend much higher amounts later; it saves drivers significant amounts on auto repair, and, as an investment in recovery, it produces a lot of jobs because it is so labor intensive.

Cornell economist Robert Frank points out: “The potholes in the roads do more damage to vehicles each year than it would cost to fix them. That’s just ridiculous that we don’t fix them.” The first year, the investment produces jobs and saves money in auto repairs; every year after, the money saved on auto repairs is free.

Fixing potholes is the very definition of spending both quickly and wisely, and poo-pooing that investment because it might increase the size of the public sector, as Glaeser does, is the very definition of not taking our infrastructure seriously.

It’s true that Glaeser does not actually mention repair; I read his post as dismissing all kinds of road spending. Intentional or not, failing to mention repair reinforces the idea that we all we have available are blunt tools: spend on new roads, some of which will be bad, or stop spending. In fact, we have available lots of high-return investment opportunities.

Even faster and possibly wiser than fixing potholes is operating the buses we have already bought, and that people use to get to work each day. Lack of money is forcing systems across the country to cut routes and in one case shut down altogether, instantly converting their users from productive workers into unemployment recipients.

Glaeser uses the freedom of the blog form to observe that he was raised on the memories of “wheelbarrows of worthless cash” in hyper-inflationary Weimar Germany. For what it’s worth, my father’s family was also raised on such cash. Yet my father is in favor of high-speed rail and having good roads. There are a lot of ways to so thoroughly debase your currency that you end up as Weimar. Fixing potholes is not one of them. Quite the reverse: refusing to fix your potholes, so that you later have to spend 10 times as much later on full reconstruction (.pdf), guarantees that you will end up further in debt.

So what should we do?

Glaeser has plenty of company in noticing that state DOTs build too many roads that produce low returns while they let existing ones deteriorate. The last time Congress sent states flexible transportation stimulus money, too many states missed too many opportunities to spend it well. Congress should help the states take advantage of opportunities to make high-return transportation investments by sending additional transportation stimulus money, but only if it guides that money thoughtfully to places where it will produce real returns. Otherwise, not.