Financial Impact – Entering the Superproject Void
THINKING BIG The Golden Gate Bridge under construction in 1937, when an era of huge public works projects was under way.
Generation after generation, giant public works projects have altered the American landscape. The Erie Canal and the transcontinental railroad come to mind. So do massive urban sewer and sanitation systems, the Tennessee Valley Authority, rural electrification, the Hoover Dam, the Interstate System, the subway networks in San Francisco and Washington, the Big Dig in Boston … and the list abruptly stops.
For the first time in memory, the nation has no outsize public works project under way. The Big Dig, with its three and a half miles of underground highways channeling traffic beneath downtown Boston, was completed in December 2007, the month the Great Recession began.
So what are we missing, exactly? Huge public works — or more precisely, their historic absence — didn’t cause the recession any more than their renewal would quickly draw the country out of it. But their effect on the economy is almost always noticeable if not easily measured. Some economists argue that the continual construction of new megaprojects adds a quarter of a percentage point or more, on average, to the gross domestic product over the long term. Again, cause and effect aren’t clear, but the strongest periods of economic growth in America have generally coincided with big outlays for new public works and the transformations they bring once completed.
If their absence creates a void, particularly in a recession, what can fill it?
There is the quick-fix approach: stimulus. Giant public works projects take time to plan, cost lots of money and — the real sore spot for some — tend to add to taxes and deficits, regardless of how many people they might put to work for generations. Mindful of these political realities, President Obama has earmarked just $80 billion — a tenth of his stimulus package — for megaprojects, and put off most of that down payment until next year. His focus instead has been on spending hundreds of billions to quickly and visibly repair existing public works, especially highways, and also levees, dams and locks, particularly in the New Orleans area. That’s not a bad thing — those repairs are certainly needed — but it doesn’t create permanent wealth.
Another approach is to finance new projects several notches smaller in cost and boldness — and in contribution to economic growth. Denver and Salt Lake City, for example, are extending light rail and bus lines into the outlying suburbs, at a cost of less than $5 billion apiece. In New York, construction of the Second Avenue subway proceeds unhurriedly. All three projects, once finished, will bring new commercial activity to the communities they serve. Over time, the additional tax revenues from these activities will pay down the debt incurred in the construction. That has been the financial justification for many public works projects since World War II.
By the standards of the past, however, they are not the spectacular feats of engineering and ingenuity that greatly enhance the economy. The Erie Canal was just such a feat, linking the western frontier with East Coast markets. So was the transcontinental railroad, connecting the West Coast with Omaha and the existing Eastern railroads, spawning towns and commerce along the new Western route. Several generations later, the interstate highways were built by the states, mainly with federal money and federal planning, giving the auto and trucking industries a huge lift.
“The public works projects that have the largest effect on economic growth are those that integrate markets in different areas of the country,” said Francisco Rodriguez, director of research at the Human Development Report Office of the United Nations and author of a recent study on the role of infrastructure investment on economic growth.
If there is anything in the Obama administration’s approach that can be compared to the megaprojects, it would be the giant computer system, now being planned, to make health records available in hospitals and doctors’ offices across the country. Some economists argue that computerized records would raise economic output just as the Hoover Dam did 73 years ago. Still, only $19 billion has been set aside; the project is expected to cost nearly $100 billion, and who knows if the funding will materialize.
“Last year at this time we were debating whether we should be concentrating our spending on big projects that, in the long run, add to economic growth,” said John J. Wallis, an economic historian at the University of Maryland. “That debate never got resolved, and the stimulus bill we enacted in February ended up focused instead on quick spending.”
Absent a groundswell of public demand, those advocating large-scale projects are not widely heard. Gov. Edward G. Rendell of Pennsylvania, a Democrat, is perhaps the most outspoken.
“Just think about a high-speed rail system for the country,” the governor said, envisioning in particular a system that would link Philadelphia and Pittsburgh. “Think what it would mean for steel factories, concrete factories, asphalt factories, electrical equipment factories. It would mean a massive amount of orders and a lot of economic growth.”
Mr. Obama has allocated just $8 billion as a down payment for high-speed rail — in Mr. Rendell’s view not a drop in a $3 trillion bucket, a bucket that seems unlikely fill anytime soon. “I think we should get private capital involved,” he said, noting that the private sector has often in the past participated in the financing of big projects that in the long run benefit business.
Economists in the Obama administration acknowledge that when it comes to giant public works, the president has not yet gone far, but they suggest that he could be seen as having accomplished as much as Franklin Roosevelt did in 1933. Roosevelt, however, took office that year in the depths of the Depression. As a response to the crisis, public spending on megaprojects multiplied, and the effect remains: many of today’s post office buildings, for example, were built in that era, speeding up mail delivery; and thousands of miles of dirt roads were paved.
Mr. Obama’s Great Recession, by contrast, has been a milder affair, and a recovery appears to have started, even without the softening effects of megaprojects. If the recovery materializes, government investment in such large-scale efforts is likely to run up against an opposition that has prevailed since the late 1970s, when government came to be seen as inefficient — a second-string alternative to the private sector. Adding to the skepticism, many economists and policy makers reversed a view they once held — that rising output would generate enough additional tax revenue to pay down the national debt, including debt connected to megaprojects.
Now at least some in the administration have come to believe that megaprojects have value. Jared Bernstein, chief economist for Vice President Joseph R. Biden Jr., said, “We are on the eve of making truly significant and lasting down payments that are going to plant some lasting seeds.”