In the transportation community we tend to think surface transportation is underfunded. We think there are “needs” unmet. National reports from industry groups say more resources are required. Local reports are similar. Economists have a problem with the word “needs”, but the term in transportation has come to mean things for which the benefits outweigh the costs (subject to the usual debates about what are the benefits and costs of any given project).
Certainly the quality of services could always be improved, pavement repaired, bridges strengthened, bus stops made more useful, buses modernized, etc. Money would enable us to do any of these things.
Therefore, the solution must be more money. Yet the sector doesn’t get more money at the federal level, or in most states. So if costs are low, and there are clearly needs, why can’t it close the gap?Some hypotheses:
- The industry is saturated. One concern is that maybe the amount of resources to do the work is limited, so we can’t physically get more infrastructure built. If there were a limited number of contractors, and they were all fully employed, more money would simply mean higher prices and a reshuffling of priorities not new building. Further, there are steep barriers to entry, I can’t just start a road construction company. So if they are fully employed now, all they would do is demand higher rates, defer something else, to do the new thing. Contractors of course probably claim they are not fully deployed, and certainly could add some employees and acquire additional materials. How high is capacity utilization in the road construction? How close to fully employed is the sector? Nationally, according to the Bureau of Labor Statistics, employment in NAICS 237200 – Highway Street, and Bridge Construction was:
- May 2012: 303,650
- May 2011: 297,090
- May 2010: 304,380
- May 2009: 319,050
- May 2008: 349,640
- May 2007: 358,500
- May 2006: 360,640
- May 2005: 356,910
- May 2004: 355,130
- May 2003: 353,200
From a 2006 peak, the sector was once 20% larger in employment. Clearly a lot of this is due to the effects of the recession on local government spending, but recovery is very, very weak.
It is hard to conclude that even 2006 was “full utilization”, there is always elasticity (if wages are high enough, some people will put off retirement, others will be attracted to work in the sector). Some equipment can be transferred from building other types of projects to road construction. New equipment can be ordered, equipment and labor can be moved from other states. The real world is not black and white, but as capacity utilization increases, prices increase faster than output. However in the absence of full utilization, prices should be relatively cheap. If firms don’t need to go to extra effort to hire workers and machinery, (i.e. they would otherwise be idle or working at marginal tasks), prices will be stable.
The analogy here is a bottleneck. At well below capacity, travelers can proceed at free flow speed. Only as capacity approaches does delay (higher prices) result.
- Money won’t go to needs. Political rent-seeking will divert funds from what matters. Cynical as this may be, there is some evidence for this. The construction industry itself is indifferent to what is built, so will happily support any spending. It is the users/taxpayers who suffer from the misallocation of resources, not only in the opportunity cost of what isn’t done, but the future maintenance burden of supporting what was done. Spending money may solve today’s macro-economic unemployment problem, but spending it poorly creates future problems. We have no evidence that giving more money will result in it being spent on the things we care about.
- Transportation doesn’t need (much) more money:
- Weak version: People don’t perceive the same needs as industry does. Most roads and bridges are in good enough shape. Most people drive on those good-enough roads. The perception is limited to what people actually travel on. As Charles Lane says: “So how come my family and I traveled thousands of miles on both the east and west coasts last summer without actually seeing any crumbling roads or airports?” Even Lane acknowledges “The United States probably needs more infrastructure spending. It also needs a serious debate about how much cash to invest and how to invest it. Alarmism promotes the former, not the latter.”
- Strong version: The industry is wrong. There is in fact no need. Not only don’t we need new roads, the existing roads are fine too. There is already enough money flowing through the system to keep the it in a state of good-enough repair. So what if a bridge collapses every few years, that is nothing compared to other social problems, like the 35,000 people killed each year in car crashes. Conditions are getting better.
- While existing roads are in fine condition, they are congested, so we need more new and wider roads. The purported need for maintenance is just a distraction put forth by the greens to avoid new construction.
- People see the problem but don’t care about the social outcomes. They would rather have the large screen TV than pay for the better road as some surveys gas taxes repeatedly find their unpopularity.
- There is a need, but I don’t like roads. We have too many roads as it is. Deterioration is a form of traffic calming, so we should encourage it..
In short, I think the road-building sector is far from fully utilized, there is a lot of slack to handle more road building. More expenditures in road building should not significantly drive up prices at this time.
But, what would it be spent on? I am sympathetic to the claim that more money won’t actually go to needs. I am also sympathetic to the perception bias problem. There is only a problem if you see it every day. Lots of roads are in good enough condition, and bridges don’t fall down with alarming frequency. However it is clear Charles Lane did not travel on the signalized arterials near my house.
The Minnesota gas tax was last raised in 2008 (with a multi-year phase-in), and with all of the stars aligned for an increase: business community endorsements, DFL legislature in both houses, the Senate actually willing to vote for it, and the House too, with some encouragement, the Governor pooh-poohed an increase and said we need another information gathering campaign, and suggested that it can be done next year, which is an election year. Worse, all Governor Dayton could think to do was build a bridge to Wisconsin. The edifice complex, infrastructure infatuation edition, will suck away a lot of the funds.
Certainly any taxes are unpopular, but there is an issue of framing with any polls, and a general problem of the public not believing that user fees are dedicated to transportation, even when the law says it is. Sure marketing and education campaigns would help, but there are fundamental issues of trust. This is an institutional problem, which can be rectified by separation of roads from the executive branch into a public utility.