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More Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ A Policy Dilemma: Budget Deficit vs. Infrastructure D...
Infrastructure and the Budget Debate <ul><li>As the 2011 budget season moves into full swing, infrastructure is at the cen...
What is Infrastructure? <ul><li>The term  infrastructure  most often refers to the basic physical structures needed to car...
What is the Role of Government in Infrastructure? <ul><li>Much US infrastructure, for example, railroads and power lines, ...
The Trend of Infrastructure Spending <ul><li>Federal, state and local government spending on infrastructure showed an incr...
Two Deficits <ul><li>The  budget deficit  is the difference between government spending and tax revenues. </li></ul><ul><l...
Grading the Infrastructure <ul><li>The American Society of Civil Engineers periodically issues a Report Card for America’s...
An Example of the Infrastructure Deficit: Dams <ul><li>There are more than 85,000 dams in the United States with an averag...
Total 5-year Infrastructure Deficit: $2.2 Trillion Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog  http://dolanecon.blogspot...
Beware of Waste <ul><li>Not all infrastructure spending reduces the infrastructure deficit </li></ul><ul><li>For as long a...
How to Avoid Waste? <ul><li>The Bipartisan Policy Center offers some guidelines for avoiding infrastructure waste </li></u...
The Bottom Line: Spend but Prioritize <ul><li>It is an illusion to think that cutting essential infrastructure maintenance...
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A Policy Dilemma: Budget Deficit vs. Infrastructure Deficit

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This slideshow discusses the the need to stem further deterioration of the national infrastructure while prioritizing spending in a way consistent with the goal of deficit reduction.

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Transcript of "A Policy Dilemma: Budget Deficit vs. Infrastructure Deficit"

  1. 1. More Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ A Policy Dilemma: Budget Deficit vs. Infrastructure Deficit Posted February 13, 2011 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.
  2. 2. Infrastructure and the Budget Debate <ul><li>As the 2011 budget season moves into full swing, infrastructure is at the center of the debate </li></ul><ul><li>The Obama administration wants to freeze or cut some government spending, but expand infrastructure spending in areas like high-speed rail and wireless internet </li></ul><ul><li>Republicans want to cut spending more aggressively, including many infrastructure programs </li></ul><ul><li>How can we frame our thinking about infrastructure and the budget? </li></ul>Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Nimbus Dam on the American River in California Photo source: J. Smith http://commons.wikimedia.org/wiki/File:Nimbus_dam.jpg
  3. 3. What is Infrastructure? <ul><li>The term infrastructure most often refers to the basic physical structures needed to carry on production, for example, bridges, roads, power lines, sewers, dams, and so on. </li></ul><ul><li>Sometimes “soft infrastructure” like education systems and courts is included </li></ul><ul><li>Infrastructure is typically long-lasting, but may require expensive maintenance </li></ul><ul><li>The benefits of infrastructure typically are spread to people who are not direct users, for example, a bridge may allow you to receive a package more quickly, even if you never cross the bridge yourself </li></ul>Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Roebling Suspension Bridge, Cincinnati, OH, in service since 1866 Photo source: http://upload.wikimedia.org/wikipedia/commons/8/85/Roebling_Suspension_Bridge_Cincinnati.jpg
  4. 4. What is the Role of Government in Infrastructure? <ul><li>Much US infrastructure, for example, railroads and power lines, is privately owned. Other parts, like roads and water systems, are owned by government. State and local government plays a larger role than the federal government. </li></ul>Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  5. 5. The Trend of Infrastructure Spending <ul><li>Federal, state and local government spending on infrastructure showed an increasing trend in dollar terms until the mid-2000s, when it began to decline </li></ul><ul><li>The deline began much earlier when infrastructure spending is measured as a percent of GDP </li></ul>Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  6. 6. Two Deficits <ul><li>The budget deficit is the difference between government spending and tax revenues. </li></ul><ul><li>The budget deficit is filled by borrowing </li></ul><ul><li>When current spending is financed by borrowing, government liabilities increase faster than assets </li></ul><ul><li>The national balance sheet that is passed along to the next generation is weakened </li></ul>Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com <ul><li>The infrastructure deficit is the difference between the rate at which new infrastructure is built and the rate at which old infrastructure wears out </li></ul><ul><li>When depreciation exceeds investment, net infrastructure assets decrease </li></ul><ul><li>The national balance sheet that is passed along to the next generation is weakened, just as happens when excess current spending causes a budget deficit </li></ul>
  7. 7. Grading the Infrastructure <ul><li>The American Society of Civil Engineers periodically issues a Report Card for America’s Infrastructure* </li></ul><ul><li>The Report Card assigns grades of &quot;A&quot; through &quot;F&quot; to various infrastructure categories </li></ul><ul><li>In the latest report, no area rates higher than a “C+” </li></ul><ul><li>Roads, aviation, and transit system all declined in score from the previous report, which was issued in 2005 </li></ul><ul><li>Dams, schools, drinking water, and wastewater stagnated at grades of D or lower </li></ul><ul><li>Just one category, energy, improved, from a D to a D+. </li></ul>Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com *The full report card can be downloaded from http://www.infrastructurereportcard.org/
  8. 8. An Example of the Infrastructure Deficit: Dams <ul><li>There are more than 85,000 dams in the United States with an average age over 50 years. </li></ul><ul><li>Some 4,000 dams are rated as deficient, including 1,819 high hazard dams. </li></ul><ul><li>As the chart shows, for every deficient high hazard potential dam repaired in recent years, two more were declared deficient. </li></ul>Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  9. 9. Total 5-year Infrastructure Deficit: $2.2 Trillion Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Source: ASCE, http://www.infrastructurereportcard.org /
  10. 10. Beware of Waste <ul><li>Not all infrastructure spending reduces the infrastructure deficit </li></ul><ul><li>For as long as the government has been in the infrastructure business, projects have often been chosen on political, not economic grounds </li></ul>Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com US Army Corps of Engineers Road Project, 1862 Photo source http://commons.wikimedia.org/wiki/File:Corps_of_Engineers_-_corduroy_road.jpg
  11. 11. How to Avoid Waste? <ul><li>The Bipartisan Policy Center offers some guidelines for avoiding infrastructure waste </li></ul><ul><li>Beware of putting new borrowed money into distribution channels that do not prioritize the most urgent projects </li></ul><ul><li>Favor projects that are both shovel-ready and highly productive </li></ul><ul><li>Be skeptical of exaggerated “jobs multiplier” claims often used to justify make-work projects </li></ul>Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com US Army Corps of Engineers Road Project, 1862 Photo source http://commons.wikimedia.org/wiki/File:Corps_of_Engineers_-_corduroy_road.jpg
  12. 12. The Bottom Line: Spend but Prioritize <ul><li>It is an illusion to think that cutting essential infrastructure maintenance and essential upgrades will improve the national balance sheet </li></ul><ul><li>At the same time, not all infrastructure spending is equal </li></ul><ul><li>The most urgent need is for a policy infrastructure of budget rules that will set rational priorities </li></ul>Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
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