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A Policy Dilemma: Budget Deficit vs. Infrastructure Deficit
 

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.

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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    A Policy Dilemma: Budget Deficit vs. Infrastructure Deficit A Policy Dilemma: Budget Deficit vs. Infrastructure Deficit Presentation Transcript

    • 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.
    • Infrastructure and the Budget Debate
      • As the 2011 budget season moves into full swing, infrastructure is at the center of the debate
      • The Obama administration wants to freeze or cut some government spending, but expand infrastructure spending in areas like high-speed rail and wireless internet
      • Republicans want to cut spending more aggressively, including many infrastructure programs
      • How can we frame our thinking about infrastructure and the budget?
      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
    • What is Infrastructure?
      • 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.
      • Sometimes “soft infrastructure” like education systems and courts is included
      • Infrastructure is typically long-lasting, but may require expensive maintenance
      • 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
      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
    • What is the Role of Government in Infrastructure?
      • 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.
      Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
    • The Trend of Infrastructure Spending
      • Federal, state and local government spending on infrastructure showed an increasing trend in dollar terms until the mid-2000s, when it began to decline
      • The deline began much earlier when infrastructure spending is measured as a percent of GDP
      Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
    • Two Deficits
      • The budget deficit is the difference between government spending and tax revenues.
      • The budget deficit is filled by borrowing
      • When current spending is financed by borrowing, government liabilities increase faster than assets
      • The national balance sheet that is passed along to the next generation is weakened
      Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
      • The infrastructure deficit is the difference between the rate at which new infrastructure is built and the rate at which old infrastructure wears out
      • When depreciation exceeds investment, net infrastructure assets decrease
      • 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
    • Grading the Infrastructure
      • The American Society of Civil Engineers periodically issues a Report Card for America’s Infrastructure*
      • The Report Card assigns grades of "A" through "F" to various infrastructure categories
      • In the latest report, no area rates higher than a “C+”
      • Roads, aviation, and transit system all declined in score from the previous report, which was issued in 2005
      • Dams, schools, drinking water, and wastewater stagnated at grades of D or lower
      • Just one category, energy, improved, from a D to a D+.
      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/
    • An Example of the Infrastructure Deficit: Dams
      • There are more than 85,000 dams in the United States with an average age over 50 years.
      • Some 4,000 dams are rated as deficient, including 1,819 high hazard dams.
      • As the chart shows, for every deficient high hazard potential dam repaired in recent years, two more were declared deficient.
      Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
    • 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 /
    • Beware of Waste
      • Not all infrastructure spending reduces the infrastructure deficit
      • For as long as the government has been in the infrastructure business, projects have often been chosen on political, not economic grounds
      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
    • How to Avoid Waste?
      • The Bipartisan Policy Center offers some guidelines for avoiding infrastructure waste
      • Beware of putting new borrowed money into distribution channels that do not prioritize the most urgent projects
      • Favor projects that are both shovel-ready and highly productive
      • Be skeptical of exaggerated “jobs multiplier” claims often used to justify make-work projects
      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
    • The Bottom Line: Spend but Prioritize
      • It is an illusion to think that cutting essential infrastructure maintenance and essential upgrades will improve the national balance sheet
      • At the same time, not all infrastructure spending is equal
      • The most urgent need is for a policy infrastructure of budget rules that will set rational priorities
      Posted Feb. 13, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com