The Macroeconomic Considerations of a Public Investment Strategy

When you arrive at Shanghai’s Pudong International Airport, now about a decade old, you find yourself at the terminus of the world’s fastest train, a magnetic levitation marvel designed in Germany that takes you downtown at speeds briefly touching 450 kilometers an hour. There is little vibration, not much noise. Only a monitor in the car and the landscape rushing past your window lets you know just how fast you are moving. 

Similarly, at the Amsterdam, Paris, or Zurich international airports escalators just beyond customs take you directly to the train station where you can board the sleek Très Grande Vitesse, whose rights-of-way now span Western Europe, making major cities from the Mediterranean to the North Sea reachable in a few hours. There are almost no weather delays, no airport security lines, and the train leaves no carbon contrails across the sky.

However, the international traveler arriving at JFK or LAX will find no such fast and efficient way of getting from the airport into New York or Los Angeles, or from city to city in the United States. Why does the United States lag behind when it comes to public transportation? The obstacles to good public transport are neither economic nor technological. The United States is not a poor country. There are no well-guarded secrets held by German railroad engineers. And although America’s big cities are more widely spaced than Europe’s, geographical distance is not a major impediment. Yet our major transportation corridors are clogged with automobile and truck traffic, our large airports are barely tied to mass transit, let alone to intercity trains, and in many places the only possible way to commute from suburb to city center is by car.

The problems with mass transit are emblematic of a much larger failing. The infrastructure of the United States is in dire need of repair and updating. Our roads, bridges, electrical grid, rail network, water and sewer systems, and public schools, libraries, and parks are inadequate, underfunded, and often poorly maintained. Exploding steam pipes, collapsing bridges, and broken water mains are everyday occurrences.
At the same time, we are facing a major environmental challenge. Left unchecked, global warming will likely lead to irreversible coastal flooding and desertification due to global climate change. Slowing this trend will require us to rely less on fossil fuels and more on renewables, and to establish and adhere to new patterns of energy use in daily life. And it will require us to adopt and observe a new set of rules for the uses of energy in future economic growth. 

In order to meet this challenge and to address our future water, power, and transportation requirements, we need a new strategy of public investment. It is only by rebuilding and rewiring the country that we can become an environmentally responsible society while maintaining an acceptable standard of living. 

In order to do so, we must overcome a number of obstacles. Some of these obstacles are bound up with federalism and our habits of public finance. Some are linked to interest group politics driven by powerful corporations. Some are the result of the systematic neglect of public capacity brought on by the assault on government by reactionary elites over the past generation. And some are what I would call intellectual landmines, planted by economists, who argue that if we pursue a strategy of major public infrastructure investment we risk blowing up the U.S. economy.

Do the laws of economics and the condition of the U.S. economy stand in the way of a new strategy of public infrastructure investment? Are the financial hurdles insuperable, or even substantial? Would the private economy incur an unbearable burden? Would we face inflation, high interest rates, or a flight from the U.S. dollar on world currency markets? And, to the extent that dangers of this type exist, what policies would be required to keep them under control? 

This paper addresses these questions. However, I should say that in reaching my conclusions, I have made a number of (admittedly heroic) assumptions. I assume that a growing understanding of the parlous state of our infrastructure and, especially, of the threat posed by global warming will soon lead to consensus on the need for action. I assume that the federal government can organize a cooperative approach by Congress and state and local governments. I assume that the most vociferous opponents of a new strategy—the coal and oil companies, the automobile companies, aerospace manufacturers, and the airlines—can be overcome. And I assume that the relevant federal agencies can be rebuilt and staffed with competent professionals who enjoy access to the White House.

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