Wednesday, February 13, 2013

Despite its Debt, the US Can't Afford to Ignore its Antiquated Infrastructure

In 2009, the American Society of Civil Engineers (ASCE) gave America’s infrastructure a “D-“ grade and called for $2.2 trillion in investment over the coming five years. However, the necessary investment has not since been made. This has jeopardized our economy and even our safety. Basic upgrades and critical modernization have been ignored.

In his State of the Union Address, President Obama acknowledged this, admitting that we have an "aging infrastructure badly in need of repair," while also noting that there are “nearly 70,000 structurally deficient bridges across the country.”

Roads, bridges, ports, and rail systems allow businesses to move goods, reach global markets, grow their market share and create new jobs. Investing in these critical elements of our nation's infrastructure, as well as our water systems, is the only way to build and maintain a 21st Century economy.

Greg E. DiLoreto, President of the ASCE, put it this way:

For the U.S. economy to be the most competitive country in the world we need a first class infrastructure system—transport systems that move people and goods efficiently and at reasonable cost by land, water and air; transmission systems that deliver reliable, low-cost power from a wide range of energy sources, and water systems that drive industrial processes as well as the daily functions in our homes. Infrastructure is the foundation that connects the nation’s businesses, communities and people, driving our economy and improving our quality of life.

On March 19th, the ASCE will release its 2013 Report Card for America’s Infrastructure. It will be interesting to see if anything has improved in the intervening four years, or if our overall infrastructure has predictably regressed.

The 2009 report highlighted a continual pattern of disrepair and neglect. The ASCE had previously given US infrastructure a "D" grade in 2005 as well. Getting the same grade again in 2009 clearly indicated a total lack of national commitment to correcting these critical problems.

In an economic report on the failure to invest in infrastructure, ASCE has found that "infrastructure investment is inherently linked to our nation’s economic success. The Failure to Act report found that if we fill our infrastructure funding gap by 2020, the U.S. can eliminate potential drags on economic growth, protect 3.5 million jobs, and protect $3,100 in annual personal disposable income."

If these problems are ignored, the ASCE warns, "Your commute will become less reliable, your shipments will take longer. You may experience more electrical outages and water issues."

Those problems will come at a great expense.

The ASCE study finds that the overall cost to households and businesses of deficient infrastructure grows to $1.2 trillion for businesses by 2020 and $611 billion for households, under current investment trends.

The ASCE asserts the following:

Thus, the investment gaps will total $1.1 trillion by 2020, and will grow to $4.7 trillion by 2040.

If we don’t address this funding shortfall of $157 billion a year for our nation’s infrastructure, we will be faced with the following by 2020:

• A projected loss of $3.1 trillion in GDP, almost the equivalent of the 2011 GDP of France

• A $1.1 trillion decline in U.S. trade value, equivalent to Mexico’s GDP

• A loss of 3.5 million jobs in the year 2020 alone, more than the jobs created in the U.S. over the previous 22 months

• A $2.4 trillion decline in consumer spending, comparable to Brazil’s GDP

• A drop of $3,100 in disposable income per year, per household

Obviously, the cost of performing these vital infrastructure repairs and improvements will be great. Yet, the ASCS says, "the real story of this report is that we can’t afford not to."

Whatever the cost, the price of not investing will be even higher.

Repairing, rebuilding and modernizing our national infrastructure would also create jobs, increase demand, circulate money back into the U.S. economy and revive the tax base.

It will be impossible for the U.S. to maintain it's status as a super power and a world leader in the 21st Century with a failing and crumbling infrastructure. Quite disturbingly, the current state of affairs reveals a nation in decay and decline.

The problem is that the U.S. is already running massive annual budget deficits and is burdened by a cumbersome national debt exceeding $16 trillion. Our politicians have squandered our national wealth, as well as opportunities to address these problems, for many years. This decay didn't just happen overnight.

The repairs to our nation's infrastructure are long overdue. Yet, for a nation with such a staggering debt burden, they will prove cumbersome.

Economic growth this year will average only 1.4 percent, according to the Congressional Budget Office’s latest forecast. In other words, growth will be too paltry to pay for these vital repairs.

Yet, they cannot be ignored, and that's the conundrum for the U.S.

The U.S. can't afford $2.2 trillion in infrastructure repairs and improvements, and yet it can't afford not to fund them either.

When the Obama administration unveiled its fiscal stimulus package in early 2009, the federal government’s debt to the public amounted to only 35 percent of our gross domestic product. Today, it amounts to about 75 percent. That's a whole lot of new debt in a very short time frame.

However, according to CBO calculations, the 2009 fiscal stimulus produced about $1 of economic output for every $1 in stimulus, on average. In other words, spending on infrastructure paid for itself.

But there is still reason for caution.

Earlier this month, the CBO produced an analysis of the impact that further deficits would have on the economy. A $2 trillion fiscal stimulus would increase growth for the next three or four years. But as the economy recovered, the deficit would crowd out private investment, reducing growth over the decade. By 2023, government debt would amount to 87 percent of GDP.

Congress needs to weigh the potential return on public investment over the long term. Improving the nation’s infrastructure could ultimately yield much more than a dollar in economic output for each dollar spent.

The reality is that we can't ignore our infrastructure. Even absent the goals of modernizing and improving our infrastructure, old bridges, roads, dams, dikes and levees will continue to crumble.

It is a problem that cannot, and will not, be ignored.

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