When government invests in physical infrastructure, voters are led to believe that the resources invested will enhance their well being and safety as well as the productivity of the nation’s economy. In any particular instance, however, there is a strong chance that confidence in such assurances is misplaced. Allocation of public monies is always subject to a high likelihood of mismanagement, not least because decision-making in this arena is highly politicized. Government efficiency is always compromised because its actions are not guided by a profit motive. And it is well known that politicians and bureaucrats often act on their own private motives, rather than as purely disinterested public servants.
Another primary shortcoming of government infrastructure investment is that it is mis-priced. Highways are a perfect example. They are often congested because they are free. A weak objection to the last statement is that “pricing” is accomplished through gas taxes, which should provide incentives for curtailing the use of automobiles, but that is true only in the most general sense. The marginal cost to a driver of using a specific route is zero all day long. This leads to greater congestion, higher maintenance costs and, invariably, calls for expanding highway infrastructure.
Robert Krol has an excellent essay on the e21 website in which he lays out the strong case for congestion pricing:
“Although current federal law prohibits charging tolls on existing interstates, states may apply for permission to charge tolls on new lanes. This has occurred on a limited basis in Southern California. Variable tolls have been used outside the United States to successfully reduce congested highways. Before we spend more on highways, we need to change how we price highways. …
… the revenues could be used for highway maintenance and construction. Most importantly, by pricing roads correctly, we may actually find that we don’t need to spend more on highways. …
Economists Gilles Duranton and Matthew Turner have shown that building more highway capacity in U.S. cities results in residents driving more, greater commercial traffic, and population in-migration. Congestion remains, resulting in wasted time. A recent estimate from the Texas A&M Transportation Institute shows that these delays cost drivers $121 billion per year. Congestion also increases air pollution in neighborhoods near the congested highways.“
Public transit proposals are almost always boondoggles, including light rail. These systems usually generate fare revenue that falls short of operating costs (with zero contribution to capital costs). But at least fares are non-zero! The ability of mass transit systems to charge fares that pay for themselves is seriously undermined by the ongoing expansion of “free” urban highways.
Reihan Salam reinforces these points in a post about Hillary Clinton’s infrastructure proposals. Clinton pushes the general idea that more infrastructure spending is a must, going so far as to promote a public / private “infrastructure bank” for a wide range of projects that quite possibly are unnecessary, given more rational pricing. She doesn’t promote the latter and she probably doesn’t even think about it, or whether scarcity should be priced.
“If new infrastructure is to be financed with private capital, investors are going to expect spending discipline and, eventually, a meaningful return. Will this return be extracted from taxpayers or from users of the infrastructure service in question? The Obama administration, to its credit, supports allowing state government to collect tolls on their Interstate highway segments if they choose. Would Clinton favor giving states the freedom to make greater use of user fees? ….
I don’t think our main problem is that we’re not spending enough on highways, as Clinton seems to believe. If anything, I think our highway system is overbuilt. … The chief problem with our airports is not … that they’re not as sleek and modern as the vast white elephants you’ll find in East Asia. Rather, it is that they are congested, and the reason they are congested is that the federal government doesn’t provide for market-rate pricing for take-off and landing slots. This straightforward reform would greatly increase the productivity, not to mention the pleasantness, of our aviation system. Yet it doesn’t involve spending billions of dollars and cutting ribbons, so politicians are by and large not interested.“
Voters should not grant free points to politicians who merely utter the I-word: infrastructure. A more creative approach involves efficient, market pricing of highways and other public assets. The technology to price highways efficiently is now available. That may involve some loss of privacy, as it requires detecting the presence of individual vehicles on the roads, but privacy could be protected to some extent by using private firms to manage billing.