No, you’re not “hearing” double. President Joe Biden just unveiled another $2 trillion package to bolster the economy. This time, he’s focused on America’s infrastructure.
Biden’s infrastructure package is ambitious. Some of the highlights include $115 billion for roads and bridges; a $174 billion jolt to boost the electric vehicle (EV) market; $100 billion to expand high-speed broadband access; $100 billion to improve and build new schools; and $100 billion for energy, including helping the US transition to clean energy. And that’s not even half of it. Alluding to the Oprah Winfrey Show, former North Dakota Senator, Heidi Heitkamp joked, “You get a bridge! And you get a bridge! And you get a bridge! And you get a road! And you get a hospital! It’s the Oprah of infrastructure.”
Oprah aside, this is an important bill that has the potential to trigger significant economic prosperity for many Americans. But as Greg Ip of the Wall Street Journal puts it, “no matter how good in theory a president’s plan looks for growth, it’s more complicated in practice.” The Biden administration—and others who advocate for infrastructure spending—would do well to consider the following.
The value that lies in infrastructure isn’t in the infrastructure itself, but in what it distributes or stores. In The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty, my co-authors and I define infrastructure as the most efficient mechanism through which a society stores or distributes value. For example, roads are the most efficient medium transport cars, trucks, and motorcycles; schools, at least so far, are one of the most efficient means to distribute knowledge and credentials. The same applies for power plants, railway, ports, and virtually every other type of infrastructure—their value is inextricably linked with the value of what’s being distributed or stored. With that in mind, it’s essential that whatever is being distributed or stored is actually valuable. New school buildings will accomplish little if the education is subpar (this is why infrastructure without innovation can sometimes be a big waste of money).
It’s also important to address the elephant in the room: how infrastructure will be paid for. Most infrastructure projects, especially mega projects that cross the billion dollar mark, are over budget, late, and under deliver on their promise of economic development, according to Danish economist Bent Flyvberg’s research. This doesn’t mean they won’t have an impact; it simply means that they will likely cost the taxpayer more and deliver less.
At present Biden’s team plans to use corporate tax increases to cover some of the spending. While this may (along with other measures) be enough to balance the budget and give the economy a necessary jolt, present and future policymakers will have a better shot at sustaining these initial investments by ensuring the value being stored or distributed by infrastructure justifies—and ideally even covers—construction and maintenance costs.
For example, the US has more than 200 million licensed drivers, which arguably justifies road construction and maintenance. To help cover these costs sustainably, millions of miles of roads in the United States are funded by gasoline and tire taxes, and tolls. If there were no cars, there would not be enough money to fund the construction and maintenance of this infrastructure. This is particularly important to consider as the United States moves towards EVs. Even without a self-sustaining mechanism for covering infrastructure costs, the value Americans experience through EVs—through clean energy, reduced costs, etc.—must justify the initial and long-term spending. Cars are not alone, however. Goods, electricity, and so-on must be able to “pay,” directly or indirectly, for their respective infrastructure.
For infrastructure to become a lasting force for sustainable, economic development, policymakers, including the current administration, must focus on the value the infrastructure is storing or distributing. Greg Ip put it best in his Wall Street Journal memo to President Biden, “Stimulus is Easy. Investment is Hard.”