Infrastructure Investment: The Long View

At the risk of trying to make sense out of nonsense, here’s a question: When Congress and the administration cite the economic impact of transportation infrastructure, what are they thinking?

Most Washington policymakers focus only on the obvious: the construction jobs generated directly by road, rail, port and waterway projects. Those are important, but only part of the overall picture.

Transportation investment’s real payoff is longer term. It helps create and sustain what economists call a virtuous cycle — more investment raises productivity, which raises income, which allows more saving, more investment, more productivity, more income, and on and on.

Walter Kemmsies, chief economist at port design and engineering consultant Moffatt & Nichol, made the economic case for renewed investment in U.S. transportation infrastructure during a recent speech to the Coalition of New England Companies for Trade.

He said his data have flashed an all-clear signal for the U.S. economy’s continued recovery, and, “Now that we’re feeling less worried about the near term, we need to start focusing on what we can do to make sure the recovery is sustained.”

That means generating productivity and growth needed to pay for the consumer imports and services an aging U.S. population will require. In 1940, the ratio of workers to retirees was 3-to-1. Now it’s 2-to-1 and dropping.

If continued large trade deficits weaken the dollar, the cost of imports will rise just as more Baby Boomers are leaving the work force and consuming instead of producing. “If we can get more productivity per person, then we can afford to have more retired people,” Kemmsies said.

Don’t expect the trade deficit to be lowered by a return of outsourced mass production. Despite recent increases, China’s factory wages are a fraction of those in the United States. The U.S. is no longer the place to manufacture blue jeans.

But the U.S. still enjoys comparative advantage in goods that require lots of capital but relatively little labor. These include agricultural products, coal and natural gas, and capital goods manufacturing.

These industries aren’t labor-intensive — today’s U.S. farms tend to be large and mechanized — but they support jobs along their supply chains and beyond. “The jobs aren’t in producing the product; they’re in exporting it,” Kemmsies said.

And export markets are big and growing. Thirty years ago, the U.S. generated half of global GDP. Now that share is 20 percent and dropping as emerging markets develop.

Tapping those markets requires efficient freight transportation. Shipping costs and productivity are critical for exports with a low per-ton value.

Kemmsies sees opportunities for private investors to supplement government investment. But the government also has a role in ensuring that freight transportation’s impact doesn’t stop at construction payrolls.

There’s a big world out there, even if it’s not always visible from Washington.

Contact Joseph Bonney at jbonney@joc.com. Follow him on Twitter @josephbonney.

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