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Costs of the Infrastructure Deficit

04 Mar 2011
Posted by Andrew Samwick

From the New America Foundation this week comes a brief report on the efficiency losses of America's outmoded infrastructure.  The costs approach $200 billion per year, with sitting in traffic making up over half that total.  An excerpt:

Congestion has worsened as the expansion of the highway system has failed to keep pace with usage.  Since 1980, mileage of U.S. highways increased 4.5% while the number of passenger cars increased 12.7% and the number of trucks increased 56.4%.  As a result, the amount of time wasted has increased dramatically over the past few decades rising from 14 hours per driver in 1982 to 34 hours in 2009.  The cost of these delays has increased from $24 billion in 1982 to $115 billion in 2009 dollars.  Congestion has also slowed truck freight.  Truckers experience 243 million hours of bottleneck delay annually at a cost of $32.15 per hour, in addition to general traffic delay. Given that oil prices have increased dramatically in recent years, and are likely to remain elevated, the cost of congestion and poor infrastructure are rising.

The growth in truck freight on the roads is really remarkable.  I would be surprised if it weren't more efficient to move that freight by rail, even at the cost of displacing people from the rail system.

Don't worry, the Republicans have a plan

No worries - the Republicans have a plan to get that number down. After all, the value of all that lost time isn't as much if average wages drop, right? Their tax cut giveaways also help, as they ensure that more income goes to people who don't have to sit in traffic jams...


Are those efficiency losses?

Are those efficiency losses from outmoded infrastructure or from bad urban planning? Median commute is over ten miles. Wouldn't treating these "efficiency losses" as a negative externality of gasoline consumption and imposing a Pigouvian tax that reflects the real costs tend to reduce the inefficiency without the frictions that building roads, bridges, etc. brings along with it?


"....even at the cost of

"....even at the cost of displacing people from the rail system."

Apparently you know very, very little about America's transportation issues. This country's rail system is almost entirely optimized for freight, except on government-owned lines around a few major urban areas, and on the Amtrak-owned Northeast Corridor. Outside of those limited areas, there are no passengers to displace. Amtrak's long distance trains are guests that track owners would prefer not host, but it's required by law. (Amtrak would prefer not to have them either, but the makeup of Congress forces Amtrak to run the money-losers.) Trains have always been more efficient per ton-mile, but that doesn't matter when the competing mode of transportation doesn't fully pay for the costs of its infrastructure. Truck traffic has grown primarily because it is massively subsidized via the Interstate Highway System, which is funded mostly by gas taxes paid by individual drivers, and partially out of the general fund.


The Great Stagnation and the US Highway System

Tyler Cowen notes the importance of factor productivity (TFP) in his book The Great Stagnation. (For those of you not familiar with TFP it is the variable which accounts for effects in total output not caused by inputs, so it can be taken as a measure of an economy’s long-term technological change or technological dynamism.) TFP is really what Tyler Cowen is thinking about when he contrasts the pre and post 1973 periods.

The BLS maintains a database of annual TFP for the US back to 1948. A good source of data for TFP growth prior to that is a couple of papers by Alexander J. Field: “US economic growth in the gilded age”, “The Most Technologically Progressive Decade of the Century” and “The origins of US total factor productivity growth in the golden age”. The data however is given in periods and not annual.

Average annual TFP growth is as follows:
1835-1855-0%
1855-1869/1878-(-0.5%)
1869/1878-1892-2.0%
1892-1919-1.1%
1919-1929-2.0%
1929-1941-2.8%
1941-1948-0.5%
1948-1973-1.9%
1973-1995-0.5%
1995-2005-1.5%

The first thing that should grab your attention is that TFP growth was at its most rapid during the Great Depression. The second thing you should observe is that TFP growth was at 1.9% or higher from the 1870s through 1973 with the exception of 1892-1919 and 1941-1948. TFP growth has picked up since 1995 (but has slowed since 2005). So this pretty much supports Tyler Cowen’s conjecture.

Now, why was TFP growth faster during the periods mentioned? Well, Field analyzes the growth by sector and sector size and comes to some interesting conclusions. TFP growth was fast from the 1870s through 1892 because of railroads (which peaked in track mileage in 1916) and to a much lesser extent because of the telegraph. Almost all growth in TFP in the 1920s can be accounted for my manufacturing and that probably fed that decade’s stock market boom. Why did manufacturing TFP explode in the 1920s? According to Field it was due to the widespread electrification of factories (which had started in the 1880s). In the 1930s manufacturing TFP, although still relatively fast, slowed down. (He also points out that private R&D experienced a golden age of sorts in the late 1930s.) But transportation TFP soared mainly due to the growth of interstate trucking and its interaction with railroad transportation. And he argues that this was largely responsible for the growth seen from 1948-1973, as manufacturing TFP actually went negative for part of that period. TFP growth was negative from 1855 to the 1870s primarily because of the Civil War.

The percentage of interstate freight hauled by truck rose from about 2% of ton-miles in 1929 to almost 10% by 1941. It reached 18% by 1956 and peaked before leveling off at about 23% in 1973. What led to this development? (Notice that the biggest increase occurred before 1941.)

The state of the US road network at the end of WW I is reflected in the experience of a fleet of Army vehicles that attempted a cross country transit in 1919. It took them 62 days, averaging about 50 miles a day. Assuming they drove 10 hours a day, this is an average speed of about 5 miles an hour. West of Kansas City, the roads were mostly dirt.

The 1921 Highway Act pledged that paved roads should link every county seat and required that states identify which of its roads should be linked together into a national system. The politics of doing this were difficult so the list of US routes was not finalized until 1926. It was primarily during the Depression years that the United States built its first national road network. The expenditures that made this possible, which included projects administered by the PWA and the WPA, have usually been interpreted as being motivated by a Keynesian make work rationale, and that is often how they were justified politically. But these projects had already been planned and would have been undertaken anyway even if the economy not suffered. During the Great Depression, the stock of street and highway capital in the US virtually doubled, and the interstate (small i) network whose outline had been agreed upon in 1926 was completely finished by 1941.

The Interstate Highway System, launched in 1956, significantly expanded the system, and improved its quality, but its routes were built alongside of or on top of those of the US highway network that had already been built during the Great Depression. Interstate 95, for example, parallels US 1 and sections of several interstates have replaced US 66. Thus by 1941 a significant transformation of US surface transportation system had already taken place. The network of national routes that we have today, although expanded and paralleled by the Interstate system, was essentially complete.

According to Field this transition is major explanation for the high economy wide TFP growth rates that prevailed in the United States during the Great Depression and 1948-1973. The growth of trucking’s share of interstate shipments was a product of both infrastructure investment and important technological advances which included the pneumatic tire and the internal combustion engine, and facilitated the development of a complementary and symbiotic relationship between a growing trucking industry and a pared down rail sector. And it is interesting to note if you subdivide the 1948-1973 period there was a surge to an average rate of 3.0% over 1958-1966, precisely when investment in the Interstate Highway system was at its peak. Evidently it’s not a coincidence that 1973 marks the year when both TFP and the US highway capital essentially stopped growing. But Field is equivocal about whether additional infrastructural spending would have forestalled the decline. Perhaps the slowdown was the result of a reduced potential for gains from additional investment.

One thing we can draw from this is that the rapid growth in TFP from 1929-1973 was in large part due to Federal government investment in infrastructure.


Sadowski: Thanks for the

Sadowski: Thanks for the interesting read. Cheap available oil up until 1973 must also be accounted for besides good roads.


Most road damage due to

Most road damage due to vehicular traffic is due to trucks, but all fuel taxes, including passenger vehicles, contribute only about 1/3rd of direct public road costs. Trucks are heavily subsidized by general fund spending at state, county, and municipal levels on road infrastructure.


Infrastructure or Technological Change?

How do you disaggregate the effects of increased infrastructure investment in the 1930s from the development of more reliable and larger trucks? The first factory-assembled pickup truck wasn't produced until 1925 and the first large Mack track until 1927.


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