Wednesday, March 17, 2010

US Infrastructure Disintegrates

On Capitol Hill, the plight of George S. Hawkins [boss of the District of Columbia Water and Sewer Authority] and other utility managers has become a hot topic. In the last year, federal lawmakers have allocated more than $10 billion for water infrastructure programs, one of the largest such commitments in history. But Mr. Hawkins and others say that even those outlays are almost insignificant compared with the problems they are supposed to fix. An E.P.A. study last year estimated that $335 billion would be needed simply to maintain the nation's tap water systems in coming decades. In states like New York, officials estimate that $36 billion is needed in the next 20 years just for municipal wastewater systems. - New York Times

Dominant Social Theme: Time to rebuild.

Free-Market Analysis: It is one more seeming failure of big government in the US. Crumbling roads and highways get the majority of attention from the American press, but the problems with the nation's water and sewer networks are apparently just as severe. Some systems date back to the Civil War, and across the country municipalities are finding that water and sewer grids are aging out and need extensive overhauls. The result, according to the Times article excerpted above, is a national (municipal) movement to raise taxes or raise rates to pay for new municipal water and sewer systems. Yet these money-raising ventures are running into considerable opposition. Here's more from the Times article, above:

In many cities, residents have protested loudly when asked to pay more for water and sewer services. In Los Angeles, Indianapolis, Sacramento ... rate increases have been scaled back or canceled after virulent ratepayer dissent. So when Mr. Hawkins confronted [an] upset crowd near Dupont Circle, he sensed an opportunity to explain why things needed to change. It was a snowy day, and while water from the broken pipe mixed with slush, he began cheerily explaining that the rupture was a symptom of a nationwide disease, according to people present.

Mr. Hawkins — who at 49 has the bubbling energy of a toddler and the physique of an aging professor — told the crowd that the average age of the city's water pipes was 76, nearly four times that of the oldest city bus. With a smile, he described how old pipes have spilled untreated sewage into rivers near homes.

"I don't care why these pipes aren't working!" one of the residents yelled. "I pay $60 a month for water! I just want my toilet to flush! Why do I need to know how it works?" Mr. Hawkins smiled, quit the lecture, and retreated back to watching his crew.

We have in the past alluded to the TARP bailouts and other paraphernalia of the modern regulatory democracy in "crisis" mode. Our point has been that the largesse distributed by the US central bank (and in the EU as well) has probably soured many on the idea of pitching in to alleviate the current financial crisis through higher taxes, rate hikes, etc. People are well aware now of the massive amounts of money available to elite financial programs. They also are personally aware, from bitter experience, of the jobless statistics (in the US and Europe, too) and also of the additional burdens that they are being asked to shoulder as federal revenues collapse and cuts in various services are contemplated, along with the identification of different (taxpayer) revenue sources.

It is an unfortunate fact that many efforts to deliver essential government services tend to fail over time, or at least decay in terms of quality and efficiency. This is because governments are not as good about maintaining projects as they are about allocating funds to create them to begin with. Big projects create jobs and garner votes. But there is not nearly so much benefit to be derived from maintenance as there is from the initial constructions. This is how you get "bridges to nowhere" and the like.

Additionally, because government construction is patronage driven and fueled by gouts of fiat money, it is difficult to tell what government projects are sustainable and practical and what projects are not. Famously, New York City dismantled its trolley system in favor of an elaborate network of highways, parkways and thruways, only to find that traffic projections exceeded all planning estimates. The more roads the city built, the more the traffic increased. This wasn't the plan of course, but it was the result.

Today, New York is saddled with an aging grid of jammed roadways that have not been properly cared for and will need significant upgrades and expansion. The city meanwhile is facing what may be a congenital shortfall in revenues - and the state is in far worse shape. This is not just New York's problem, of course. The difficulties are generic and shared throughout the Western world. The financial crunch is hitting Europe now. In America it has already struck. Municipalities and states are facing million- and even billion-dollar budget holes.

Ultimately, the idea that government can provide necessary services efficiently and at lower cost than the private sector must come under scrutiny. Absent competition, public enterprises will always degrade. Not only is the problem one of lack of competition, but also public services inevitably suffer from the "tragedy of the commons" - where public upkeep is neglected because no one fully takes ownership. This is especially troublesome in modern democracies where administrations come and go. Thus it is, everyone has responsibility for necessary infrastructure - and no one does, until it is too late.

The solution in the recent past when it comes to crumbling public infrastructure has been to consider "privatization." But for governments merely to parcel out inefficient monopoly services to a "private" enterprise does not address the twin issues of lack of competition and the tragedy of the commons. Yes, costs may be cut and services streamlined, but the underlying difficulties will remain as competition cannot be introduced and true ownership cannot be achieved.

Conclusion: It is difficult to predict what will happen as infrastructure and services continue to decline in the West. But an optimistic assessment might be that as other assumptions about government responsibilities come under question in the Internet era, so will the breadth of public services and the ability of the public sector to deliver them. This will not be in a theoretical discussion and therefore the solutions that emerge may be more reality-based and even free-market oriented.

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