Infrastructure Ideas

Not Just Another $2.5 Trillion Infrastructure Plan

April 2021

Earlier this month, the Biden administration announced a much-anticipated infrastructure plan for the United States.  Named “the American Jobs Plan,” the proposal would invest $2.5 trillion (or $2.3T, $3T, or $4T, depending on who is doing the math).  Outside of China, this is the largest national infrastructure plan ever put forward.  The bill is … complicated: we won’t attempt to summarize it, and instead will highlight some of its more interesting aspects.

 1) Size. The first and most obvious feature of the Biden proposal is its estimated cost.  $2.5 trillion is… a lot of money.  It’s pretty close to estimates of annual global spending on infrastructure altogether – which ranges from about $2T to $4T, depending who is estimating and what is being counted as infrastructure.  In comparison, what is usually thought of as the US’ previously largest infrastructure plan, Eisenhower’s development of the interstate highway system in the late 1950s, had a price tag of… $25 billion, or 1% of the price tag of Biden’s plan (yes, we’ll leave inflation aside for now, just making a general comparison).  The next biggest infrastructure proposal that’s been out there is the Modi plan for India from 2019, which clocked in at $1.3T.  But let’s look at the size of this proposal a bit more closely. 

Now, the Biden proposal looks very large compared to global infrastructure spending, and some – for example those focused on trying to find capital for infrastructure in developing countries – have expressed concern that very high US infrastructure spending might “crowd out” access to capital elsewhere.  As we noted, $2.5T is a lot of money.  The Biden plan, however, talks not about spending this in 2021, or even 2022, but over 15 years.  That’s smart, of course; it’s good to match financing with actual expenditures, and many infrastructure projects take long years to properly design and build.  It also changes the way one looks at the size of the plan.  For those doing their math, $2.5T divided evenly over 15 years comes to $167 billion a year – which looks a bit less impressive.  $167B a year is, well, less than half what the US spends annually on infrastructure today, and comes to less than 1% the size of the US economy.  China’s estimated annual spend on infrastructure?  $2.5 trillion. 

So it is a bit hard at this stage to tell how impressive the scale of this plan.  Ambitious by recent US standards, definitely.  Ambitious by global standards, and enough to “fix” the country’s infrastructure problems?  This we’ll only be able to see as details, timing, and implementation of the Biden infrastructure plan become clearer.

2)  Is it infrastructure? Immediate Republican criticism of the Biden plan claims that the proposal is not infrastructure, and rather a mislabeled left-leaning social welfare push (Senator Roy Blunt claimed on Fox News “even if you stretch the definition of infrastructure some, it’s about 30 percent of the $2.25 trillion they’re talking about spending”).  It can be difficult to tell substance from rhetoric in most pronouncements from today’s Republican party, yet the Biden plan does rely on an extremely broad definition of infrastructure.  Child care, retrofitting of buildings, and school modernization are rarely seen in most economists’ definitions of infrastructure.  This is not necessarily good or bad: infrastructure is notoriously difficult to define precisely; it does however mean that the bill’s proposed spending on “hard infrastructure,” or what fits in narrow definitions of infrastructure, will be less than the headline numbers might suggest.  Then again technology has so transformed the economies of today, and continues to do so, that maybe it calls for a wholly different approach to how countries think about infrastructure.

3)  Politics are unavoidable. Infrastructure Ideas has written often about how politics can impede infrastructure investments.  The US is a clear example of this; though the Republican party now seems disposed to support at least some scale-up of federal infrastructure investment, the narrow Democratic legislative majorities and Republican criticism render uncertain the passage of Biden’s bill.  It is interesting to note two big planks of the administration’s strategy on this.  First, note that the infrastructure plan is not named “the infrastructure plan.”  Rather, it is called the “American jobs plan,” a label which makes attacking the bill politically trickier, and is aimed squarely at the block-collar electorate which has been switching away from democrats.  Second, the bill contains several provisions aimed at the “left behind” segments of the electorate which have become increasingly Republican, most notably $100 billion targeted at high-speed broadband networks throughout the country, aiming to make broadband access universal and to drive down the costs for internet.  The coming months will show whether the strategy proves successful.

4)  A changing view on transport. American infrastructure plans have typically talked about roads and bridges.  The Biden proposal does allocate money – some $115B — for roads, but this is accompanied by large provisions for promoting electric vehicles, mass transit, and to a lesser extent rail transport.  $174 billion, or about 28% of the transportation portion of the bill, would go for electric vehicles alone. That includes a network of 500,000 electric vehicle stations, using electric vehicles in bus fleets, and replacing the federal government’s fleet of diesel transit vehicles with electric vehicles. It would also offer tax incentives and rebates for electric cars.  The plan would also allocate $85B to public transit, and some $80B to railroads, for a growing backlog of Amtrak repairs as well as improvements and route expansion.

5)  Is this the Biden climate plan? A good column in The Atlantic calls this “the one thing to understand about Biden’s infrastructure plan.”  The piece claims “there is only one serious vehicle to pass climate policy through Congress during the Biden administration—and it’s this infrastructure plan. If recent history is any guide, the bill is the country’s one shot to pass meaningful climate legislation in the next few years, if not in the next few decades.  In short: If you want the United States to act at a national level to fight climate change, this bill is it. This is the climate bill.”  This is a perceptive analysis: the proposed bill has several climate-related provisions, notably funds for decarbonization technologies in several industries, for the creation of a “civilian climate corps”, modeled on the depression-era Civilian Conservation Corps which contributed greatly to infrastructure building in the 1930s and 1940s, and for some $16 million to plug oil and gas wells and reclaim abandoned mines.  Yet this past week’s White House Climate Summit indicates something much more ambitious is on the way from the administration on climate change.  The politics on such a separate climate bill, though it would be surely needed to meet the administration’s stated climate ambitions, will be orders of magnitude more complicated than for the infrastructure bill.

6)  A big role for states and cities. Most national infrastructure plans create a detailed agenda of projects to be implemented by national agencies, and discussions about US infrastructure in the press in recent years have taken the same tone – often harkening back to the development of the US interstate highway system.  But in the US, a majority of infrastructure investment takes place at the sub-sovereign level, through states and cities.  The Biden plan usefully focuses on using federal spending to leverage and incentivize, not replace, local infrastructure investment.  Thanks for this surely go at least in part to Transportation Secretary Pete Buttigieg, a former a mayor.

7)  Know-how, not just money. It is often difficult to find the funding for infrastructure, but it is always easy to mis-spend money when it’s found.  Mis-spending money comes from many directions: from selecting projects to build which have much less of an impact than others might have (the famous and regrettably plentiful “bridge to nowhere” tales); from poor project design or procurement; from corruption and fraud; and just from plain re-invention of the wheel, which is always more expensive.  Understanding what has worked well and has not worked in other places is one of the most effective tools against mis-spending.  Project development agencies have regularly been highlighted by the World Bank Group and the G-7 as one of the most useful, and cost-effective, means of getting infrastructure plans implemented in emerging markets.  Virginia’s Office of Public-Private Partnerships is a good example of such an agency in the US.   The Biden proposal at least moves in this direction, though details remain to be spelled out.  The proposal says it will “focus on knowledge, best practices, to modernize faster, speed adoption of new technologies, and increase efficiency of sub-national infra planning and effectiveness.”  The White House Fact Sheet goes on to say that “When Congress enacts the American Jobs Plan, the President will bring the best practices from the Recovery Act and models from around the world to break down barriers and drive implementation of infrastructure investments across all levels of government to realize the President’s vision of safe, reliable, and resilient infrastructure. Critically, in order to achieve the best outcomes on cost and performance for the American people, the Administration will support the state, local, and tribal governments delivering these projects through world-class training, technical assistance, and procurement best practices. In addition, the President’s plan will use smart, coordinated infrastructure permitting to expedite federal decisions while prioritizing stakeholder engagement, community consultation, and maximizing equity, health, and environmental benefits.”  A big step forward from previous plans.

8)  Some notable absences. There are a few things which might have been expected to be part of the Biden infrastructure plan which aren’t there.  For one, there is no list of projects, as one finds in so many national plans.  That’s probably good, since as noted above states and cities in the US have a better sense of what individual projects are needed locally, but it has implications, on which we’ll expand below.  There is also no “infrastructure bank.  Infrastructure banks have become an increasingly popular tool in many countries, and more recently in some US states and cities, like the Washington DC Green Bank.  A typical role envisaged for these banks is to help projects leverage public money with private capital.  A recent column in Forbes made a big plug in this direction.  Infrastructure Ideas believes these types of entities can be useful, though less for their fund-raising role, and more for their expertise-sharing capability.  Given the acknowledgement of the importance of know-how outlined above, and the absence of specifics on how this would be done, we may yet see some version of an “infrastructure bank” emerge.  And there is less than what one would have expected for cyber-security, a growing concern for infrastructure of many kinds.

9)  The big unknown: how much will happen? The Biden administration’s plan could make a major difference in the quality of US infrastructure.  But a plan needs to become passed legislation, then become concrete investment plans, and then those investments need to be executed.  Will it happen ?  How much and how fast?  These remain hard to answer questions.  As noted above, the headline ticket cost is very large relative to recent US and global infrastructure spending, yet if spread over 10-15 years the amounts are less extraordinary.  Relative to GDP, many countries publish larger infrastructure plans – though not many of these come to pass as announced: the Biden plan is also accompanied by a fairly clear funding strategy, which is often not the case.  Spreading expenditures over time does increase political risk, as elections may change control of different government branches, and at the moment no one would describe US politics as stable. 

It may also take quite some time to translate the plan into a list of concrete projects.  Demand for funding is likely to vastly exceed funds available, and there will be a lot of competition for the attention of administration members who are seen as making decisions on allocating funds.  This is normal in infrastructure, but it does not always go well.  Diseconomies of scale exist, and the more decisions need to be made by more people, the more chances there are for things to go awry and/or get bogged down.  Having an entity with a mandate to both ensure know-how is passed along (as noted in #7 above), and to ensure that the program as a whole move forward (possibly within Transportation or other departments), would go a long way to turning more of the plan into reality.

One thing we can say safely: these are exciting times for infrastructure in the US.  And no one has been able to say that in a long time.

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