Barge traffic on the lower Mississippi river has been at a near-standstill for a few weeks now.
Barges full of grain, coal, chemicals, fertilizer and other bulk products have been tied up along the banks in Louisiana and Mississippi for lack of a channel deep enough to carry them. Yet this problem received no mention at either of the political conventions nor anywhere else in the political campaigns.
The Corps of Engineers is doing emergency dredging, but there is a backlog of what long would have been considered necessary channel maintenance on the lower river.
Past leaders of both parties, who for decades united in support of funding vital infrastructure, must be turning in their graves. But the political climate is such that one should not expect any change of heart soon. This, and under-spending on roads, bridges and other public works, undermines the productivity of our economy. But it doesn’t seem to be much of a priority for any presidential candidate or for Congress.
There is little disagreement among economists about the existence of “public goods.” These are goods or services that private markets never will produce in optimal quantities because incentives are lacking. The usual characteristics of public goods are that they are nonrival and nonexcludable.
Nonrival means that because one person benefits from the good does not reduce the ability of others to also benefit. Nonexcludable means that in practical terms, at least, it is difficult to limit use of the item or service in question to a discrete set of users. Thus it is hard to get those who benefit to pay all the costs.
Tornado warning systems are classic examples of a public good. My hearing the warning does not reduce my neighbor’s ability to hear it. And it would be impossible to keep the sound from reaching the ears of those who don’t pay some “tornado warning user fee.”
These limitations remove incentives for private companies to make the investment to set up for-profit warning systems. If government does not act, society will be worse off.
It is not just a matter of a few more deaths from tornadoes. Economic theory is clear that an economy will actually use resources less efficiently in the absence of needed public goods. Without public goods, a given use of economic resources — land, labor and physical capital — produces fewer goods and services than would be possible with such public goods.
Economic history shows the same thing, as does comparative study of other economies. I know this well. In 1969, I rode a bus from Iguazu falls, where Brazil, Argentina and Paraguay meet, back to Rio de Janeiro. This was at the beginning of the great expansion of soybean production in Brazil. It was clear that fertile land was vast but that transportation was woefully inadequate. Some 37 years later, I rode another bus from Sao Paulo up to Brasilia. Once we entered the state of Goias, the speed of the bus dropped to 25 mph or less as the driver dodged enormous potholes and waited for breaks in the stream of heavily laden trucks loaded with sacks of soybeans coming the other way.
I have watched Brazil’s economic miracle for 45 years, and it is impressive, but the country is still hobbled by its lack of investment in transportation infrastructure.
Similar problems exist in virtually all developing countries and are pervasive in Russia. One factor that distinguishes rich from poor countries is that the wealthy ones learned to invest in public works earlier and more effectively.
The cost of moving some export commodity like soybeans from where it is produced to where it is consumed has an economic effect very similar to that of a tariff. Either the buyer must pay more or the producer must get paid less.
In competitive international grain markets, Brazilian farmers get substantially less, because Brazilian beans flow to the coast in burlap bags on straight trucks navigating terrible roads, while U.S. beans move in bulk in 100-car trains or in large blocks of 1,500-ton barges on the Mississippi and elsewhere.
The writers of the Constitution added a clause banning the taxing of exports because they knew such taxes undermined productivity.
But when we neglect needed infrastructure, we end up with the same economic effects.
Anti-government sentiment is high right now, and libertarians argue that there are few, if any, public goods.
Commercial river traffic is highly excludable, they would correctly argue. You don’t need government to build locks, just charge lockage fees as tows move through. Ditto for interstate highways. Just let private firms build tollways.
But it is hard to set up a structure to charge for dredging. And an efficient system of waterborne traffic and roads has spill-over benefits to society as a whole that go beyond the benefits perceived by individual barge and trucking companies.
Public spending on infrastructure as a fraction of gross domestic product has declined in the past three decades. It is much lower than the 1950s and 1960s, when we somehow managed to build an interstate highway system even though per-capita incomes were much lower than they are now.
We no longer spend enough to offset the wearing-out of facilities our parents and grandparents built. Like a South Bronx slumlord, we maintain current consumption by depreciating out our assets.