Infrastructure Investment Microeconomics

 A few thoughts about the pending Infrastructure Bill.

What Criteria Will be Used to Allocate the Money?

An efficiency criteria would state that it should be allocated to those places and on those projects within such places that offer the greatest economic and quality of life impact.  Before we make such irreversible investments, how do we know what these effects will be?  Is the public ready for spatial general equilibrium models to guide this prospective work?

If the political process diverts $ to be spent in the districts of powerful Congressional leaders, how will economists measure the opportunity cost of such “misallocation”?   This raises the true “price” of this bill and increases cynicism about the efficacy of government expenditure.  

Who Will Oversee the Construction of the Infrastructure?

What would be the costs and benefits of asking the Chinese CCP to build this infrastructure for us?  Their Bullet Train system looks like it has been built more cheaply and more quickly than California’s nascent bullet train.  I am 1/2 kidding here.  A cynic would ask;  “Will this infrastructure bill simply create high paying construction jobs for U.S union workers?”  Perhaps that is the real intent of this bill.  Will there be a competitive bidding process for garnering these contracts?  Does the Boston Big Dig cost over-runs foreshadow what will happen here?

How Does “Better Infrastructure” Improve Our Economy’s Performance and Quality of Life?

Here I would say that there are key complementarities.  Our leaders must introduce road pricing, water pricing, dynamic electricity pricing to reflect fundamental supply and demand forces. I predict that our true gains from this Keynesian expenditure scaleup will be much greater if the pricing of this infrastructure uses our growing supply of “Big Data” to signal the dynamics of resource scarcity.

For example, Texas will suffer less from the next Texas Freeze if the grid is more reliable and more consumers are incentivized to sign up for dynamic pricing. 

Better Data

I would like to see Mayor Pete in his position at the Department of Transport commit to complete transparency over which entities are getting the subcontracts to implement this work and to see the bidding process details. How will the American tax payers know if the “rules of the game” are designed to protect us from corruption and so that we get our $’s worth from the $ that is about to be spent.