Washington's Road to Economic Decline
On March 29, a CBS News headline read: "Congress passes stopgap transportation jobs bill." This framing was not surprising since House Speaker John Boehner said the transportation bill was "his signature jobs plan." House Minority Leader Nancy Pelosi said it "will create jobs immediately." And even Senate Majority Leader Harry Reid and Transportation Secretary Ray LaHood echoed these remarks. This is just the latest in a long history of bi-partisan bonehead thinking on Capitol Hill about transportation, jobs and the economy; the bill that was passed not actually solving transportation issues in America or substantially boosting employment.
It is no surprise that in an economic slump, or any other time really, politicians would focus on the jobs "created" by transportation spending. Leaving aside the flawed logic that taking money from one group of people to fund work by others in any real way "creates" jobs. The stopgap transportation bill is a poster child for how Washington has long been thinking about transportation, which explains the decisions it has made that have undermined economic growth in the United States.
Joshua Schank, president of the Eno Center for Transportation, put it well in a comment to the Associated Press last month: "How many jobs did we create by building the interstate system? Nobody knows. And who cares? We built the interstate system, that's what matters."
Building a road doesn't necessarily create any more jobs then digging a hole and filling it back up. But in the end, having a road rather than some turned earth makes a big difference to the economy. Improved infrastructure is crucial to economic growth, and that is where the jobs come from. Making transportation spending about the construction jobs instead of the infrastructure is like making investment decisions based on how attractive the broker is rather than the expected return of the investment. They are unrelated ideas. If that is the"signature" approach to employment the country is in trouble.
At a coarse level, transportation is fundamental to economic interactions on any scale, providing access to larger markets, much greater variety of inputs and goods, increased competition and thus more efficiency and lower prices, geographic specialization, and concentrated large-scale production.
But transportation is even more to the economy than that. If the economy were a machine, transportation is the oil that lubricates the machine. This has long been recognized by the producers and merchants in the United States. In the 18th and 19th centuries, private companies built almost as many miles of toll-roads as we have Interstate miles today. And those toll roads lost money, but it didn't matter - merchants, farmers, landowners, and ordinary residents gladly funded the roads in return for the mobility and trade they made possible. The economic benefits were too much to pass up.
Indeed, back in 2003, economists Chad Shirley and Clifford Winston found that investments in highways significantly improved the profitability of businesses, with rates of return of 15 percent or more.
Furthermore, there is a reason why urban economists explicitly refer to congestion as a "tax." Gumming up the flow of transportation of workers, customers, inputs, and outputs is a direct drag on productivity. Research on French and Korean cities found that for every 10 percent increase in travel speeds, the labor market expanded by 15 percent and productivity by 3 percent. A similar study in the San Francisco Bay Area found that every 10 percent increase in commuting speed increased worker output by1 percent, and that as the labor market "shed" (the amount of workers within a certain distance of their employers) expanded from 30 minutes to 60 minutes, labor productivity increased by 25 percent.
A larger study of gridlock in cities in the U.S. that I directed ("Gridlock and Growth: The Effect of Traffic Congestion on Regional Economic Performance") found that congestion reduced labor productivity and regional domestic product. For example, if Dallas could maintain free flow conditions on its highway network, by 2030 its regional economy would generate $46 billion more dollars by improving access to its universities, $23 billion by improving access to its major suburbs, $18 billion through improved access to its shopping malls, $8 billion from improved access to its airport, and $6 billion through improved access to the downtown. Denver would reap economic benefits of similar magnitudes. Atlanta would benefit, but not by quite as much: $15 billion from improved access to its growing suburbs, $24 billion by improving access to its malls and universities, and about $10 billion by improving access to its airport and downtown.
And it is not just work trips that matter. Only about 1 in 5 trips people make are to go to work. The rest are for consuming - shopping, recreation, entertainment, getting professional services, etc. Clogged transportation systems reduce our ability to consume as well.
So in the last 20 years, while Congress has focused on transportation legislation all about the faux creation of jobs, fighting to get more transportation dollars for their districts, promoting pet issues or projects, in other words politicizing transportation funding, they have made transportation less effective. The rate of return on transportation spending has dropped precipitously since the 1980s. Congestion has been growing more than twice as fast as the national economy. A few years ago the U.S. Department of Transportation chief economist estimated that over the next 20 years, the cost of congestion could amount to $890.5 billion, or 4.3 percent of the value of the entire national economy!
Our economy needs an oil change in the form of revamping transportation policy to focus on providing an effective transportation system that fuels economic growth rather than political ambitions and the creation of jobs "immediately," as Rep. Pelosi put it. Two years ago, a colleague and I sketched out in some detail what a more effective highway trust fund reform would look like. The most important things we focused on were transportation investments that maximize transportation benefits and mobility, and funding transportation with user fees, not taxes. Our economy depends too much on effective transportation for it to be a political pony to ride.
