Why Does Infrastructure Cost So Much?

There have been a couple of articles recently about the high cost of infrastructure in the United States compared to other countries. Some critics of ours have even argued that this is the real problem we should be trying to solve: that if we just lowered the cost of infrastructure, the long-term maintenance issue would go away. Many of these same critics also claim to be free market advocates, yet here they’re missing a basic free market understanding: if something costs less, demand will increase.

Fundamentally, the Strong Towns critique is based on the lack of financial productivity of our development pattern. If we made the assembly of steel, concrete, and asphalt cheaper, do you think suburban mayors would stop demanding we build them big box interchanges? Do you think minimum lot sizes would shrink and neighborhoods become thicker? Quite the opposite would happen.

The latest article in this genre is a good one from NY Magazine’s The Intelligencer titled Here’s Why We’ve Failed to Figure Out Why Infrastructure Costs So Much. For those of you sending me your complicated projects asking me to help you figure out the cost comparison and return-on-investment, this paragraph was descriptive of the conundrum:

“The complexity of rail-transit construction projects and data limitations, among other things, limits the ability to compare the costs of these projects, according to the stakeholders we interviewed,” the GAO explained. They noted a number of very real problems that make useful international comparisons difficult. For example: Projects are built in different contexts, requiring different construction methods; sometimes they require the purchase of expensive land and sometimes they do not; different authorities report costs by different methods, and there are some cost categories (such as financing costs) that are counted in some reports but not in others.

There are many technical reasons why infrastructure is so expensive—pick your favorite as they are all elusive to broadly discern—but it's clear that there are two underlying drivers that are not merely technical.

The first underlying driver of U.S. infrastructure costs is that the U.S. has felt so rich as a country that, for decades, we spent freely on infrastructure and never asked serious questions about the return on that investment. Never. As I’ve suggested many times, a study of human behavior in complex environments suggests that, with an abundance of resources, complex feedback loops break down. At this point, it’s difficult to identify one underlying cause because the real cause is systematic. And worse, the players involved work in single-discipline silos where a standard way of operating has become normalized; they don’t even know which questions to ask.

Do we really need a third interchange or can we get by with the two we have? (Traffic counts justify a third and we have two big box stores ready to build.) Do we really need to acquire that five feet of right-of-way so we can have 12-foot lanes when 11.5 foot lanes would be just fine? (Of course we do because that’s our standard.) Do we really need to pay a premium price for that five feet of land, as if it were valuable real estate in Manhattan and not the edge of some parking lot buffer? (Of course, unless you want the project delayed for years and for every case to end up in court.) Do we need ten signs or can we get by with eight? (Remember that one time we were threatened with a lawsuit—don’t want any chance of that happening.)

Individually, these are all reasonable reactions, especially when viewed from within a professional bubble that focuses on one or two metrics for success. Collectively, they are disastrous. The richer you are, the more you can throw money at solving your problems. The more money you can throw at a problem, the less you are confronted with the nuances of that problem and the less pressure there is to be creative. The complex becomes merely complicated. Painful feedback and uncomfortable balancing of priorities are avoided. Costs go up and nobody understands just why.

“The richer you are, the more you can throw money at solving your problems. The more money you can throw at a problem, the less you are confronted with the nuances of that problem and the less pressure there is to be creative.”

It’s also important to note that technical professions within the engineering and construction fields have a lot of built-in incentives to not think too critically about this problem. Compensation schedules are often written as a percent of project costs (the more things cost, the more the compensation). When public agencies prioritize fewer, larger projects, it means fewer players making cost decisions, spawning a kind of informal collusion even within a system of competitive bidding. It’s way more rewarding—especially among your peers within a profession—to complain about cheap taxpayers and politicians than to systematically question your own industry practices (trust me, I know).

It’s a little like asking teachers why the cost of public education is so high or asking doctors why medical costs keep going up. Both professions have their preferred scapegoat—administrators and insurance companies, respectively—but neither is in a real position to objectively evaluate their own contribution to the problem. That makes them human, not corrupt. But being human is nonetheless deeply flawed in this regard.

The second underlying driver of U.S. infrastructure costs is how deeply embedded infrastructure spending is within our model of economic growth. We have to spend on infrastructure because we don’t have a mechanism to experience broad economic growth without it, and we must have broad economic growth or everything in our Ponzi-bubble economy will collapse. It’s really that simple.

I wrote an entire chapter about this in my upcoming book Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity. We used tools developed to fight the deflation of the Great Depression to accelerate growth after World War II. The programs that kept us from plumbing the depths during the Depression—things like lowering down payments and extending repayment terms on housing—worked even better when the economy was booming again. The easiest way to experience macro GDP growth in our economy is to induce cities to take on huge, long-term financial losses in subsidizing unproductive development.

From my book:

The United States, and by extension most of the world, suffers from a tragic reversal. We once created growth in our economy because it served us. Growth addressed the age-old problem of how to split one loaf of bread between two hungry people; create a second loaf. It is easy to understand how the need to experience economic growth became a national consensus, particularly for the generation that lived through the Great Depression and World War II.

The tragic reversal comes from the realization that growth once served us, but now we serve growth. The constraint of modern America is that we must experience annual growth in our economy. Without growth, we can’t service our debts, pay our retirements and pensions, and keep up with the rising costs of health care and education.

For a long time, the Suburban Experiment presented an easy solution to this problem. By pouring money into highways and infrastructure, by making it easy for families to buy new homes in distant places and by establishing funding mechanisms for the mass development of commercial real estate, we experienced the longest and most robust economic boom in human history in the decades after World War II.

Yet, each iteration of new growth creates enormous future liabilities for local communities, a promise that the quickly denuding tax base is unable to meet. Not only did these new areas need police and fire protection, street lights, libraries, and parks, but all those miles of roads, streets, sidewalks, curbs, and pipe; all those pipes, pumps, valves, meters, culverts, and bridges would eventually need to be fixed and replaced. At the local level, we traded our long-term stability for near-term growth.

There is certainly no easy way to correct this problem—and no way to avoid pain in doing so, whether it’s from the disease or the treatment. But it’s also not clear that construction costs can continue to grow at rates far greater than core inflation or GDP. At some point—like healthcare, like education, like entitlement spending, like defense spending, like debt interest—the costs overwhelm what governments can beg, borrow, or steal, and things start to break. I listed all those other systems because infrastructure doesn’t sit in isolation from all these other post-WWII models founded on an assumption of continuous kinetic growth.

My approach (if you’re this far, you really need to buy the book) is for local governments and local communities of people to assert leadership, to take active steps to make their places stronger, healthier, and more prosperous, so that—regardless of what happens with the state and federal economies—our cities evolve to become better places to live.

(Cover photo via U.S. Department of Defense)

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