Howard Davidowitz, retailing analyst.
But today's podcast is on investment.
Listen to this episode
Here is the conventional thought.
BOSTJANCIC
No, Kathleen, Investment does drive jobs. Just like Tom's textbook says. Yes, corporations have taken their tax breaks and turned them into robots, but investment is missing in the corporate sector, moribund in the residential sector, and negative in the public sector. Industrial capacity is shrinking as companies "right size." Households hunker down. Infrastructure and education crumble. These public goods are shared by everybody. This is where the investment ought to be made. And we equate education with infrastructure. The workforce degrades just as the transportation system degrades.
The estimated need for infrastructure by 2020. $3.6 trillion. About the Fed's balance sheet.
Once every four years, America’s civil engineers provide a comprehensive assessment of the nation’s major infrastructure categories in ASCE’s Report Card for America’s Infrastructure have been near failing, averaging only Ds, due to delayed maintenance and underinvestment across most categories.
The grades in 2013 ranged from a high of B- for solid waste [the only grade above a C] to a low of D- for inland waterways and levees. [put that in your climate change flooding pipe and smoke it, or get smoked] Rail did get a C+. Cumulative GPA? D+.
Infrastructure is critical for long-term economic growth, increasing GDP, employment, household income, and exports. Deteriorating conditions can become a drag on the economy.
Water and Environment
Dams: D. The average age of the 84,000 dams in the country is 52 years old. The nation’s dams are aging and the number of high-hazard dams is on the rise. Many of these dams were built as low-hazard dams protecting undeveloped agricultural land. However, with an increasing population and greater development below dams, the overall number of high-hazard dams continues to increase, to nearly 14,000 in 2012. The number of deficient dams is currently more than 4,000. The Association of State Dam Safety Officials estimates that it will require an investment of $21 billion to repair these aging, yet critical, high-hazard dams.
Drinking Water: D. At the dawn of the 21st century, much of our drinking water infrastructure is nearing the end of its useful life. There are an estimated 240,000 water main breaks per year in the United States. Assuming every pipe would need to be replaced, the cost over the coming decades could reach more than $1 trillion. The quality of drinking water in the United States remains universally high, however. Even though pipes and mains are frequently more than 100 years old and in need of replacement, outbreaks of disease attributable to drinking water are rare.
Hazardous Waste: d. There has been undeniable success in the cleanup of the nation’s hazardous waste and brownfields sites. However, annual funding for Superfund site cleanup is $500 million short of what is needed, and 1,280 sites remain on the National Priorities List with an unknown number of potential sites yet to be identified. More than 400,000 brownfields sites await cleanup and redevelopment. The EPA estimates that one in four Americans lives within three miles of a hazardous waste site.
Levees: D-. The nation’s has 100,000 miles of levees. Many of these levees were originally used to protect farmland, and now are increasingly protecting developed communities. The reliability of these levees is unknown in many cases, and the country has yet to establish a National Levee Safety Program. Public safety remains at risk from these aging structures, and the cost to repair or rehabilitate these levees is roughly estimated to be $100 billion.
Solid Waste: B-. Americans generate more than 250 million tons of trash. Of that, 85 million tons were recycled or composted. This represents a 34% recycling rate, more than double the 14.5% in 1980. Per capita generation rates of waste have even begun to show signs of decline in the past several years.
Wastewater: D. Capital investment needs for the nation’s wastewater and stormwater systems are estimated to total $298 billion over the next 20 years. Pipes represent the largest capital need, comprising three quarters of total needs. Fixing and expanding the pipes will address sanitary sewer overflows, combined sewer overflows, and other pipe-related issues. Treatment plants now comprise about 15%-20% of total needs, but increase due to new regulatory requirements. Stormwater needs are growing, but are still small compared with sanitary pipes and treatment plants. Since 2007, the federal government has required cities to invest more than $15 billion in new pipes, plants, and equipment to eliminate combined sewer overflows.
Transportation
Aviation: D. Despite the effects of the recent recession, commercial flights were about 33 million higher in number in 2011 than in 2000, stretching the system’s abilities. FAA estimates put the cost of airport congestion and delays at $22 billion in 2012. At current funding levels, that cost will rise from $34 billion in 2020 to $63 billion by 2040.
Bridges: C+. Over two hundred million trips are taken daily across deficient bridges. In total, one in nine of the nation’s bridges are rated as structurally deficient. The average age of the nation’s 607,380 bridges is currently 42 years. The Federal Highway Administration estimates that to eliminate the nation’s bridge backlog by 2028, we would need to invest $20.5 billion annually, as opposed to the $12.8 billion being spent currently.
Inland Waterways: D-. Our nation’s inland waterways and rivers are the hidden backbone of our freight network – they carry the equivalent of about 51 million truck trips each year. It's the same system as in the 1950's. More than half of the locks are over 50 years old. Barges are stopped for hours each day with unscheduled delays, preventing goods from getting to market and driving up costs. There is an average of 52 service interruptions a day throughout the system. Projects to repair and replace aging locks and dredge channels take decades to approve and complete. Inland waterways received a D- grade once again as conditions remain poor and investment is absent.
Ports: C. The U.S. Army Corps of Engineers estimates that more than 95% (by volume) of overseas trade produced or consumed by the United States moves through our ports. Port authorities and their private sector partners have planned over $46 billion in capital improvements from now until 2016, but federal funding has declined for navigable waterways and landside freight connections needed to move goods to and from the ports.
Rail: C+. Railroads are experiencing a competitive resurgence as both an energy-efficient freight transportation option and a viable city-to-city passenger service. In 2012, Amtrak recorded its highest year of ridership with 31.2 million passengers, almost doubling ridership since 2000. Both freight and passenger rail have been investing heavily in their tracks, bridges, and tunnels as well as adding new capacity for freight and passengers. Since 2009, capital investment from both freight and passenger railroads has exceeded $75 billion, actually increasing investment during the recession when materials prices were lower and trains ran less frequently.
Roads: D. Actually up from D- four years ago, but 42% of America’s major urban highways remain congested, costing the economy an estimated $101 billion in wasted time and fuel annually. The Federal Highway Administration estimates that $170 billion in capital investment would be needed on an annual basis to significantly improve conditions and performance.
Transit: D. Transit agencies continue to struggle to balance increasing ridership with declining funding. America’s public transit infrastructure is critical to the one-third of Americans who do not drive cars. Unlike many U.S. infrastructure systems, the transit system is not comprehensive, as 45% of American households lack any access to transit, and millions more have inadequate service levels. Americans who do have access have increased their ridership and that trend is expected to continue. Although investment in transit has also increased, deficient and deteriorating transit systems cost the U.S. economy $90 billion in 2010, as many transit agencies are struggling to maintain aging and obsolete fleets and facilities amid an economic downturn that has reduced their funding, forcing service cuts and fare increases.
Public Facilities
Public Parks and Recreation: C-. The popularity of parks and outdoor recreation areas in the United States continues to grow, with over 140 million Americans making use of these facilities a part of their daily lives. These activities contribute $646 billion to the nation’s economy, supporting 6.1 million jobs. Yet states and localities struggle to provide these benefits amid flat and declining budgets, reporting an estimated $18.5 billion deficit in 2011. The National Park Service estimates its maintenance backlog at approximately $11 billion.
Schools: D. Almost half of America’s public school buildings were built to educate the baby boomers – a generation that is now retiring from the workforce. Public school enrollment is projected to gradually increase through 2019, yet state and local school construction funding continues to decline. National spending on school construction has diminished to approximately $10 billion in 2012, about half the level spent prior to the recession. The minimum investment needed to modernize and maintain our nation’s school facilities is $270 billion by 2020. However, due to the absence of national data on school facilities for more than a decade, a complete picture of the condition of our nation’s schools is unknown.
Energy
Energy: America relies on an aging electrical grid and pipeline distribution systems, some of which originated in the 1880s. Investment in power transmission has increased since 2005, but ongoing permitting issues, weather events, and limited maintenance have contributed to an increasing number of failures and power interruptions. Although about 17,000 miles of additional high-voltage transmission lines and significant oil and gas pipelines are planned over the next five years, permitting and siting issues threaten their completion. Thus, the grade for energy remained a D+.
Conclusion
Infrastructure is the foundation that connects the nation’s businesses, communities, and people, driving our economy and improving our quality of life. For the U.S. economy to be the most competitive in the world, we need a first class infrastructure system – transport systems that move people and goods efficiently and at reasonable cost by land, water, and air; transmission systems that deliver reliable, low-cost power from a wide range of energy sources; and water systems that drive industrial processes as well as the daily functions in our homes. Yet today, our infrastructure systems are one grade from failing, and investment in infrastructure is faltering.
A website that could only have been designed by an engineer yielded a good chart, but I could not find it again to make it more readable.
Public investment is missing. What else is missing? Oh. Jobs. A strong economy capable of returning the budget to balance. Prospects for the future. An appreciation of the economics of climate change
Infrastructure is the bones and sinews and circulatory system of the economy. The workforce from top to bottom is the musculature and tissues, including the heart. The nervous system is the media, perhaps, in all its forms. The digestive system is the market. The brain, intelligence, gray matter, is the collective will channeled by the governing regime. A kind of cancer has spread from the gut through the nervous system and blocked the healthy, hard work that needs to be done, by throwing up an image on a screen of a healthy body and bright future, even as the fat old fart totters to the edge of the cliff.
That virtual health is thrown up on a screen and we’re all encouraged by its being everywhere to watch it. The belly knows best. You have bright teeth if you drink our vodka, plus look at the girls, or guys.
Many of us, listeners here probably included, don’t believe what’s on the screen… can look past it, and see we’re a tottering, obese, arthritic old fart tottering to the edge of the cliff. The economy operates in a real world. The cliff is in the real world. The screen says there is not a cliff, and if there is when we get to the edge we fly away with magical innovation
What then, is profit? It is the satisfaction of the gut. Yes, it’s a good feeling to be fed, and eating probably helps you live longer, but is it the satisfaction that motivates people to do what needs to be done. Even the titans of industry don’t know what to do with all that profit. It’s a good feeling to be fed, I wish everybody could have that feeling, and eating probably helps you live longer, but there is also a certain satisfaction in doing a job well. It seems to set right in the body. Or creating a piece of music or art. Or helping somebody, or seeing justice done, or just breathing the air on a cool, crisp morning.
And of course, there is exhaustion and revulsion and frustration, just as there is nausea from eating and drinking too much, not to mention the hangover and the big gut. To say that profit is the motive force of the economy is to reduce humankind to the level of a cow, or a piranha. I wonder what a cow crossed with a piranha would be?
The Buddhists have a level of hell, or a realm of being, actually, called the Hungry Ghost realm. The beings here have huge mouths and tiny throats, so they can never get enough. Maybe that’s what a cow-piranha looks like.
Profitability of corporations boomed after the bust as they laid off workers, took advantage of cheap financing, and cut back on capital investment. But corporate profitability is coming down, as we said it would, with the decline in government deficits. Michal Kalecki's algebra demonstrated that in the absence of investment, profits are a mirror of deficits.
Stock prices remain high, as multiples increase, but this holiday season will demonstrate how squeezed profits are going to be. Only the 20% who own stocks will be rich. Those 20% are being supported by the Fed and the easy money for stocks and bonds.
Investment in the private sector is overbuilt as a result of forty years of tax advantages and declining demand for product.
With proper forward-looking investment, doing things that need to be done, that demand comes back and they start looking to expand. That demand comes back with public investment. Today we talked about physical infrastructure, but education is the same, the workforce infrastructure, if you will. And there is a care infrastructure, for kids and old people and the disabled. These three are employment for easily 6, 7, 8 percent of the population, the number needed to get going again.
I wonder if any of those projects are shovel-ready yet?
Cumulative Infrastructure Needs by System Based on Current Trends Extended to 2020 (Dollars in $2010 billions)
With each Report Card, ASCE estimates the investment needed in each infrastructure category to maintain a state of good repair. That is, approximately what amount of investment is needed to get to a grade of B?
The table below provides the estimated cumulative investment needs by infrastructure category based on current trends extended to the year 2020 (dollars in $2010 billions). Categories that are not shaded rely on data from ASCE’s Failure to Act series.
| Infrastructure Systems | Total Needs | Estimated Funding | Funding Gap |
| Surface Transportation1 | $1,723 | $877 | $846 |
| Water/Wastewater Infrastructure1 | $126 | $42 | $84 |
| Electricity1 | $736 | $629 | $107 |
| Airports1,2 | $134 | $95 | $39 |
| Inland Waterways & Marine Ports1 | $30 | $14 | $16 |
| Dams3 | $21 | $6 | $15 |
| Hazardous & Solid Waste4 | $56 | $10 | $46 |
| Levees5 | $80 | $8 | $72 |
| Public Parks & Recreation6 | $238 | $134 | $104 |
| Rail7 | $100 | $89 | $11 |
| Schools8 | $391 | $120 | $271 |
| TOTALS | $3,635 | $2,024 | $1,611 |
| Yearly Investment Needed | $454 | $253 | $201 |
Cumulative Infrastructure Needs by System Based on Current Trends Extended to 2020 (Dollars in $2010 billions)
With each Report Card, ASCE estimates the investment needed in each infrastructure category to maintain a state of good repair. That is, approximately what amount of investment is needed to get to a grade of B?
The table below provides the estimated cumulative investment needs by infrastructure category based on current trends extended to the year 2020 (dollars in $2010 billions). Categories that are not shaded rely on data from ASCE’s Failure to Act series.
Infrastructure Systems Total Needs Estimated Funding Funding Gap
Surface Transportation1 $1,723 $877 $846
Water/Wastewater Infrastructure1 $126 $42 $84
Electricity1 $736 $629 $107
Airports1,2 $134 $95 $39
Inland Waterways & Marine Ports1 $30 $14 $16
Dams3 $21 $6 $15
Hazardous & Solid Waste4 $56 $10 $46
Levees5 $80 $8 $72
Public Parks & Recreation6 $238 $134 $104
Rail7 $100 $89 $11
Schools8 $391 $120 $271
TOTALS $3,635 $2,024 $1,611
Yearly Investment Needed $454 $253 $201
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