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tv   Larry Summers on Public Investment  CSPAN  January 23, 2017 5:47pm-6:49pm EST

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the trump administration. >> the idea that you should scale back the fcc and give a lot of its responsibilities to the ftc is something that the networks have been pushing for years. i mean, before i took this job, there was a headline, an article in the "washington post" that said, in essence, here's how the networks intend to cut the fcc. and it would be tragic if that happened. >> watch "the communicators" tonight at 8:00 eastern on c-span2. former treasury secretary larry summers spoke earlier this month about the importance of public investments in education, transportation, and other infrastructure projects. this was part of a day-long forum hosted by the brookings institution.
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>> good morning. i'm david wessel. i'm director of the hutchens senator on fiscal and monetary policy. the hutchens center was formed three years ago now. this is actually our third anniversary, to improve the quality of fiscal and monetary policy, and public understanding of it. and i think that this is actually a very good embodiment of what we had in mind when we started the hutchens center with a generous gift from mr. hutchens. we believe there's a role for research in both shaping good economic policy, and in helping
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the public better understand it. and certainly, infrastructure, spending, and investment in human capital are one of those things that -- or two of those things that are often reduced to bumper stickers, sometimes with no evidence whatsoever behind them. i just want to say a word about the hutchens center. as of today, we have done 44 events. today we will publish our 26th and 27th working papers. we've done 19 explainers, part of our public understanding, and produced one computer game, a game that helps educate people on the federal budget. and there's going to be a laptop or ipad set up outside if anybody wants to try it. but today we have a very simple question, unfortunately not such a simple answer. so say you want to spend more money on public investment. that seemed popular during the presidential campaign. where should you spend it to get the highest return, and on what
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evidence. and so our attempt today is to get -- to begin with some discussion of the evidence, and the arguments for public investment. those of you who have looked at program know we will start with a keynote from larry summers, who among other accomplishments, is co-chairman of the hutchins center advisory committee, to be followed by a conversation with ed glazer that i'll moderate, then we have a panel of academics i will introduce later to talk more about the evidence on physical infrastructure. then we will turn to human capital. it was our belief that too often, the conversation in washington has -- separates investments in physical capital and human capital, and we attempt today to bring them together into one thing. the other thing we've tried very hard to do is avoid advocacy for one particular form of public investment based on the interests of the people who are promoting it. there's an entire industry that's dedicated to telling us that we ought to put all of our
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tax money into pre-k and another industry that's dedicated to no, we ought to put it all into roads and bridges. we hope today to shed some light on the evidence for this and the arguments and also the questions that remain to be answered, because i think that we would be foolish if we pretended that all the questions had answers. following the panel that i will moderate, we are fortunate to have kristen butcher from wellesley college who will talk about the aspects of which transfer payments, particularly low income family, can be considered investment. then we will break for lunch and return with sarah turner, who will talk about education and what we have learned about research and education and the efficacy of that over the last few years. been a lot of work done. then we will move to a discussion, i will introduce the people later, about the politics and practicalities. it's a long day. i appreciate everybody coming on time. we are on c-span and huffington post and the brookings website,
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so be careful what you say. but not too careful. that applies to everybody except you, larry. you don't have to be careful. there's coffee outside. the bathrooms are in the back. my colleagues here at brookings would appreciate it if you, when you get up, if you take the papers on the floor and put them in the recycling in the back. with that, larry summers. >> thanks very much, david, and i am glad to be here and to participate in this event on what i think are a very consequential set of subjects. if you are looking for either predictions as to what will happen in the next several
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months in washington, or you are looking for politically feasible judgments about what could happen in washington over the next several months, my talk is not the one you should pay attention to. instead, i want to do four things this morning. first, talk in a broadway about why i think infrastructure is so important. second, make what i think is the overwhelming case for a program of expanded investment in infrastructure maintenance. third, make what i think is the more speculative but still compelling case for a broader program of infrastructure improvement and fourth, remark on the important role of markets, prices and the like in
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improving the ways in which we invest in infrastructure. so question one, why do i think infrastructure is so important and a compelling need in the united states right now. at one level, there are a variety of studies which i suspect will be discussed in subsequent panels that make a case that the return on infrastructure investment as conventionally measured is relatively high, at least compared to the government borrowing rate which for the long term in real terms in the united states is now very very close to zero. at a broader level, there is --
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there are a set of economic observations that would suggest to me at least that conventional measures of rates of return are likely to understate the benefits of at least many categories of infrastructure investment. we know that more open trade generates economic benefits that substantially exceed any calculation of conventional dead weight losses, perhaps because of the spur of efficiency from competition, perhaps because of the economies of scale from larger economic aggregates, perhaps from the greater facilitation of specialization. in the same way, we know in ways that are not predicted by at
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least the simple economic theories taught in basic courses that levels of productivity are much higher in the presence of substantial agglomerations of people than they are in the absence of such agglomerations. again, evidence that bringing people together yields benefits. what does infrastructure do? infrastructure permits in substantial part larger interchange and reduces effective distances, thereby facilitating trade and agglomeration. it would therefore be very surprising if the private benefits of infrastructure were not exceeded by the social benefits. i have wondered about this for
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many many years since reading the work of robert fogle on the trans continental railroad. the historians in general believe that the trans continental railroad was central to the success of the american economy in the last third of the 19th century. that was the general view of historians. fogle demonstrated that if you did a calculation and you said well, transportation is x percent of gdp and the railroads are half as expensive as canals would have been and you multiply the two numbers together, the whole thing could only have been 2% or 3% of gdp and therefore the whole thing was not
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ultimately very important and all the historians were wrong. maybe. or maybe fogle didn't recognize and didn't take account of the various other trade-like benefits that were facilitated by the knitting together across the country that the infrastructure investment permitted. i suspect at least some of the latter. second reason why i believe infrastructure investment is so important at both a broader economic and social level is that in a world where most things are increasingly mobile, private capital almost completely, ideas almost
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completely, private companies, enormously. a nation's infrastructure is distinctively local and is distinctively defining of its strength. that means that in an economic sense, an investment in infrastructure creates pull ineffects attracting mobile factors from abroad to the more attractive infrastructure rather than having benefits, a substantial part of which diffuse outside of our country. i also believe that at a time when we should, if we learned anything from the last election, is the importance of responsible nationalism. that the idea of a common infrastructure in which all
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americans can take pride in its quality, is a potentially important constitutive element of our nation. so i think there are a priori considerations for believing that infrastructure is profoundly important. second, a case for maintenance. it seems to me is overwhelming. the american society for civil engineers estimates that extra burdens on automobile owners, because of poorly repaired roads in the state of massachusetts are about $2.3 billion which extrapolates to over $100 billion for the united states as a whole. depending on just how you do the
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calculation, it is between 50 cents and $1 tax on gasoline that motorists pay each year in extra automobile repairs because of poorly repaired roads. it is inconceivable to me that fixing that is not an investment with an extraordinarily high rate of return. now, i have no idea whether the american society of civil engineers has made that estimate with precision, whether that estimate is right to within a factor of two or not. but if it is even close to right, it surely makes a case for very substantial increases in maintenance investment. the same point, and this is not
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something that will easily be quantified with a statistical estimate, was made for me years ago when i was treasury secretary and i, as was my habit at that time, every time i visited an american city, went and visited a high school and gave a talk about the importance of financial education and education more generally. i gave such a talk, it was i thought at the time a pretty good talk, and a young teacher came up to me and said secretary summers, that was a really interesting talk, but i'll tell you what i think the kids don't understand. i said what's that? she said well, you said that their education was the most important thing in the world, but the paint is chipping off the walls of all the classrooms
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in this school and it isn't chipping off the walls of mcdonald's, it isn't chipping off the walls at walmart, it isn't chipping off the walls almost any other place except at the school, so why should they think that this society regards their education as the most important thing in the world? and i'm not usually at a loss for words, but i had no effective answer, but what i do know is that there are 10,000 schools across america where faint is chipping off the walls and i do know that on somebody's estimate, 20% of the chemistry labs in american high schools have hvac systems that don't work so the kids get sick when they do the labs. now, that can't be right. here's another thought.
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fixing this is fiscal prudence. the evidence is people have done these studies on delayed road construction, delayed road repair, and it's what you would think, prevention is cheaper than cure, waiting for the road bridge to collapse is much more expensive than buttressing the bridge before it collapses. yet we have a set of measurement systems that measure with elaborate precision and require congressional approval on a periodic basis every time we increase the value of the dollar debt of the country. but deferred maintenance is every bit as much a debt burden on the next generation. it is one that cumulates and compounds at a much higher rate
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and we have no mechanism for measuring it, let alone limiting it, let alone containing it. the final reason why i think the case for more maintenance is compelling, i will go a little bit over time here, guys, and that is that all of the incentives for all of the actors are against maintenance. nobody ever named a maintenance project. nobody ever got recognized for a maintenance project. nobody ever much got blamed for deferring maintenance during the time while they were in office. and so all of the incentives are to defer maintenance and also to
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defer pre-maintenance. i learned this when i was president of harvard. there were all these people running around saying harvard should be more green and you just should be more green and make programs to be more green, and frankly as an economist, i was not hugely impressed by this stuff but then i learned a little more about it, and here's what it turned out happened in two-thirds of the buildings built at harvard between 1990 and 2005. somebody was in charge of the project. they had a budget. they were overshooting their budget. the part they were overshooting their budget because they had underestimated things. in part they were overshooting their budget because the faculty wanted fancier laboratories or fancier offices or whatever so the budget was being overshot. so everybody was mad. what did they do?
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they took out at the last moment the insulation plans. in order to save money. well, they did save money. they got in under budget. of course, they paid 20 cents a year in extra heating costs and air conditioning costs for every dollar they spent, so it was completely stupid in terms of the university's financial health, but the incentives there were overwhelming to do it. if you don't think that's pervasive in infrastructure investment, what the public sector does across the country, i have a bridge i would like to sell you. so i think the case is overwhelming that we should be spending substantially more on maintenance. how much, if you take that $100 billion a year in damage to automobiles, it's hard for me to
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believe that there wouldn't be a pretty compelling case for spending half a percent of gdp more each year on the -- on maintenance at least for the next decade as we work off the backlog. there's more. the treasury did a study or commissioned a study. i can't judge, again, the precise wisdom of the calculation. the study was done by infrastructure advocates but it emphasized that there were 40 projects across the country that cumulatively would cost about $200 million and would in present value have benefits of somewhere between $500 billion and $1.1 trillion.
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i can't evaluate each of the projects. here's one i think i know a little bit about. the air traffic control system of the united states. it is based on radar. i'll tell you three initials that have nothing to do with the air traffic control system of the united states of america. gps. i have been banging on, some of you probably heard me say it, about jfk airport, laguardia, how terrible they were, and how this made a case for infrastructure investment, how it's terrible. well, eventually what i figured would happen, did happen, which was the guy who was in charge, the guy from the port authority, called me to try to get me to stop and he knew, he was a shrewd guy, he knew he wasn't going to get me to stop a good story unless he gave me a better story. so he decided to tell me more than i knew about the air traffic control system. he said how does the air traffic
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control system work when it gets really congested over logan, excuse me, over the new york area? he said well, they do some of it on the screens, the radar screens, but there isn't actually enough capacity for all the green dots and so there's another technology they use, thumb tacks, yellow stickies and an oak bulletin board. this is the new york area air traffic control in what calls itself the greatest country in the world. that cannot make sense. the energy losses because we do not have a sensible national power grid transmission system do not make sense. the safety losses because we transport energy on trucks and trains rather than through
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pipelines do not make sense. it would not surprise me if there were substantial benefits to a sensibly designed national broadband program, though that is i think a less clear question. i am familiar with all these analyses about how mass transit doesn't work and how high speed rail really isn't cost benefit given how spread out american cities are. i am. in some cases, i'm sure those analyses are right. on the other hand, it's hard to believe that we are not awfully grateful that people built a subway in manhattan 100 years ago. hard to believe that we're not awfully grateful that that
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happened. it seems to me when we think about our obligations to posterity in a world where things become much, much more costly to do, we need to recognize the creation of those option values as a value. so i think there's a strong case for a substantially more ambitious national infrastructure investment program, perhaps on the order of 1% of gdp each year going forward. finally, what about the role of the private sector, what about the role of prices. the case for user fees, the case for congestion tolls, is it seems to me an overwhelming one
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to anyone who thinks about the economics. there is no reason why people who use infrastructure more heavily should not pay for it. there's no reason why we shouldn't create infrastructure, to the point where it yields benefits that are not to the point where it is fully used at a zero price. so part of any comprehensive approach to infrastructure it seems to me has to be much more reliance on user fees. part of any national strategy for addressing infrastructure has to be addressing the effectiveness with which we
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publicly invest. that goes to questions of efficiency in procurement. that goes to the enormously burdensome systems of regulation. the bridge that some of you will know that connects harvard square with boston is 362 feet long. it has been under construction now for -- repair, not construction, repair, for five years. five years. as i gently suggested to the people in charge, yes, this was a complicated reconstruction project. it really was a complicated project. it had many different aspects to it. on the other hand, world war ii was a complicated project as well and it had only taken three
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and a half years to win, and i noted that prior to the advent of more or less any technology, julius caesar had constructed a bridge across a 2,000-foot span of the rhine in nine days so their five days didn't look very good. it is for politically scientists more than economists to figure out how to solve this problem, but it is an immensely important one. let me say finally, perhaps ed and i will have a chance to return to this, that i see no merit in the idea that using tax credits for contractors to implement infrastructure investment will address any of
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these problems. i called it somewhat inelegantly on television yesterday a potemkin village of nothing. i think it is a singularly poor idea whose principal effect will be to enrich those who are the recipients of the credits, in many cases for projects that would have been undertaken anyway, rather than to bring about a necessary infrastructure revival. thank you. [ applause ]
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>> thank you very much. entertaining as always. i'm still trying to get my head around the potemkin village of nothing. one of the disadvantages of no longer being a full-time reporter at the "wall street journal" is i no longer get to take a larry summers speech and turn it into a column and take credit for his good ideas although i have noticed we seem to have reached a point of inflation, because i remember everything always had three points and did, ytoday, you are four. i guess that has to do with dwathe quantity of good ideas. let me turn to you. ed glaeser has written quite a bit about this subject. i read a piece you wrote in city journal a couple months ago in which you said there are three popular propositions. one that the 21st century business needs a 21st century infrastructure, that infrastructure puts people to work and that infrastructure should be a national responsibility financed by
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federal tax revenues. you said all three of those popular propositions were wrong. >> did i say the first one was wrong, too? i was on a roll. >> so let me, the floor is yours. is larry right or not? >> yes. >> but. >> yes, but just as america's infrastructure needs its full-throat advocates it also needs its skeptics. americans will not get the infrastructure they deserve unless we both propose it, critique it and argue over it. in some sense that's what my job is although quite honestly i pretty much agreed with almost everything larry said. let me go through. i think you may have missed the subtext of one of his comments which is harvards economics department really needs a new hvac system and it's a great naming opportunity. okay. the first point that i want to make is that i do want to be a full-throated advocate of a
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microeconomic rather than macro economic approach to infrastructure. the microeconomic approach is one that doesn't emphasize the sort of larger impact on economic growth but rather looks at how many users there are going to be, what are the costs of the thing, what are we actually getting in terms of ancillary benefits. i think there are a couple reasons, three to be precise, why this approach has some real strength. one of which is, the magical thinking that can often come with this infrastructure is going to make insert your locality, detroit great again, is that you get incredibly foolish things that would never have passed muster from a competent cost-benefit analysis. detroit's people mover monorail is the poster child for unwise infrastructure investment and that never would have made sense if people were actually counting bodies and trying to figure things out. second thing, if you have a focus on jobs and macro economic effects, it leads to infrastructure in the wrong place. the macplaces that need more infrastructure are largely america's growing successful
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metropolitan areas. it's not west virginia. it's not the rust belt. detroit was built for 1.85 million people. it now has less than half that amount. it is not detroit that needs new roads. it is san francisco. it is new york. third, it pushes us towards the wrong funding model. here, i agree completely with larry that the primary thing should be users should pay. it is an outrage that we expect voters and tax payers in montana to pay for the quite wealthy people who take new york airports and it also leads to misallocation of resources. but the more we think of this as a national responsibility, it pushes us against the model that says look, the real expectations for most of this stuff, drivers should pay for their own roads. now, second point is just on the user pay principle on this. i think it's very helpful if you have a user pay principle both in terms of project evaluation, that it leads towards better cost benefit analysis, if we are expecting by and large users should pay. there are cases in which this is
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not appropriate. there will be cases with externality in which we need to find the right subsidy model. larry is not a fan of credit credit but we need something coming in if we think these projects will yield large externalities. if we have a question that is more the matter of the cost is higher than the average cost, in the terms of some rail systems, there are creative funding models. i'm a big fan of hong kong's transit system which funds itself by building skyscrapers atop new subway stops and turns a tidy profit as a result. i'm not sure i trust the new york mta to engage in this business but something that ties more closely to property tax revenues near the infrastructure to the benefits like tax increment financing is not crazy. third point, one of the biggest reasons we want to have user fees is to appropriately ration the access to the space. the right to drive on all of america's highways and streets was not written into the bill of rights after the second amendment. this is valuable space.
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there's no reason that it should be free for everyone. singapore has gps based congestion pricing that they are working on. there's no reason that america should not have exactly the same thing to ration our space. matthew turner, will hopefully say something about the fundamental law of highway traffic, a wonderful paper he wrote, which shows that vehicle miles traveled increase roughly one for one with highway miles built. if you build it, they will drive it. okay? and there is, you know, unless you actually use prices to ration, you just get more and more drivers on the space. i should push slightly back about there are cases in which transportation yields things had that look like agglomeration and also cases in the case of the highway system in which you end up de-aglomerating. each new highway that cut through a metropolitan area after world war ii reduced
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congestion. not only does it need to be paired with better incentives, it needs to be paired with the right institutions. so i, you know, i want to also make myself a persona non grata in the port authority of new york and new jersey on this. i believe strongly just giving money to the port authority is foolish. in fact, it does the opposite of what we want to do which is to get meaningful institutional reform and i think almost surely in this case it means breaking this up. it was a poster child for good government 100 years ago. it is no longer. there's no reason why those airports can't be separate. in fact, it may well be the right answer to privatize some of those airports. anyone who has flown recently from heathrow to jfk may think the prooif privatized heathrow example is working better than the public example in new york but that's not a uniform answer. and privatization is not a panacea either. we have a long history of private providers of transportation subverting local governments and extracting rents from them. all the cautions around tax
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credits and tax credit abuse are correct. there's a role but there's a role that needs to be monitored and thought through. we have a great picture of how ppps can go drastically wrong. you can make your own decision about where you think the u.s. falls between the institutional quality of chile which is high and sub-saharan africa in terms of our ability to manage ppps properly. >> want to take a guess where we are? >> i leave that up to you. the institutional reforms also necessary when we think about larry's comment about the anderson bridge. larry's five years is actually misleading because there were another three years wasted in the planning process before you actually got to that. so in fact it's at least eight years is actually the right thing on that. now, that's both about bureaucratic issues but also about a planning process that reacted to perhaps the excesses of the robert moses era of megaprojects in which we allowed
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a master builder to go ahead and build bridges across new york and did things that looked very unattractive in some ways but on the other hand, he got things done and respond to this by saying everyone has a seat at the table. if you want to argue about which bricks need to be brought in from maine to make sure this is historically correct, you have a right to sit at this table and we have a right to hear your voice. we don't get things done quickly. that's not how world war ii was done. we need to decide if we will tomorr tolerate a little less community engagement if we want to get things done. community engagement makes things unaffordable by making it hard to promote housing. almost assuredly the highest returns are to maintenance. this is an area which needs to be done with robust public financing. it's very very hard to imagine we are going to do this with the current system with user fees. i particularly like the model that the federal government gets more in the business of actually measuring and then tying highway trust fund payments to maintaining the quality of these
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roads. but maintenance is job one. it is the most important thing. there are new technologies where exciting things might happen. autonomous vehicles make it possible to imagine autonomous vehicle lanes that are user fee financed that are incredible. i think when we -- we shouldn't rule out big projects but when i think about av lanes and autonomous vehicle truck lanes, dedicated trucks going in dedicated lanes running the big corridors, there's no reason why you can't imagine that this is going to be entirely user fee financed. finally, i want to make a plea for the humble bus. buses are the forgotten children of american transportation and yet they are the transportation that is often best tied to america's urban core, to a category of people we should not expect to necessarily pay for all of their transportation. there's an old line that 40 years of transportation economics in harvard can be boiled down to four words, bus good, train bad. okay. now, that's partially because there's not a lot that you can do with a train in urban setting
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that you can't do if you have a bus on a dedicated lane. bus rapid transit has been a big success in much of the developing world. when you think about it, part of the beauty of the bus is that it's flexible. you can change the technology as the technology improves. you can make it autonomous. you can reroute the thing. it has adaptability which is highly attractive. let meened end by saying i agr with larry but i want to do it in as confrontational and hostile a manner as i can. thanks for giving me the chance. >> larry, i want to ask two questions and i'm interested in what you think about what ed said. first two questions. once upon a time not very long ago, you and others advocated for more infrastructure spending as a good way to put people to work. that was then. we had a much higher unemployment rate than we have now. is that part of the argument no longer relevant? >> good question. i think -- here's what i have
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kind of come to think about this. you can't do large amounts of infrastructure on and off in a usefully countercyclical way in any world that's remotely like the world of america today. the truth is that the obama administration wanted, would have been delighted to have had the whole $800 billion stimulus program be infrastructure investment, that the number that was chosen for infrastructure investment was the maximum number that the technocrat would accept putting in a budget as remotely feasible and it was thanks to herculean efforts by the vice president, was just about achieved in terms of spending in two years. otto eckstein joined the council
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of economic advisers in 1962 and was very impressed by the amount of countercyclical spending that seemed to be going on all over washington as things were being built. it was really a huge tribute to the new keynesian economics and then he asked a few questions and learned that it was the countercyclical spending from the 1958 recession that was just kicking in. so turning large amounts on and off in substantial projects is not a feasible thing. turning some on and off, particularly in the maintenance area, is a feasible thing and should be an important policy tool. there is also, i think, a legitimate argument and i won't rehearse it in detail here, on the secular stagnation thesis
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suggesting that demand shortfalls may be a much more pervasive feature of economic life over the next 20 years than they have been over the last 20. to that extent, there's a case for a chronically more expansionary fiscal policy which also relates to the fact that in a world with excess savings, there will be chronically very low real interest rates and so i think there is a demand side case as well for more infrastructure investment. i think what should vary is less the quantity of infrastructure investment than the financing of the infrastructure investment. the when things are strong, there should be a gas tax in place. when things are not strong, there is a stronger case for
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borrowing. so i think the balance of the argument has moved over time and i think the demand side case is a more complicated one, but if ed basically favors taking a 95/5 micro versus macro view of thinking about infrastructure, i would probably take a more 70/30, mike's 70 micro, 30 macro view. >> where we sit today at the beginning of 2017, is this a time when we should borrow for infrastructure or finance it by tax cuts -- tax increases? or spending cuts? >> i mean, you can't really answer that question apart from the context of what's going on in the rest of the budget. if the only major thing we were
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doing was substantially increasing infrastructure investment, i would be comfortable financing at least a substantial part of it with debt, because i believe the extra revenues that the supply side benefits of the infrastructure investment would generate would largely cover the debt burdens. in the context of what i wouldn't favor but i think is likely to take place, which is trillions of dollars of tax cuts, i don't think there's room for trillions of dollars of unpaid for tax cuts and a very large infrastructure expansion all financed with borrowing. look, i think more generally, something that should be said is there is every reason in the
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world for the gasoline tax in the united states not to have been allowed to be cut in half in real terms over the last 30 years, as the congestion increased, as motor vehicle burden on highways increased, as the salience of carbon emissions increased. we should be taking much less regulatory and much more price oriented approaches to encouraging energy efficiency than we are as a country, and a higher gasoline tax would be an early and/or a carbon tax would be important steps in that
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direction. >> how do we decide where user fees are appropriate and where not? seemed to me you mentioned two different situations. one is one where there are externalities and so the society should pay for the stuff that the users don't pay for. i think that's pretty clear. but towards the end of your remarks, you talked about buses and you said, you implied i think that buses might not pay for themselves with fares and there are clear distributional issues with user fees. they are sometimes derided as lexus lanes where only the rich people can ride in the low congestion lane. how do you deal with that second thing and how do you decide when it's appropriate and when not? >> well, there is an old line which is i don't actually need to know where the policy ends up, i just need to know the right direction of it. right now i feel pretty confident we need more user fees rather than less. let me be less trite than that.
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the case for buses being subsidized is it's not a huge subsidy. it is targeted particularly to the poor. we already are doing it and almost surely should continue to do it. if we wanted to experiment with higher prices occasionally we can do that but it seems risky on the bus front. in terms of congestion pricing on highways, the overwhelming issue is not the economics. economists are sort of overwhelmingly on board on the advantages of having time varying fees but trying to ration the space. the overwhelming issue is the politics. some politics of this is rational as people actually will be losers from this. there's a terrific paper by jonathan hall at the university of toronto actually shows a way you can actually turn half of a highway of a multi-lane highway into a priced highway and half you leave the same so you actually do for once in our lives have -- everyone is held harmless. it's a very clever plan. that being said, typically people raise absolute hell over
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putting any form of congestion pricing in, whether or not it's rational or not. remember, congestion pricing can be highly progressive in lots of ways. there's a reason why livingston imposed congestion pricing in london. he was doing it because he could check tax the rich financiers driving it to subsidize buses. but the case where this is really doable is on new stuff. there's like an endowment effect that goes on with voters which is if you show them a new highway they have never seen before and say this one comes with a price they shrug and say that's fine. if you take an existing highway that's always been free and slap a price on it there's bloodshed in the street. the case is whenever you get new highways, whenever you get new road capacity, price it and whenever you get new technologies, like autonomous vehicles, establish the principle that autonomous vehicles are going to have gps based congestion pricing from the get-go. justify it however you want but get it into the system so that people can justify it by safety,
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justify it any way but get it in so we establish this principle and keep it there. >> larry, one final question before i ask for a couple quick questions from the audience. i have heard the story about this bridge over the charles river before. want to get a little specific. if the congress of the united states says okay, we kind of agree that it's kind of ridiculous it takes us forever to do anything, tom freedman once observed the chinese can build a convention center in the time it takes to repair an escalator on the washington metro, what specifically do you want us to regulate differently? environmental regulations, davis-bacon, zoning? what do you have in mind? >> let me -- i will answer your question but i will tell one more story first.
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it was an he indicatieducation . i had a really good laguardia story going for awhile. some of you will probably remember this. if you go from the hallway where the shuttle flies into laguardia and you go to baggage claim or where you would get into -- where you would get a cab, there was an escalator. it was a sign on that escalator that was placed there on about october 20th, 2014. it said escalator under repair, new escalator coming may 2015. implying it was a six-month project to fix an escalator. just seemed like something out of nehru's india and i couldn't quite believe it and i went to town about the ineffectuality of
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the public sector. i did learn in my conversation with the port authority that that terminal was 100% privately owned by delta airlines and that whatever my problem with that escalator was, was 100% private sector problem. i think it is a mistake to leap to the conclusion that the public sector always messes these things up. look, i think we have to have less promiscuously distributed veto power in this society and that that is basically a different balance between popular participation and the
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imperative of moving forward with projects. there probably needs to be less recourse through judiciary with respect to decisions that are made by elected officials. and there probably needs to be more recognition that non-governmental organizations which are often viewed as the idealistic voices of the people are often special interest groups as well, albeit ones not focused on the profit motive. i think the davis-bacon issues are quite separate from that. >> want to take a position on davis-bacon? >> no. >> i'm going to take three questions.
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they will be short because we have to get back on time. the gentleman in the back. then there's a woman here on the aisle. and the gentleman -- yeah, him. these three right here. >> george friedlander. my concerns with all of this are a million but i will go to the two extreme ones. one is the problem at federal level of project selection which has never been solved sufficiently. when you have a federal role. and then at the state and local level, there's the problem of the political cycle which is if i do things on the cheap for now, i will get reelected. if i do what is really needed, it will be too costly and i probably won't. it seems a lot of it all seems to come back to return on investment and nobody, i don't think, has figured out how you measure roi on this. >> so your first point is project selection, right?
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okay. behind you over there? >> thank you very much. i appreciated your -- both of your comments about user fees. i would be interested in your thoughts about what i call the invisible users so there might be absentee land owners next to a transit section or highway. they never i don't the highway but get a windfall on land value. should they be paying user fees? >> and a woman on the aisle. >> i come to this from a very different perspective which is you need to educate the public. if you want to make it politically work, and it's very complicated, they have to understand it. academics do not write for non-experts. they write in a very small circle. and if you want to get support
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for making these major changes, you need to write for non-experts and anything that is a process, i would suggest you get illustrators to help you do it. >> okay. >> we live in a much more complex world than when i was growing up. there are many more pieces. it's a 1,000 piece or 10,000 piece puzzle and you always write about three pieces of it. >> there's a very insistent woman over here. i'm taking that the intensity of your hand raising means you have a very short question. >> i think it's short. and probative. on the subject of user fees and not all users are equal, i wonder how much amazon pays to maintain the roads for which all of its product deliveries are based. it seems to me that warehouser out west will probably be using the roads in a state other than the one it's logging. i come from wisconsin. kimberly-clark is a heavy user of the roads.
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when you talk about user fees, where is the corporate as opposed to the individual user? where are they plugged in? >> okay. those are more questions than we will have time to answer. you get to pick one ones you want to respond to. >> i want to say that your indictment of economists is correct. but these two are not guilty of speaking only to their peers. >> many of our colleagues think we should speak a little bit less to the general public, a little more to -- >> [ inaudible ]. >> okay. larry, want to start? >> companies pay user fees when they use the roads and in fact, the ideal schemes tend to cause trucks to pay disproportionately relative to cars and in sort of nonlinear with the number of axles. that would very much operate in the direction you're saying.
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we try to reach broad audiences. we don't always succeed. >> i think maintenance is -- maintenance is the answer to some of this, because if you focus on maintenance, you're not going to do maintenance projects on things that nobody's using. the things you are going to naturally maintain are going to be the things that are extensively used and so if you focus on maintenance, i think it tends to drive somewhat better allocation systems. i think the question of collateral rents, if i can call it that, is an interesting one. i'm told that the original mass transit systems were financed in part the way golf courses and ski areas are financed today. people develop them in anticipation of being able to
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sell the land nearby. this is an additional argument for property taxation, which is jurisdictions that do that will reap the benefits in higher property values as a consequence. but i think that is something that should be figured into the calculation. >> absolutely. i would even, even more radically, land taxing. taxing based on the land you're buying, the incremental value seems like the right way to handle the incidental beneficiaries. i want to make a political point though about maintenance. it's not just an issue that maintenance is the right answer a lot of the time. it's the politics. it's part of what is pulling away from maintenance. you get a lot of new press for a new project. if you are a politician you like the new project. you don't get a lot of press for maintaining the hvac system in the school even though it's probably more socially valuable. so one thing we can think about
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doing is trying to shine more light on maintenance efforts. that's one of the roles that can be really positive for the federal department of transportation is regularly publicizing maintenance efforts that are going on and where efforts are not going on at the local level and again, tying financing to it. again, just to come back because it was raised, larry's point on the actionxles is exactly right. i can remember once having a conversation with a public official, big advocate of public spending for infrastructure and his line was look, i just want the guys to be able to ship through chicago without sitting in traffic for an hour and a half. i stared back and said i want them to get that, too, i just want them to pay for it. that's really the point. we all want a better infrastructure for america. we do in fact want a 21st century infrastructure for 21st century america. we want it to be done wisely and we want most of the time the people who use it to pay for it. >> thank you both. larry? >> somebody, what this
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conversation is making me realize is somebody should, with some methodology, for every city, every major city, and every state, do a calculation of annual maintenance neglect and rank them. and if there was, you know, it would be like the poverty line. it's not that the poverty line isn't questionable in a whole set of ways, but the fact that there is a poverty line focuses attention on poverty in a way that it never was focused on before there was a poverty line. if there was an annual deferred maintenance burden, it would generate attention on this and people wouldn't want to be at the bottom of the list. people wouldn't want to be subject to the


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