“The second thing is interest rates remain really low. They’ve risen a lot, but they’re still much lower than they’ve been at almost any time in the past. And then finally, [infrastructure spending] will help, over time, the supply side of the economy so we can produce better as a country,” said Furman.
Worries over adding $2 trillion more to the national debt, while not supported by the economic reality, can’t be dismissed as pure politics either, Furman said.
“If somebody came along and said they wanted to do $10 trillion dollars, that would create a problem, or even $1 trillion that was badly designed and badly done, that would use up some of the finite amount of space we have left,” said Furman. “But we do have space left, and we should use it wisely.”
Whether the money is used wisely will be key to the success or failure. The states, not Congress or the president, decide where most infrastructure funds appropriated by the federal government get spent.
“It’s not possible for the federal government to micromanage where every dollar is going to go,” so having broad guidelines for how it should be used, and very comprehensive, robust oversight to make sure it is, will be essential, said Bilmes.
Wasteful spending can be greatly reduced if the plan follows a few key principles, said Stephen Goldsmith, Derek Bok Professor of the Practice of Urban Policy and director of the Innovations in American Government Program at HKS, who studies “smart city” technology.
“One is that every layer of bureaucracy that we go through increases expense and delays application. So to the extent that, at least for our larger cities, the money can go [directly] to the cities and the regions” rather than to “state departments, I think that’s better — better for political reasons, better for effectiveness reasons, better for speed reasons,” Goldsmith said in a recent interview with the Ash Center.
Incentivizing project bidders to come up with new and better ways to do things so that the work lasts longer and yields better results, and speeding up the environmental regulatory process so extra money and time aren’t wasted during reviews of standard permission requests, will also help, he said.
The business and investing communities welcome the federal government finally making good on long-deferred infrastructure promises. A 2017 report by the American Society of Civil Engineers, which regularly examines the quality of U.S. infrastructure, noted that almost $4 trillion in Gross Domestic Product would be lost from the economy if the U.S. did not close the $2 trillion infrastructure gap by 2025.
But many business leaders and investors still have a lot of questions about Biden’s proposal, said John D. Macomber, senior lecturer at Harvard Business School, who teaches infrastructure finance.
“One is, where’s all the capital coming from? The second is, [who will be] doing the work, and the third is, how does the economy benefit?” he said.
By trying to address so many disparate concerns at once, the plan’s primary objective is unclear, said Macomber. Is it to stimulate the economy or to get people back to work across the country, or just in the hardest-hit regions? Is it to boost U.S. competitiveness on the world stage? Improve citizens’ everyday quality of life? To help cities recover from COVID losses to things like public transportation?
“Those are really different objectives,” he said. “I’d rather see some consensus in those objectives and then the individual projects and technologies [flow] from that.”
The ideal plan is one that promotes “forward-looking investments” that will create “lots of good jobs” over the next 50 years and that tackles the major infrastructure repair and replacement work that is too costly and unprofitable for anyone but government to do, like water and wastewater system upgrades and road work, said Macomber.
Expanding broadband service, many transportation upgrades to airports and seaports, and modernizing the electrical grid are all still potentially profitable and should be left for the private sector to sort out, he said.
Whether the country realizes what Secretary of Transportation Pete Buttigieg ’04 has called a “generational opportunity to transform and improve America’s infrastructure” will depend entirely on what Congress can get done next.
“The best outcome, in my view, would be something where the objective is really clear — that we’re trying to increase quality of life or increase American competitiveness or get the nation ready for the next 30 years — and the project selection is clear enough, and the source of funding is clear enough that it’s bipartisan,” said Macomber.
“The bad outcome would be nothing happens and people just argue with each other. An in-between outcome would be that a single party [plan] comes through for half the money … that puts a Band-Aid on stuff.”