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Infrastructure: A Jobs Program for the Next Decade

Anticipation is building as the White House has begun to promise that soon, any day now, as early as September, President Obama may announce a new plan on how to boost job creation. As Laura Meckler of the Wall Street Journal reports, the plan is likely to include tax credits for businesses that hire, a job-training program similar to one in Georgia that essentially lets companies "hire" unemployed people for free for an eight-week period, and infrastructure spending.

Will these measures do a great deal to directly inspire the creation of the millions of jobs the U.S. desperately needs? Not really. But each is worth doing anyway, especially the infrastructure.

If you've driven or flown or taken a train lately, you know the U.S. infrastructure is in disrepair. (Raise your hand if you think your local roads have too few potholes and not enough traffic.) Like former Treasury Secretary Larry Summers, I too get depressed every time I fly in to dingy John F. Kennedy Airport from abroad — and not because I'm coming home from some fabulous destination. As Summers put it, "Compare Kennedy Airport with the airport where you land, and you ask yourself which is the airport of the greatest richest, most powerful country in the world?"

The problem is that infrastructure investment, when it is not deemed a wasteful boondoggle — e.g. the bridge to nowhere — is easily characterized as a very expensive means of jobs creation. Bridges, tunnels and rail, many politicians feel, just don't deliver a jobs bang for the buck. They're right. But they're also thinking about infrastructure the wrong way. The bridge and tunnel crowd may under-deliver on jobs; but it vastly over-delivers on long-term economic impact.

In 1933, when Franklin Delano Roosevelt wanted to put 250,000 young men to work in the nation's forests, he created the Civilian Conservation Corps and handed them picks and shovels. Today, of course, most of the backbreaking work of road construction, trailblazing and tree-planting is done by machines, not people. "Shovel-ready" projects should more accurately be described as "backhoe-ready." Combine mechanization with the trend toward outsourcing and lean manufacturing, under which companies contract out work rather than add jobs, and there's destined to be a big mismatch between funds invested or spent and the direct jobs created. So when a nine-figure loan guarantee helps fund construction of a new electric battery plant, for example, it directly creates only a few hundred jobs.

More significantly, while direct, immediate job creation is always the most visible outcome of infrastructure investments, it is also in many ways the least important outcome. And it always has been.

The Erie Canal, America's first grand infrastructure effort, was an expensive ditch to nowhere. A New York State agency floated the unheard-of sum of $7.9 million in debt. (In the second decade of the 19th century, $7.9 million was real money.) It created a lot of miserable, low-paying jobs — immigrants got paid $12 per month and endured appalling conditions. (The tale is told in Peter Bernstein's excellent book Wedding of the Waters, which I reviewed here.) But the long-term economic impact was massive. Canal towns became seaports, the Midwest became a global breadbasket, and the Hudson Valley became a center of industrial innovation. New York City, in Bernstein's word, became the central span in the "bridge between the inexhaustible supplies of grain from the Midwestern United States and the inexhaustible demand for food from Europe." After the completion of the Erie Canal, the nation's growth rate kicked into higher gear. It was the best $7.9 million the government ever spent.

The same holds true for other infrastructure funded by states, cities and the federal government — from the railroads to the telegraph. What's the economic value of the George Washington Bridge, which was completed 80 years ago, and today allows 100 million vehicles per year to cross the Hudson? The construction of the Hoover Dam put 20,000 people to work. But its value lies more in the gigantic electric generation station it hosts and its ability to help distribute water to a good chunk of the country. Last February I visited Volcanoes National Park on Hawaii. Beyond the steam vents, the petroglyphs and the moonscapes, one of the most interesting sites was a plaque commemorating the members of the Civilian Conservation Corps who helped build it: "From the research offices to the hiking trails, the CCC laid the foundations for much of the infrastructure that we see and use today in the Park." The small sums spent on back-breaking, low-wage infrastructure jobs 75 years ago today help form the basis of a micro-economy: restaurants, gas stations, guest houses and hotels, the park itself.

It's not about the jobs such investments create this year, it's about the value they create next year, and next decade. Last year New Jersey Governor Chris Christie won plaudits for killing a proposed rail tunnel under the Hudson River. He argued that it wasn't worth spending billions of dollars to create 6,000 construction jobs. True enough. But — and perhaps this is why Christie is not particularly popular in his home state — he fundamentally misconstrued the potential economic benefits.

A study by the Regional Plan Association showed that, by speeding commuting times, the tunnel would add $18 billion in value to the region's economy. The study suggested that, by shortening commutes, the tunnel would boost home values for homes within two miles of train stations by an average of $19,000, thus creating a higher tax base. You can quibble with the numbers, but it makes sense. In the New York region, as in many other population centers, home values (and frequently, quality of life) rise in inverse proportion to the length of time it takes to get to the region's economic center. Beyond improving home values, public infrastructure can inspire private investment. There's a reason transit-oriented development is thriving in New Jersey. Denver, Phoenix and Houston will likely realize returns on their investments in light rail as developers built around the stations.

Of course, not all infrastructure investments pay dividends. Plenty of railroads course through depopulated areas. Light rail won't stimulate development if a town's population is declining. The process easily falls prey to earmarks, local politics and high costs. Rep. John Mica, chair of the House Transportation Committee, favors big spending on a commuter rail plan that would mostly benefit freight, as the New York Times reported. But these are reasons to do infrastructure better, not to avoid doing it at all.

Daniel Gross is economics editor at Yahoo! Finance.

email him at grossdaniel11@yahoo.com; follow him on Twitter @grossdm.