Sam Nunn School Professor Seeks to Tackle Infrastructure Problems

Posted November 12, 2018

For years, transportation advocates and engineers have warned of an impending calamity if the nation’s crumbling bridges, tunnels, locks, and dams aren’t repaired.

For years, it seems little to nothing gets done.

Now, amid talk that the new Democratic majority in the U.S. House of Representatives and Republican administration of President Donald Trump might find common ground on infrastructure spending, the issue is back in the news once more.

Dennis Lockhart, former president of the Federal Reserve Bank of Atlanta and now distinguished professor of the practice in the Sam Nunn School of International Affairs, has taken on the issue of infrastructure spending.

In collaboration with John Rice, also a distinguished professor of the practice in the Nunn School, Lockhart is organizing a series of “Infrastructure Dialogues,” including one on Nov. 13-14, 2018.

We talked with Lockhart about his views on how best to fix infrastructure. Here is an edited version of the conversation:

How did you get interested in infrastructure?

As I got toward the end of my 10-year term at the Fed, the drumbeat around the question of U.S. infrastructure began to intensify. In the Federal Reserve, you pride yourself on understanding the economy well, and I realized I didn’t have a deep understanding of what the infrastructure issues were about. As I got closer to the end of my term, I figured I had to reinvent myself in some way, and I was just genuinely interested in what this infrastructure concern is all about. So I made an application to a fellowship program at the Kennedy School of Government at Harvard University, and my proposal was to do a comprehensive metastudy of the infrastructure challenges of the country. I spent a year doing that, and, working with three research assistants, we developed a collection of two-page briefings on various issues in infrastructure.

How substantial is the problem?

On the order of a spending gap of $1 trillion to $2 trillion dollars. And a good portion of that spending gap is deferred maintenance, so it's really, really, unsexy: filling potholes, fixing bridges, doing things that need to be done because we have underfunded maintenance for a generation. The biggest category is surface transportation, but there’s also water management: locks, levees, spillways, canals, dams. That system is very aged.

How crucial an issue is this?

I see a really serious situation.  We need to accelerate spending on infrastructure.  And if we don't address our infrastructure requirements, in another few decades the United States will really be a second-class country from the point of view of infrastructure. Other countries seem to be doing it better. They have better governance and they can make decisions more easily. 

Why has it been so difficult to get anything done?

A good part of public infrastructure investment is at the state and local level. The public sector is fiscally constrained. There are multiple demands on the public purse. Many governments are seriously stretched to meet pension obligations, for instance.

How do we solve this?

I have come to the conclusion, and this falls in the category almost of a cause, that we have to have more private sector participation in infrastructure. And we have to convince the public that that's a good thing. We have to get over the bias against the private sector making money from what many people believe are public goods. That's one of the conclusions I drew after looking at this set of issues for a year.

Who is doing this right in your view?

Canada and Australia are progressive countries as regards infrastructure. The public sector has quite a substantial balance sheet of things it owns, such as roads and airports and so on. And so, in Australia, they have looked at the balance sheet and have said, ‘What assets do we own that we could privatize, that we could sell to the private sector?’ One of their ways of funding public sector infrastructure spending is to sell seasoned assets to the private sector, take the proceeds, recycle that into new infrastructure projects, with no increase in taxes. However, it requires user fees and so forth to create a revenue stream for the private sector investor.

How do you address the equity issues inherent in expanding the use of user fees?

There aren’t easy answers, but I will say that at a certain level, we either pay for it, or we don’t have it. And having the infrastructure makes everyone better off. I also believe that technology can at least give options for dealing with regressivity. There are countries, for instance, that have experimented with the equivalent of ZIP code based pricing. You can also design a transportation network that provides options for those who can’t or don’t want to pay user fees.

Given the recent midterm election results, do you see any opportunity to address infrastructure issues in the near-term?

Well, I would say that the probability of getting some kind of bill passed at the federal level is higher. I think where there will be heated debate is predictable. And that is, how's it paid for, what are priorities, and what's the federal role.

What about the economy?

For the medium term, I think the best prediction is a solid economy. And that means a high level of employment and the inflation rate is likely to stay in the zone around the 2 percent target rate the Fed has set. There may be some slowing of growth. But that's not a recession. I don't see a recession in the medium term. That said, there are always risks, like a trade war or conceivably higher oil prices translating into gasoline prices that jolt the economy. Or a shock that no one sees coming, such as a geopolitical crisis.