Not So Fast With That Trillion For Infrastructure

With the tax reform law under their belt, all the talk is that President Trump and the Republicans in Congress are now going to pivot to "infrastructure."  This is the ultimate proposal that could get truly universal popular support.  After all, everyone knows that our infrastructure is "crumbling."  Trump campaigned on a promise to fix that with a trillion dollar program.  Infrastructure spending "creates jobs" (it must -- you can see the people working!), and, when completed, the projects are tangible and surely seem to be adding something to the economy.  This is a win, win!  Who could possibly be against it?

Well, that's why we have contrarians around here.  Government dispensing the infinite pile of free money at these levels creates irresistible incentives for graft and corruption on a gargantuan scale.  In the world of infrastructure spending, it's one thing when the government first identifies a project believed likely to enhance the welfare of the people, and then funds it gradually as money becomes available.  Infrastructure funded on this model could well become a net enhancer of the people's welfare.  The Interstate Highway System would be an example of this model.  But that's not what we're talking about here.  What we're currently talking about is the government first deciding, with no specific projects in mind, that the trillion dollars is going to be spent; and then soliciting ideas from people who want to get in on the largesse.  The prospects that most of the money will be well spent are very slim.  

Even in the best of circumstances, involving desirable and even badly needed projects, the incentives of government processes can lead to tremendously negative results.  Let's consider today what is going on in subway and tunnel construction in New York.

First, there is a legitimate need for additional subway and tunnel construction in New York.  On the East Side of Manhattan, there once was an elevated train line that stretched the length of the island along Third Avenue.  In 1955 they tore it down, with the promise that it would shortly be replaced with a new subway running along roughly the same route one block East, under Second Avenue.  Sixty-three years later, only about a mile and a half of the Second Avenue line has been built.  The other subway on Manhattan's East Side, the Lexington Avenue line, is crowded much of the time to the point of being unusable.  Build-out of the Second Avenue line would greatly ease congestion and improve mobility.  As a second example, there is only one tunnel under the Hudson River to carry all of the Amtrak trains plus all of the New Jersey Transit commuter trains.  That tunnel is used at capacity (at least on weekdays) and needs major repairs, which cannot be done while scores of trains are running through the tunnel every day.  So a new trans-Hudson tunnel is widely agreed to be a priority infrastructure project for the region.  

But if these projects are so necessary and important, why haven't they already been built?  The answer is that, with coercive government assistance, a small number of labor unions have gotten themselves into a monopoly position where they can demand enormous sums for themselves and their members, absent which they have the ability to block these projects.  As a result, prospective costs of construction of these and similar projects are wildly, wildly out of line.  Every time somebody puts a number on how much one of these things will cost to build, it's good enough to kill the project for another few years.

Note that the issue is not that it is inherently too expensive to construct subway and railroad tunnels.  Rather, the issue is that our costs are not twenty or fifty percent too high, but five to ten times international norms.  With costs that wildly out of line, nothing gets built.

I first covered this subject three years ago, in November 2014.  At that time, one of those gubernatorial "blue ribbon panels," the MTA Reinvention Commission, had just come out with a big report on how to solve the MTA's problems.  My take was that they had (as usual) missed "the elephant in the room" -- the elephant being the wildly out-of-control construction costs.  The "Reinvention Commission" devoted all of its time and energy to finding "new funding streams" to pay for projects (in opaque and unaccountable ways), without ever considering whether something needed to be done about the out-of-control costs:

[E]very time some project gets proposed, a price tag gets attached to it that is so enormous that next to nothing can or does get built.           

My post built on the invaluable work of Alon Levy of Pedestrian Observations, who has single-handedly compiled international cost comparisons, for example between New York and places like London, Paris and Milan.  Levy's work has shown that tunneling for trains and subways that can be done for $300 - 400 million per mile in those cities somehow costs $1.5 billion to $3 billion per mile in New York.  Wow!

And now, three years late to the game (but we'll take it) the New York Times finally weighs in yesterday with a big front page article by Brian Rosenthal headlined "The Most Expensive Mile of Subway Track on Earth."  I spend enough time bashing the Times that this time I should give them some real credit for putting in the effort to identify the reasons that New York's costs are so crazily out-of-line.

Some excerpts from the Times article:

Trade unions, which have closely aligned themselves with Gov. Andrew M. Cuomo and other politicians, have secured deals requiring underground construction work to be staffed by as many as four times more laborers than elsewhere in the world, documents show. . . .  

The reasons for the M.T.A.’s high costs start with the sheer number of people employed.  Mike Roach noticed it immediately upon entering the No. 7 line work site a few years ago. Mr. Roach, a California-based tunneling contractor, was not involved in the project but was invited to see it. He was stunned by how many people were operating the machine churning through soil to create the tunnel.  “I actually started counting because I was so surprised, and I counted 25 or 26 people,” he said. “That’s three times what I’m used to.”

The unions and vendors declined to release the labor deals, but The Times obtained them. Along with interviews with contractors, the documents reveal a dizzying maze of jobs, many of which do not exist on projects elsewhere. . . .  

There are “nippers” to watch material being moved around and “hog house tenders” to supervise the break room. Each crane must have an “oiler,” a relic of a time when they needed frequent lubrication. Standby electricians and plumbers are to be on hand at all times, as is at least one “master mechanic.” Generators and elevators must have their own operators, even though they are automatic. An extra person is required to be present for all concrete pumping, steam fitting, sheet metal work and other tasks.

In New York, “underground construction employs approximately four times the number of personnel as in similar jobs in Asia, Australia, or Europe,” according to an internal report by Arup, a consulting firm that worked on the Second Avenue subway and many similar projects around the world.

Now we're going to have a fresh trillion dollars to pay for such projects.  So what if the Hudson River tunnel will cost $20 billion instead of the $3 - 4 billion that it might cost in another city?  So what if the Second Avenue subway build-out will cost $20 billion instead of $3 - 4 billion that it might cost somewhere else?  Shouldn't we just go for it?

Actually, this is important.  The fact that these union practices are government-sanctioned does not mean that they are not an extreme form of graft and corruption.  No matter how badly needed, these projects cannot and should not be built until either the unions bring the costs under control or a way is found around the union blockade. 

A trillion dollars of infrastructure spending?  It will all disappear with almost nothing to show for it if we are not careful.