Saturday, December 27, 2008

Never Play Leapfrog With A Unicorn

We’ve taken Winter Holiday in San Antonio with my wife’s sister and her family. It’s been very relaxing, too much good food, and lots of time to catch up on my pleasure reading. The Kindle is a godsend. I’ve been getting the New York Times every day, more about that in a bit. I read the December edition of The Atlantic on the flight down. There’s a piece by James Fallows on the Chinese view of America vis-à-vis the economic crisis by way of an interview with Gao Xiqing, president of the China Investment Corporation, where if you get past his frustration with “American superiority” the view seems pretty sensible. There’s another piece about Rampage Jackson, a kickboxer who had been light heavyweight champion of the Ultimate Fighting Championship that makes for a compelling read, describing a part of our culture that is entirely alien to me, people who grow up to find a vocation in fighting, the fear about what these people do and how they behave part of what draws you into the story.

Reading on an airplane, part of the idea is to lose your sense of self in the story. The leg room is inadequate, there’s the worry about whether we’ll make the connection, or suffer delays in Atlanta where we have to change planes because the whole country seemingly was in a cold spell on the day we departed, Monday the 22nd, as it turned out we sat on the tarmac for a half hour after we landed and did have to run to make our connection, and there is the general sense of disorientation that travel seems to encourage, which I believe gets worse if you simply let your mind wander without giving it some task to perform. I did start to ask myself about how magazine reading compares to blog reading, even the slow blogging where the length of the pieces may be comparable. One obvious difference is the nature of sources. The Atlantic pieces are written by insiders who talk with other insiders, who are the eyes and ears for the rest of us, and who do this as their bread and butter. It’s very professional in delivery and the Editors of the Atlantic are seemingly quite aware of their need to produce value add for the reader, a difference in perspective, topic, or quality of writing from the usual fare. My goal reading blogs is quite different, either to get new or understand perspective within the profession. The blogs are written by peers for an audience of peers. Mostly the writing is not as crisp. Mine especially comes up short, too much setup where the point isn’t readily apparent, temporarily begging the reader’s indulgence to a deliver a conclusion down the road. The magazine pieces are written to keep the reader enthralled throughout.

Somewhere on the Atlanta to San Antonio leg I switch to the obligatory Le Carre novel, this time Single & Single, which I purchased the evening before. (This aspect of the Kindle I really love, though it is still the case that there are many things I want to read not available on the Kindle. I’ve got Michael Polanyi’s short book, The Tacit Dimension, out of the Library as something else to read, a more serious treatise, so I left it in the suitcase to read down here.) I finish Single & Single off in two days, a totally gripping story, the first day doing nothing else while recovering from the travel disorientation. Now, even with the family chatter and meeting with the various relatives from my wife’s side of the family, I’m halfway through Blink, have begun to read Tom Friedman’s new book, and am making some headway in Polyani, though it is a bit different from what I had anticipated. All of this is a delight, a great way to get some R&R.

On Wednesday, though, I got irritated. Tom Friedman’s column – Time to Reboot America – really put me off. (Apart from checking email on my cell I’ve not been online very much this week, though I did note that Stephen Downes likewise had a negative reaction to this column.) I was annoyed with his example - Kennedy (nee Idelwild) Airport, the international airport in New York City, looks dingy and damp compared the Hong Kong Airport from where Friedman departed, which he describes as ultramodern. The point is that we’re not investing in infrastructure properly, losing out in the global economic competition to the various East Asian miracle countries. In the back of my mind I’m thinking about the Yankees signing Texeira to this huge contract while paying a 20+ million dollar fine for spending too much in player salaries, which may make sense given the new Yankee Stadium, but seems an extravagance especially given the current state of the economy and, though I’m a big Yankees fan, a symbol of how the super wealthy can manipulate the economy for their own personal gain. I’m also recalling how as a kid we’d meet international visitors (relatives of my mom or dad) at Idelwild, how the individual buildings, particularly Pan Am, looked really cool with their futuristic architecture, and how we’d sometimes go to the observation deck in the terminal to wave to our guests as they got on their departing flights. That was forty some odd years ago. Maybe the airport does need a facelift. But who’d be the beneficiaries. Would it just be a sop to international business travelers, more of the rob from the poor to comfort the rich approach that seem to typify the times we live in, or would there be a benefit to the NYC economy that could be more broadly distributed.

Friedman doesn’t bother with that distinction in the piece. Indeed, he’s all over the place on infrastructure. (Maybe he had jet lag when he wrote it and his editor gave him leeway as a consequence. On that, I’m sympathetic.) I expect better, especially since Friedman’s issue de jour is the U.S. leap frogging our Asian competitors by taking world leadership in the turning the planet green. He needs a sensible view about infrastructure to support all of that. At least in this piece, he doesn’t deliver. With such a shaky foundation, one wonders whether the rest of his structure will implode on itself. So in the rest of my post, I’m going to sketch what I believe is the necessary elements of an infrastructure analysis. I’m not going to claim I’ve got it right in the answers. But I believe it is pretty much right in the structure. I’d like to see Friedman (and others too) elaborate and wrangle with these ideas before the Obama administration goes too far down the path to creating its counterpart to the WPA and other New Deal programs.

Providing A Reasonable Definition of Pork

If the other white meat is like beauty, we’ve got a problem. There is then no sensible way to determine which public works projects should be scrapped and it will be politics as usual to determine those projects that do receive funding. There are potentially two different ways to define pork, one via process, the other via product. The process way is far easier in conception, if not in delivery. At present there seems to be agreement that “earmarks” are an unfair way to allocate resources from the public trough. There is a lack of accountability with earmarks and consequently too great a chance that the spending will have only narrow benefit. One wonders, given the bad reputation that earmarks have, why Congress doesn’t self-police and get rid of earmarks entirely, encourage Bills to be clean, to borrow a phrase from Secretary Paulson, and thereby give more transparency to the legislation. I’m not holding my breath on this one, because there’d have to be leadership out of Congress as well as from the White House to get this done.

The other notion of pork would be about product only, irrespective of the process. The image is of the bridge to nowhere, the highway no cars or trucks travel on, the airport with no departures or arrivals. More generally, this notion of pork captures the idea that there are few beneficiaries relative to the size of the public spending. That may seem straightforward but there are several important caveats to consider which make this a harder notion to grapple with conceptually. Here are some of those factors.

For the Thanksgiving holiday the family drove up to Naperville to spend time with my wife’s nephew and his family. On the segment of I-80 we travelled on, just west of where it crosses I-57, the traffic was extreme and everyone had to drive well below the speed limit, even where it was a six-lane road. If traffic is even remotely like that the rest of the year, I could see justification for widening I-80 in that part of the state. To complete our trip, we took I-355, a toll road, north to Naperville. This is relatively new highway and there was very little traffic, except at the toll plazas. Is this an example of Pork? Or is it necessary infrastructure built in a proactive way to anticipate a growing demand? How does one tell the one from the other? This is an illustration of the first complexity to consider.

Illinois is a state dominated by one big city, Chicago, much of personal wealth is located in the surrounding suburbs, and then there is the rest of the state. Champaign-Urbana, where I live, is in that third category. We are reasonably well served by Interstate Highways, but Train service could definitely be better, there are no large planes flying out of our airport (Piedmont, when it was an independent airline back in the 1980s, did fly a large jet out of Champaign) and TV, Internet, and Phone service have fewer alternative providers than in Chicago. If you look at the urban-rural distribution of infrastructure spending, how does one determine the appropriate mix? Sometimes a notion of universal access conflicts with a utilitarian notion of the greatest good for the greatest number. How does one reconcile the two? I’ve got no magic wand on this one, but it did occur to me that for Federal infrastructure spending distributed to the states, one might allocate funds roughly proportional to the electoral votes from the state. This, some might argue, would create a rural bias in allocation. I believe there to be sufficient counter forces built into the politics, the Ted Stevens example notwithstanding, that a formula of this sort might very well be in order. In any event, this is an example of the second complexity.
The type of green investment that Friedman would like to see is of necessity speculative. One can make a strong argument that we need to do this sort of thing, while understanding that after the fact any such investment many not pay off. This is why most everyone who is arguing for green investment advocates for a portfolio approach, to get the benefits of diversification. But what type of portfolio makes sense, especially when some of these investments, i.e., nuclear power, are necessarily lumpy hold some rather obvious environmental risks? Portfolio management here is another possible source of pork.

Another factor to consider is that much public infrastructure spending is for social insurance (or social self-protection) rather than directly providing for service delivery. Think about the Food and Drug Administration, the Levee systems built and administered by the Army Corp of Engineers, and the Security Systems at airports. The beauty about insurance, at least the private kind that we have for home, auto, and liability is that we’re typically better off when we don’t collect on the policy because we haven’t suffered loss. While too little self-protection may not be prudent, too much looks like pork. How does one tell the one from the other? I know I feel that much of the security at airports is worth very little and I’m quite sure I’m not alone in that assessment. But I’m equally sure there are experts who’d disagree. This is yet another example of the dilemma.

Prioritizing non-Pork Investments

Personally, I prefer to think of various shades of gray in terms of thinking through the social benefit from any specific public investment. The shades-of-gray approach allows for the possibility of particular investment projects that are not pork, yet not sufficiently important to get Federal funding. But, of course, that leads to the question whether a particular investment project is worth funding. Politics aside, can we answer this question in the abstract based on rationality criteria alone?

I don’t know the answer to this. What I do know is that in the restricted domain of information technology, listening to security experts talking about infrastructure one gets a conclusion that other IT providers, let alone students, faculty, and staff who consume IT services, will disagree on the appropriate infrastructure to provide, the consumers care more about quality of use issues in the non-accident state and only turn their attention to the accidents once they happen. The perspectives are remarkably distinct. It is non-trivial to reconcile them. And this is just IT. How does one do this more broadly, and at a national level rather than a campus level? It would seem necessary to articulate some additional principles to aggregate these differing viewpoints. What are those principles? Rather than picking the winning investments ahead of time, it would be more useful to do the hard work to develop such principles. Friedman mentions in his piece that he’d like to see tax incentives instead of public provision. Tax incentives may help with speculative investments that otherwise won’t be profitable. But they probably aren’t helpful for providing rural access to infrastructure services. Is there a principle or two embedded in that observation?

Crumbling Infrastructure Investment

It seems to me that the issues of road repair, bridge repair or replacement, renovation of crumbling schools, in other words where making functional investments in publicly provided capital projects that are better thought of as upgrades rather than as new projects, these should be considered in a distinct way from fundamentally new infrastructure.

On my Campus, and on many campuses nationally, there is a substantial “deferred maintenance” problem. Older buildings have inadequate HVAC, electricity, plumbing, network, and other functionalities we expect in new structures. Performing the requisite maintenance is necessary, but it is completely unsexy. Other needs seem more import pressing and they rather than the deferred maintenance commence any and all discretionary funding. The only way to adequately address the problem is to have a separate fund that can’t be allocated for other purposes and diligently pursue the maintenance projects.

I believe we need to pursue something similar on the Federal level. The maintenance/replacement fund should represent some fraction, say 80%, of the total need. There would then be commission to the base closing commission, determining which projects would not receive renewal funding this year but would continue in operation, which would be retired entirely but they don’t deserve to be renewed, and which should be updated. The actual fraction would be determined by the size of the fund in a full-employment zero deficit government budget, by how much fundamentally new infrastructure investment is envisioned, and by anticipated GDP growth. I have no clue as to what the right fraction is, only that “boring part” of infrastructure must be provided for well, probably before the fun new stuff is considered. I don’t see anyone really talking about this in terms of identifying the order of magnitude of the spending. We need to get beyond the point of talking about the Minneapolis bridge disaster to talking about what we will do to address the problem by getting a sense of how large it is dollar-wise and how long it will take to get to a steady state where the problem has been internalized and addressed.

WPA-like Projects as Keynesian Economics

I believe it correct to follow the Paul Krugman dictate to ignore Federal deficits near term and try to spend our way out of the current recession. But to the extent that spending is in infrastructure, I think it reasonable to ask how much of it could be done and be sustained long term. It’s true we’re all dead in the long run, but our children and grandchildren are our beneficiaries and we should care about their welfare. It makes little sense now to invest beyond long run sustainable levels. Consideration of this sort might get us to a more sensible discussion of tax policy and appropriate tax rates. The public rhetoric on this issue is abysmal and completely non-informative. We need to do better in this dimension.


If the Obama regime is to produce substantial change, it will be necessary for there to be widespread support of the policies. Tom Friedman, with his Times column as bully pulpit, has the ability to influence opinion but within the Beltway and out in the electorate. Infrastructure is a hugely important issue. There needs to be greater sophistication in considering the issues. Some of them are hard. Better to identify those sooner rather than latter so we can have open debate on the right course of action, rather than simply have that imposed from above.

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