With the economy slowly but steadily improving over the last 18 months, it’s becoming increasingly clear how horribly we botched public policy during the downturn. Public sector construction spending has fallen steadily since Obama’s inauguration, with the federal boost provided by the stimulus bill more than outweighed by state and local cutbacks. That’s left the country with a backlog of maintenance and upgrades that are needed, to say nothing of the basic need for additional construction as the population grows.
A stronger economy means that states are crawling out of budget crisis mode now and can maybe start to think about ramping their spending back up. But there’s a problem. The downturn led to an extended period of very low interest rates in which it would have been cheap to finance projects, but the stronger economy is bringing higher interest rates and thus a systematically higher cost structure. So we underinvested when it was cheap, and now that it’s possible to spend a bit more, that extra money is going to be eaten up by debt service obligations. It’ll probably take several more years before we start making real progress toward where we need to be.
And that, of course, is without considering the larger employment and growth implications. But those are quite large. Had we managed to maintain 2008 levels of public construction spending throughout the past several years, not only would our physical infrastructure be in much better shape, but lots of people would have been employed directly in the projects and lots of other people would have been indirectly employed in the supply chain or in downstream spending by employed workers. Instead, with a years-long recession, many of those people who could have been working on needed projects at a time when it was cheap to build are going to have passed into the ranks of the long-term unemployed. To an extent, it’s all in the past now, but it’s been a remarkable tragedy and waste of human potential, and we’ll be paying the price for years to come.