The Washington Post has published a piece stating that the Secretary of Transportation, Peter Buttigieg, is the big winner of the Biden Infrastructure Bill as he will be attending many ribbon cutting ceremonies as grateful local mayors shake his hand. 

Economic research offers many insights here about the efficiency and equity effects of this multi-billion dollar investment.

Point #1:  This is an irreversible investment.  When a city builds a new subway line, this billion dollar project cannot be later sold on Ebay and use the $ to do something else.  In contrast to light rail and subway lines, dedicated buses feature more option value because they can be sold off or redeployed on different routes in the same city. Given that we don't know how cities will develop over time, this real option has value.

Point #2;  Past expansions of public transit have not significantly increased ridership with the exception of Washington DC.  In the case of Los Angeles, improves in rail service (such as the Light Rail on Exposition that I ride) has taken bus riders away from the bus.  See our 2005 paper.      If crime rates continue to be a concern in cities then the middle class will be even less likely to use the "shiny new" infrastructure.  The poor do rely on public transit to move around cities and an expansion will improve their quality of life. An economist would ask whether they value this benefit more than the cash equivalent?

Point #3:  The older infrastructure in the nation is located in older cities, where the population is barely growing (or shrinking) and where the voters are mainly Democrats.  

Point #4:   The highways tend to be built in the suburbs where the voting base leans Republican.  My 2011 Brookings piece with David offers several constructive ideas for how to "build back better" here.

Point #5:  If progressive cities gain better infrastructure due to the Biden Investment AND if they don't build much housing (the progressive city NIMBYism is well documented)  , then housing prices will rise and the poor and middle class will be further squeezed by this new investment.  

Point #6:  There are many economics consulting firms that intentionally offer extremely optimistic ridership estimates ex-ante and this helps ambitious government officials to justify projects (i.e to say that it passes a cost/benefit test) when in reality --- ex-post evaluations show low usage of the new infrastructure.  See Pickrell 1992.

Point #7:  Given that unions are powerful in progressive cities, what is the marginal cost of infrastructure creation in these cities?  Is the Department of Transportation seeking to build a new capital stock or to enrich a special interest group that supports the Democrats?  How many middle class new construction jobs will be created?  Will the expansion of the public capital stock crowd out the expansion of the private capital stock as construction crews work on transport infrastructure rather than building private sector projects?  What is the shape of the construction supply curve?

Point #8, once the new infrastructure is completed --- will this greatly improve urban quality of life in cities such as Baltimore that have been shrinking?  How will the Mayor and local civic leaders and private sector stakeholders change their investments and policy decisions? What positive synergies might emerge?   Our 2021 Unlocking Book explores some of these themes of investment co-ordination between the private and the public sector.  

 Bill Gates argues that we were insufficiently prepared for COVID-19.  Does our failure to adequately prepare for this crisis portend a future under-investment to invest in self-protection to reduce our exposure to climate change risk?

In the case of COVID, we had enjoyed 100 years of little exposure to vast contagion.  This certainly played a role in lulling us into a complacent mindset.  Building on the work of Chuck Manski, a good research project (armed with a time-machine) would take the research back to each year before February 2020 to ask different people around the world about their perception and degree of worry about infectious disease risk as a major global challenge. I predict that few people would have ranked it has a major concern.

Imagine if a Presidential Candidate in 2016 had said, "I will set aside 1% of the Federal Budget (so roughly $30 billion a year) to spend on vaccine preparation and logistics." This candidate would have been mocked for wasting money.

Why didn't the drug companies invest in the architecture to have vaccines ready to be mass produced?  My guess is that the answer is time-consistency.  These for profit firms anticipated that the probability of a major contagion is low and if this state of the world occurs governments would not allow them to "price gouge".  So, by backwards-induction --- it isn't profitable to take the risk to invest in such surplus capacity for a product that is highly likely to not be demanded.   Activist government destroyed the incentive to take this risk!

Pivoting to Climate Change Adaptation

My optimism about our rising capacity to adapt to climate change has only been increased by the COVID crisis.

We now have zoom and major firms are roughly as productive working fact to face as WFH.  Workers are now free to live where they want to live and this opens up many new permutations and possibilities.

We now have more imagination that scary scenarios can suddenly occur and that we can't rely on government to "save us". We are adults and we must use markets and market forces to cope with these changes.

Unlike with COVID, there is much more cross-sectional variation in shocks caused by climate change. Mother Nature is running many more experiments here as different places face a Texas Freeze, a West Coast Fire or  a Hurricane Ida.  Similar to Batting practice in baseball, this experience helps us to learn. An ideas are public goods.

In contrast, with COVID --- we didn't have enough experience with adapting to such risk and despite this major progress was made in keeping our economy humming along during crisis.

A key point that I want economists thinking about is that a "climate shock" is a shock to a place.  This shock affects people who live and/or work at that place or own assets there or use products grown and produced there.  Markets mediate the effect of the shock to a place on different people.  In the case of a COVID-infection --- this is a shock to a person that can be directly amplified to another person through physical contact.  Under what circumstances does a shock to places (climate shocks) look a lot like shocks to people (COVID infection)?

My 2021 book Adapting to Climate Change and my 2022 book Going Remote build on these themes.

In earlier work, I have contrasted adapting to terror attacks versus climate change.  New risk adaptation work could explore the lessons learned from adapting to terror risk, infectious disease risk and climate change risk.

 The Biden Administration is about to enact a new infrastructure law that will spend more than $1 trillion dollars on rebuilding America's infrastructure. Cities such as Baltimore, Cleveland, Detroit and St. Louis need new investment to boost the local economy, reduce local poverty, and increase the quality of life of children in these cities. My co-authored 2021 book; "Unlocking the Potential of Post-Industrial Cities" explores the synergistic investments that are needed to help the many poor people who live in poor cities to achieve their own "American Dream". Unlike other urban books, our book focuses on how to use free markets and the private sector to be the catalyst here. The microeconomic approach to thinking about urban revitalization offers many new insights for how such post-industrial cities can escape the local poverty trap.  My book (co-authored with the wise Mac McComas) has received six 5 star reviews on Amazon.  This average rating is much higher than my book ratings for my other books. 

Urban economists have written about the synergies between investments in people and place based infrastructure. In a series of co-authored papers, I have measured these effects. Here are a few examples;

Siqi Zheng & Matthew E. Kahn, 2013. "Does Government Investment in Local Public Goods Spur Gentrification? Evidence from Beijing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 41(1), pages 1-28, March.

1. Dora L. Costa & Matthew E. Kahn, 2015. "Declining Mortality Inequality within Cities during the Health Transition," American Economic Review, American Economic Association, vol. 105(5), pages 564-569, May.

Seungwoo Chin & Matthew E. Kahn & Hyungsik Roger Moon, 2020. "Estimating the Gains from New Rail Transit Investment: A Machine Learning Tree Approach," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(3), pages 886-914, September.

1. Dong, Lei & Du, Rui & Kahn, Matthew & Ratti, Carlo & Zheng, Siqi, 2021. "“Ghost cities” versus boom towns: Do China's high-speed rail new towns thrive?," Regional Science and Urban Economics, Elsevier, vol. 89(C).
2. Kahn, Matthew E. & Sun, Weizeng & Wu, Jianfeng & Zheng, Siqi, 2021. "Do political connections help or hinder urban economic growth? Evidence from 1,400 industrial parks in China," Journal of Urban Economics, Elsevier, vol. 121(C).

Since Mac and I know that we do not know all of the answers about the likely impacts of the Biden Infrastructure plan for distressed cities, we have participated in a series of enlightening interviews.

Poor cities that experience job growth and improvements in quality of life often experience gentrification. We discuss this complex issue with Emily Badger of the New York Times.

Job Creation and entrepreneurship is essential for a city to flourish. We discuss barriers to entry with Harvard's Edward Glaeser

In recent years, Pittsburgh has made a comeback. What are the lessons to be learned from this important case study? We speak to Richard Florida of the University of Toronto.

In our book, we emphasize the key role that mayors play in determining the local "rules of the game" and setting policies and expectations. We discuss Michael Bloomberg's success as Mayor of New York City in an in depth discussion with NYU's Mitchell Moss

Small businesses can be a key piece in the puzzle for creating wealth and private sector jobs in cities. We speak with NYU's Arpit Gupta about issues related to urban economics and corporate finance in helping startups to launch in cities.

From my two years living and working in Baltimore, I saw a city with great potential whose leaders need to embrace the free market approach to help all of its current and future residents to thrive. The upcoming investments by the Biden Administration in such cities will only have a lasting impact if these cities have created "rules of the game" that increase the investment by; 1. young people investing in their skills, 2. business investment in creating new firms and private sector job growth, 3. government creating a business friendly environment and a safe, green, clean city, 4. real estate interests investing in upgrading the city's aging physical capital stock.

For an overview of the entire book, watch this video that covers Chapter One of our book:

 A few thoughts about the pending Infrastructure Bill.

What Criteria Will be Used to Allocate the Money?

An efficiency criteria would state that it should be allocated to those places and on those projects within such places that offer the greatest economic and quality of life impact.  Before we make such irreversible investments, how do we know what these effects will be?  Is the public ready for spatial general equilibrium models to guide this prospective work?

If the political process diverts $ to be spent in the districts of powerful Congressional leaders, how will economists measure the opportunity cost of such "misallocation"?   This raises the true "price" of this bill and increases cynicism about the efficacy of government expenditure.  

Who Will Oversee the Construction of the Infrastructure?

What would be the costs and benefits of asking the Chinese CCP to build this infrastructure for us?  Their Bullet Train system looks like it has been built more cheaply and more quickly than California's nascent bullet train.  I am 1/2 kidding here.  A cynic would ask;  "Will this infrastructure bill simply create high paying construction jobs for U.S union workers?"  Perhaps that is the real intent of this bill.  Will there be a competitive bidding process for garnering these contracts?  Does the Boston Big Dig cost over-runs foreshadow what will happen here?

How Does "Better Infrastructure" Improve Our Economy's Performance and Quality of Life?

Here I would say that there are key complementarities.  Our leaders must introduce road pricing, water pricing, dynamic electricity pricing to reflect fundamental supply and demand forces. I predict that our true gains from this Keynesian expenditure scaleup will be much greater if the pricing of this infrastructure uses our growing supply of "Big Data" to signal the dynamics of resource scarcity.

For example, Texas will suffer less from the next Texas Freeze if the grid is more reliable and more consumers are incentivized to sign up for dynamic pricing. 

Better Data

I would like to see Mayor Pete in his position at the Department of Transport commit to complete transparency over which entities are getting the subcontracts to implement this work and to see the bidding process details. How will the American tax payers know if the "rules of the game" are designed to protect us from corruption and so that we get our $'s worth from the $ that is about to be spent.