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My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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Infrastructure and the American Jobs Plan

I was in the United States when President Biden unveiled his $2.25 trillion (plus) infrastructure plan at the end of March. I was especially keen to learn more about this programme because I had just recently flown into JFK Airport (New York City) and was reminded at the airport – and then again in the taxi going into New York City – just how poor the infrastructure is in the New York City area. Airports and the roadways (or trains/mass transit facilities) taking visitors from major airports into cities provide the initial impressions for visitors to any country. Of course, New York is not alone – just think about the roads or bridges near you. In fact, the American Society of Civil Engineers (“ASCE”) recently gave US infrastructure a rating of C– on a scale of A (very good) to F (bad/not fit for purpose), adding that it would take around $5.9 trillion of investment through 2029 to properly modernise US infrastructure. Whilst you might think of infrastructure as things like roads, ports, bridges and tunnels, infrastructure actually encompasses a much broader spectrum of items, including social infrastructure (like schools) and digital infrastructure (like broadband). It is generally agreed by politicians on both sides of the aisle that the nation is suffering from severe under-investment as far as maintaining existing and building critical new infrastructure. Although the need for investment in US infrastructure is generally agreed, the scope of infrastructure and the requisite funding are being hotly debated. This article contains some research on infrastructure, focused on the US, and some information on President Biden’s proposed infrastructure proposal, known as “The American Jobs Plan.”

What does “infrastructure” encompass?

Wikipedia provides the following definition of infrastructure: public and private physical structures such as roads, railways, bridges, tunnels, water supply, sewers, electrical grids, and telecommunications (including Internet connectivity and broadband access). This is a traditional definition and perhaps an overly narrow view of infrastructure with a bias towards transportation. In reality, infrastructure can be broad and means different things to different people. The Bureau of Economic Analysis (“BEA”) recently released a working paper entitled “Measuring Infrastructure in the Bureau of Economic Analysis National Economic Accounts” that provides a very detailed and recent picture (latest 2017) of US infrastructure, which you can find here. It will take some time for you to read the full BEA article, so I have extracted and

will discuss a few of the more important graphics in this paper. The BEA definition of infrastructure is illustrated in the digram to the right and has three layers. The core layer, which broadly aligns with the definition of infrastructure in Wikipedia, is normally what people think about when they hear the term "infrastructure". The additional two layers of infrastructure defined by the BEA broaden the scope to include social and digital infrastructure, both of which are included in the Biden Administration's American Jobs Plan.

How much is infrastructure worth in the US?

According to the BEA, infrastructure in the US in 2017 was worth $15.4 trillion, broken down as follows:

As the table illustrates, basic infrastructure – mainly power and transportation – represents around 60% of total infrastructure stock in the U.S. with 31% associated with social infrastructure and 9% associated with digital infrastructure. The table below presents the growth of these three broad infrastructure categories over several blocks of time to better understand the growth trends. The table also compares infrastructure growth to the overall growth in US GDP over the same periods.

As the table above illustrates, growth of investment in infrastructure in the US exceeded GDP growth through 1987 and was the same as GDP growth for the following 20 years (on average). However, as you can see in the third and fourth columns, investment in infrastructure has been less than GDP growth more or less since the beginning of the 21st century, although it is difficult to say if this is solely due to price declines in digital infrastructure. The graph below from the Bookings Institution shows public (i.e. government) spending on infrastructure in the US during the 2007-2017 period, indicating a range of $428 billion to $465 billion per annum (2.3% of 2017 GDP) over the period marked by a substantial decrease in investment for several years following the Great Recession.

To provide perspective as far as US infrastructure investment compared to other countries, I was able to find data from 2014 from the OECD that shows the percent of GDP that the G7 countries and Australia spend on transportation infrastructure only so as to compare these countries to one another. Here is the graphic from the OECD.

It is estimated that the the US government (federal, state & local) spends around 2.3% of GDP on total infrastructure. This is in line with many developed countries, suggesting that the US is not alone in under-investing in infrastructure. China spends significantly more on infrastructure as a percent of its GDP than any of the G7 countries, estimated by to be 5.57% of GDP in 2018. As always, I would caution the reader that things like the scope / definition of “infrastructure” can vary by source, period of calculation, etc. Nonetheless, it is well-known that China is investing considerably in extending / improving its infrastructure throughout the country, easier perhaps because it is nearly all government directed and – for the most part ­– government funded. In fact, China's infrastructure spend is not solely focused domestically by any means, as its "one belt one road" initiative launched in 2013 is an attempt to improve the connectivity of around 70 countries across the Asia Pacific, Middle East and Europe, increasing China's international influence along the silk road.

Who owns infrastructure in the US?

Ownership of the nation's infrastructure is something that I knew little about before digging into this topic. My instinct had been that much of the basic infrastructure in the US – motorways, airports, tunnels, bridges, ports, etc – were owned by the federal government. In fact, this is far from the case, as you can see in this graphic below from the BEA.

As you can see in this table, the government owns the majority of basic and social infrastructure in the US, whilst digital infrastructure is owned exclusively by the private sector. However, very little of US infrastructure is owned by the federal government, with most infrastructure being in the hands of state and local governments. I suspect that in the “basic” column, much of the transportation infrastructure is government-owned (by states) whilst much of the power and water infrastructure is privately owned.

How is infrastructure investment funded?

Although the majority of basic and social infrastructure is owned by state and local governments in the US, a portion of the funding for such infrastructure appears to come from the federal government, which grants money under its authority to states for such investment. As with many infrastructure items, finding details on this that are both timely and consistent in format is nearly impossible, although I was able to dig up some figures that I consider reasonably reliable. According to (extract from Federal Budget), nondefense spending by the federal government on infrastructure in 2000 was estimated to be $339 billion, which includes physical assets, R&D and educational assets. If we drill down into physical assets only (definition of core infrastructure), then total nondefense expenditures were estimated to be circa $140 billion at the federal level in 2020, of which $93.6 billion (67%) was in the form of grants to states & local governments and $46.3 billion (33%) of direct investments were made by the federal government. Of the grants to states & localities, around 70% of this amount ($66.7 billion) was used for transportation, and most of this was directed towards investment in highways.

Another source – the Peter G. Peterson Foundation – notes that states and local governments spent $342 billion on infrastructure in 2017, well in excess of the amount mentioned in the preceding paragraph that came from the federal government last year ($93.6 billion). The periods don’t match, but still, this suggests that state and local governments spent nearly 3.5 times more on infrastructure than the amount they received as grants from the federal government (such that total public sector infrastructure spend in 2017 was $441 billion, or 2.3% of GDP). The graph below from Peter G. Peterson Foundation illustrates the breakdown in infrastructure investment in the US between the federal government and states and local governments over the period 1956-2016.

One interesting additional fact is that more of the aggregate amount of this investment in 2017 went to maintain and operate existing infrastructure (58%) rather than invest in new infrastructure (42%), and states & localities paid for around 90% of maintenance and operating expenses. If you are wondering how much is spent in the various categories by states vs federal government, the graphic below provides the answers as far as transportation infrastructure.

A final point is that whilst the federal, state and local governments spend extensively on infrastructure in the US, it is estimated that total expenditure in 2016 for infrastructure in the US was $4.5 trillion according to the CATO institute, meaning that the government accounted for only 10%-12% of the total amount spent on infrastructure in the US, with the rest coming from the private sector. This seems high to me, but again, it depends largely on how infrastructure is defined.

Issues with federal government involvement

The issue with government involvement in infrastructure is much broader than just funding, which we have seen is relatively modest compared to the private sector. Even though the federal government currently provides only a small relative amount of funding for infrastructure in the US compared to states, cities and the private sector, it has other influence through laws, rules, regulations, policies and other sorts of means that can affect the development and building of new infrastructure projects. Below are some extracts directly from the CATO Institute (here) so you can understand their perspective, as one of many:

“While the federal government owns relatively little infrastructure, its policies have a large effect on the infrastructure owned by the state, local, and private sectors….. Federal laws and regulations raise the costs and slow the construction of infrastructure such as highways and pipelines. Federal subsidies for infrastructure distort the capital investment choices made by state, local, and private owners. And federal taxes reduce the return to investment in private infrastructure across every industry…… Although some federal interventions may be beneficial, the accumulated mass of regulations, subsidies, and taxes has created a growing hurdle to efficient investment. For example, the average time for states to complete reviews for highway projects under the National Environmental Policy Act increased from 2.2 years in the 1970s to at least 6.6 years today. The number of environmental laws and executive orders affecting transportation projects has increased from 26 in 1970 to about 70 today.”

ASCE Report Card for America’s Infrastructure, 2021

The American Society of Civil Engineers (“ASCE”) sponsors a “Report Card for America’s Infrastructure” every four years and just recently completed its study for 2021. You can access the website here, and it has a further link that allows you to download the full report of the executive summary. As far as background, the ASCE has been around since 1852, and has over 150,000 members in 177 countries, so it is – needless to say – a very credible organisation. The predecessor analysis was prepared in 1988, and the first report card as we know it today was completed in 1998. A report card has been prepared every four years since 2001 with the current report card (2021) just being completed. There are 17 categories of infrastructure that are assessed, including, amongst others: roads, aviation, rail, ports, bridges, tunnels, schools, dams, drinking water and waste water.

The grade for US infrastructure overall since 1998 has been either D or D+, until the most recent report (2021) when the grade improved to C-. This means that infrastructure actually improved during the Trump Administration, contrary to the thoughts of many. To provide some context on the grades, below are the grades and what they mean:

A = exceptional, fit for the future

B = good, adequate for now

C = mediocre, requires attention

D = poor, at risk

F = failing/critical, unfit for purpose

Of the 17 categories on which the report card reports, the grades range from B (rail) to D– (public transit), as follows:

Each report card also reports the funding gap that must be closed in order to improve US infrastructure to a grade of B. In 2021 (looking at the period 2020-2029), the necessary investment in infrastructure is $5.9 trillion and the amount funded is $3.3 trillion, leaving a rather significant funding gap of $2.6 trillion. To close this gap, according to the 2021 report, would mean that the US would need to increase infrastructure spend from less than 2.5% of GDP to 3.5% of GDP, through a combination of government spending and private sector investment.

It should be clear that US infrastructure requires significant investment to bring it to par with what the US should have as the most wealthy developed country in the world.

The American Jobs Plan, President Biden’s vision for infrastructure

On March 31st, President Biden delivered his plans for investment in infrastructure in the US – The American Jobs Plan. You can find the press release from The White House with details regarding the plan here. The $2.25 trillion (up to $2.65 trillion) investment over 10 years is to be largely funded through an increase in the corporate tax rate from 21% to 28%, not the subject of this article. Below is a table published by the Committee for a Responsible Federal Budget (here), which provides the breakdown of the expenditures over a 10-year period. It has a lot of detail, so perhaps it is best to focus on the larger summary amounts.

The New York Times released an article today ("Biden's $4 Trillion Economic Plan, in One Chart") with a graphic that illustrates both the American Jobs Plan and President Biden's just announced $1.8 trillion American Families Plan. Below is the pie chart illustrating the components of the American Jobs Plan, which is easier to follow.

As you can see, the American Jobs Act extends well beyond the traditional core infrastructure definition of mainly transportation, including things like social housing, jobs & innovation, and in-home care..

Funding The American Jobs Plan and general political complications

I do not want to focus on the funding for President Biden’s American Jobs Plan. However, my preference is that the funding needed for infrastructure in the US should come from tax or other receipts, not from borrowing, just as Mr. Biden has proposed. Of course, not all of the receipts need to come tax increases. Some of the requisite investment should perhaps come from user fees, for example from the likes of tolls or an increase in the fuel tax, that more directly apply to the users of the infrastructure. Beyond these comments, I am not going to comment further on the funding side of this hotly debated topic.

One difficulty as far as government funding for infrastructure is that the projects often exceed the election period of elected public officials. Sadly, most elected political figures are focused more on getting re-elected than on the long-term benefits to future generations of Americans. You need to look no further than the ballooning deficit to figure this out. Since major infrastructure projects often require funding over many years, i.e. more than the typical 4-6 years election cycle, politicians generally tend to focus mainly on funding that will generate tangible gains to their constituents during the election cycle. This often makes infrastructure a difficult category for elected officials to focus on.

Fiscal effect of infrastructure spending

Fiscal stimulus through increases in government spending or reduction in taxes have multiplier effects. This means that for each $1 of government spending or tax cuts, the $1 gets recycled into the economy, multiplying on each occasion, creating more than $1 of value. Obviously, the higher the multiplier, the larger percentage of the initial $1 of expenditure that gets recycled into the economy each time it is spent. It is generally agreed that tax cuts have a lower multiplier, mainly because some of the tax cuts might be funnelled to savings rather than spent and therefore are not multiplied. Government expenditures, on the other hand, tend to have higher multipliers because this sort of leakage does not occur.

As far as the American Jobs Plan, Moody’s Investor Services released a report on April 12th that provides the rating agency’s views on the economic effects of the American Jobs Plan. I do not have access to the full research report, but I did read some of the conclusions. Moody’s believes that the American Jobs Act will be net significantly positive for the US economy, even taking into effect the proposed tax increases. Moody’s see the multiplier at 1.5x, meaning that every $1 invested in infrastructure will boost GDP by $1.50. Assuming the American Jobs Plan is enacted, Moody's believes that GDP would be 3.8% in 2024 (rather than 2.2% otherwise), and unemployment would drop to 3.8% by the end of 2024, resulting in the creation of 2.1 million new jobs.


There is little debate that the US is in dire need of investment in infrastructure, with investment needed from both the public and private sectors. President Biden’s $2.25 trillion American Jobs Plan provides a blueprint, although at this point it is conceptual as it has not been approved by Congress. The debate in Washington will revolve around the scope of infrastructure and how the significant investment will be funded. Investment in infrastructure regardless of the scope and size will provide a further boost to the US economy.


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Ambasuthan Jananayagam
Ambasuthan Jananayagam
Apr 30, 2021

Nice, well researched piece Tim. You are preaching to the choir here, as I am a fan of the Green New Deal (both from an employment stand point and its green credentials).

May 01, 2021
Replying to

I am for it too so long as it is funded (so not borrowed) and the scope is “fair”. I would reckon the infra plan will get downsized and be a mid/late 3Q event in whatever form that it emerges from the Congressional sausage factory. Thanks for reading the article and providing your input, v much appreciated.

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