President Obama is asking Congress to give $50 billion of our grandchildrens’ money to America’s least efficient industries: highway construction and the FAA (nytimes). First, let’s think of the scale of the spending. As U.S. adults seem to have no intention of funding current federal spending or paying off debt, Obama’s spending plan will be paid for by the 50 million or so children who are aged 12 and under. That’s $1,000 per child.
Let’s look at the track record of the sectors of the U.S. economy to which Obama proposes to give this $50 billion. One is highway construction. This is an industry that has developed so few new efficiencies and innovations since the time of the Panama Canal that Americans can no longer afford to maintain the highways that we have, much less build new ones (see the book Traffic: Why We Drive the Way We Do). The relative cost of a highway has gone up so much compared to other things that we might purchase that it is almost insane to contemplate buying more of this product. It would be like someone learning that gold was over $1200 per ounce and saying “Now would be a great time to gold-plate the exterior of my home” or finding out about some $5000 per kilo caviar and saying “I will eat nothing else for the next 12 months”.
Much as I love aviation, as a taxpayer it pains me to see money being shoveled into the mouth of the FAA. Obama promises that some of the $50 billion will go for a “next generation air-traffic control system”. The last time the FAA tried to produce an update for some of its ATC software the result was a project that was more than a decade late when the plug was finally pulled. It cost the taxpayers $9 billion and every line of code had to be thrown out. The agency’s latest project is a change to the way aircraft are registered. For the past 80 years or so, aircraft registrations have not had to be renewed. Owner and pilots notified the FAA when an address change was required. The FAA has decided now to send out U.S. mail reminders to every aircraft owner every three years asking “Do you still live at the same address?” A paper form will be returned by the aircraft owner. (FAA’s official explanation of the process) Figure it costs $300 of owner time and FAA time to work both sides of this paper-intensive transaction, including handling a physical check for $5. There are 357,000 aircraft out there, so that’s about $36 million wasted every year.
How would a private company do this? The FAA already pays contractors about 50 cents every time a pilot connects to a weather briefing service such as DUATS. These services are limited to folks whose pilot certificates have been verified. Nearly all aircraft owners, other than airlines, are pilots who use weather briefing services periodically. If Amazon wanted to get some information out of a customer every three years it might put a note on the Web site saying “Would you mind visiting this link and updating a form?” A private business whose Web site was visited at least monthly by nearly all of its customers would only use paper as a last resort, but the FAA apparently never considered using the Web services that it is already paying for to do the job.
An MIT Civil Engineering professor and I once visited the head of Boston’s Big Dig project, an executive at Bechtel. We showed him some software. He said “Wow, this stuff could save 15 or 20 percent of the cost of the project and a lot of time also. I’m not interested in it.” Why not? “I’m getting paid cost-plus on this project. If we build this highway using the same methods used by the Romans to build their roads, that’s fine with Bechtel.” (The project ended up costing nearly $15 billion or $22 billion when interest paid on bonds is considered. Estimates of the return on the investment range from $0 to $167 million per year, i.e., an ROI of between 0% and 1.1%.)
As the U.S. population trends up to between 600 million and 1 billion (range of estimates for 2100), won’t we need more roads? We can’t afford them so we won’t have significantly more, regardless of what Obama promises. How about public transit? New York City is reducing its public transit offerings; it can’t afford to run trains and buses as well as pay pensions previously agreed to (see nytimes and this article on New York state pensions). The future for Americans may be a combination of walking and videoconferencing. It will make a lot more sense to build dense cities where folks can walk to work, shop, and see friends, rather than trying to create enough additional sprawl for 700 million more Americans. What could we private businesses and citizens do with $50 billion if the government did not take it from them and hand it over to our least efficient industries? At $100,000 per conference room, 500,000 businesses could be set up with amazingly high quality videoconferencing/telepresence systems, thus reducing the need to travel for business meetings. At $1,000 per desktop, 50 million American homes could be set up with moderately high quality videophones, thus reducing the need to travel for social meetings. Given a free choice, it seems inconceivable that private citizens would decide to give their money to highway contractors rather than Cisco, HP, and other innovative companies.
[Comments on the nytimes piece seem rather negative. Apparently people aren’t excited when the government buys stuff that they themselves wouldn’t want to buy. Given that Obama and his advisors are famous for political savvy, I’m wondering why they thought that anyone other than a highway contractor employee would be happy to hear about this proposed spending.]