The Economic Impact of Bad Infrastructure

Money PlantAccording to the American Society of Civil Engineers, the debt ceiling isn’t the only economic malady currently inflicting America. The United States faces an infrastructure spending gap of up to $1.1 trillion by 2020, and up to $4.7 trillion by 2040, and the economic downside of not taking proactive action is enormous.

“Overall, if the investment gap is not addressed throughout the nation’s infrastructure sectors, by 2020, the economy is expected to lose almost $1 trillion in business sales, resulting in a loss of 3.5 million jobs. Moreover, if current trends are not reversed, the cumulative cost to the U.S. economy from 2012–2020 will be more than $3.1 trillion in GDP and $1.1 trillion in total trade,” reads a new report released by the group.

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The ASCE argues that underinvestment in physical infrastructure such as roads, bridges, transit systems, and energy and waste-water systems, results in material costs to both businesses and households. For example, time is a critical cost factor in determining the price of a good or service. How long will it take to transport a product from point A to point B? Will it have to be by rail, truck, or plane? If these times are artificially inflated because of highway or airport congestion, then shipping costs will increase.

This will have a systemic impact on the price of goods that consumers buy at stores. If it costs the supermarket more to receive a shipment of vegetables, that cost will be passed on to the consumer. In short, time delays as the result of bad infrastructure could raise the consumer price index.

The ASCE also asks readers of the report to consider the cost of time wasted stuck in traffic outside of a strictly commercial sense. There are a limited number of hours in a day, and an even more limited number of productive hours. If average commute times are cut, then more time is freed either for work or play. If shipping time is cut, productivity rises.Man Measuring Money

Ultimately, the ASCE argues that bad infrastructure is bad for competition. The results of their research shows “that deteriorating infrastructure, long known to be a public safety issue, has a cascading impact on the nation’s economy, negatively affecting business productivity, gross domestic product, employment, personal income, and international competitiveness.”

The ASCE calculates total 2020 infrastructure spending needs to be $2.7 trillion, and is expected to see funding of $1.6 trillion, leaving a gap of about $1.1 trillion. By 2040, total infrastructure spending needs are expected to reach $10 trillion, while funding is expected to be $5.3 trillion, leaving a gap of about $4.7 trillion.

The message is one that is being echoed in Washington right now but with a slightly different twist: a little bit of fiscal responsibility could go a long way. Spending cuts are currently front and center in the national debate, and this is one area that the ASCE argues cannot sustain any more cuts, and in fact needs more funding.

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