The conversation around infrastructure spending is usually dominated by voices calling for more—more spending, more construction, more employment, just more—but the reality of both our current and future economic growth, which would fuel additional spending, is the polar opposite of more. We are going to have to do less because we are going to have less money for infrastructure and pretty much everything else dependent on government funding.
The main driver behind this dismal future is demographics. The Baby Boom generation is leaving the workforce (voluntarily or otherwise) at a pace of 10,000 people a day. Living on a fixed income in a world of inflationary pressures means this giant generation (roughly 25 percent of the national population and nearly 54 percent of registered voters) will be ever more reluctant to increase their own tax burden no matter how important the issue.
Our current crop of political leaders knows this. Neither the Obama administration nor either side of the aisle in Congress shows any interest or inclination to raise funding for infrastructure.
With 46 states showing an operating deficit, state and local level politicians are finally focused on cutting spending, not increasing it. Public employee unions, the largest organized group at the state and local level, are opposed to increased infrastructure spending, seeing it as a threat to their own pay and benefits, in a zero-sum game where the government can’t print money.
These state issues are fueling a drop in their ability to borrow their way out of the shortfall with municipal bond rates starting to rival junk bond returns. California, for example, with its lowest in the nation state credit rating, is declining to issue $11 billion in highway construction bonds already approved by the voters because they can’t handle the seven percent interest rate the market demands.
This demographic profile presages an overall decline in both consumption of all kinds and a down-slope of economic output.
Demographers have been warning of this decline in the developed world for decades and now the chickens are coming home to roost. Most demographers say it will take more than a decade or two for this trend to shift to a more positive direction. We have to only look at Japan for an example of how this will play out—two decades of economic decline and stagnation following the explosion of their real estate bubble in 1991.
Other economic drivers pushing down on the U.S. include the devaluation of the dollar (with the terrifying potential of losing its status as the world reserve currency), the destruction of our manufacturing base which has led us to a consumption economy rather than a production economy and the omnipresent issue of the increase in cost of commodities—oil, metals, food, to name a few.
These are drivers for inflation which will further acerbate the problem of infrastructure fund as existing dollars are able to purchase less.
This is a bear trap with no way out. The Congress will adopt a multi-year transportation infrastructure bill, but only within the confines of available tax resources. States are faced with the same Hobson’s Choice. Our industry will be caught between these demographic and economic forces and must be prepared with their only real option will be to do less, with less.
William E. Davis
Executive Vice President
Southern California Contractors Association