Essay suggests ‘right way’ to invest in infrastructure
President Obama has proposed more infrastructure spending as a way to stimulate the economy, a move many economists say is one of the most effective ways to use government spending to promote economic activity, according to an essay from New York-based McKinsey & Co.’s McKinsey Quarterly publication. However, infrastructure spending is often implemented through short-term initiatives, whereas a more sustainable approach is needed, according to McKinsey Quarterly’s “The right way to invest in infrastructure.”
Infrastructure investment can shift resources from the bubble sectors of housing, finance and luxury services, and into areas that can boost economic growth the long run, according to the essay. Public investment in infrastructure attracts private investment, businesses in general benefit from reduced costs for transportation, communications, and reliable energy and water services, and the work creates jobs.
However, a new focus for infrastructure projects is needed, according to the essay. For example, rather than investing in more passenger mass-transit projects, the essay suggests that improving freight-moving infrastructure and upgrading information technology would do more to improve the economy. “America’s failure to modernize its overloaded freight transportation infrastructure — chiefly the railroad network and highways used by trucks, but also inland waterways, ports, and airports — is imposing costs on American efficiency,” the essay states.
The essay recommends that Congress establish a national infrastructure bank, modeled on the European Investment Bank and some state-level economic-development banks, rather than focusing on short-term investment proposals. The essay also recommends using the multiyear highway-spending bill under consideration in Congress and state and local infrastructure bonds that receive favorable tax treatment as vehicles for infrastructure investment. “At a time when the country is looking to rebuild business and tackle the highest unemployment figures in decades, we have to turn to public infrastructure investment as one solid solution,” the essay concludes.
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