Greetings from London, dear readers.
This week, we find ourselves traversing the UK engineering marvel that is “Crossrail.”
Crossrail, a product of over a decade of meticulous planning and development, is a new 72-mile train line that burrows under virtually all of Central London, significantly reducing many journey times.
The planning team behind it asserts that this mammoth project brings “an additional 1.5 million people to within 45 minutes of London’s main employment, leisure, and business districts.”
Crossrail’s construction is an engineering triumph. It took eight powerful tunnel boring machines nearly three years to carve out 26 miles beneath London. Some sections of Crossrail lie as deep as 450 feet below the surface of London, far deeper than the subway or the “Underground.”
Despite the hefty price tag of approximately $25 billion, Crossrail is expected to yield a roughly 2X return on investment, primarily driven by new economic activity.
Infrastructure spending, encompassing transportation, water, energy, communications, public safety, parks, and related investments, arguably presents the best value for government spending due to its substantial economic impact, including job creation and GDP growth.
Regrettably, in the US, infrastructure spending has diminished significantly compared to historical levels. According to Google Bard, infrastructure spending as a percentage of GDP peaked at 5% in the 1940s and averaged close to 3.5% between the 1920s and 1970s. Since then, it plummeted to 1% between 2010-2020 as entitlement programs, military expenditures, and broader government healthcare spending have absorbed larger portions of the budget.
The World Bank explains, “Multipliers associated with public expenditure and investments are on average about twice as high as those from tax cuts and fiscal transfers. Among public spending categories, multipliers related to public investment display the highest values, typically at around 1.5 (on average across all states of the economy) meaning that a dollar of public investment leads to 1.5 dollars of economic activity.”
JP Morgan’s economic team posits, “Infrastructure spending may take years to yield economic results … improved infrastructure can increase worker productivity by moving goods more efficiently. It also can increase the number of hours available for work by shortening commute times.”
Infrastructure is the foundation upon which a nation’s future rests. According to Statista, in 2019, China’s infrastructure investment as a percentage of GDP was ten times that of the United States. The Council on Foreign Relations suggests that China’s investment in infrastructure — which one year last decade represented 20% of world infrastructure investment in the same 12 month period — is part of playing the long-game.
The policy research group notes that through infrastructure spending, “Chinese leaders are determined to restructure the economy to avoid the so-called middle-income trap. In this scenario, which has plagued close to 90 percent of middle-income countries since 1960, wages go up and quality of life improves as low-skilled manufacturing rises, but countries struggle to then shift to producing higher-value goods and services.”
On a personal note, the time saved using Crossrail versus other transportation methods recently afforded one of us an extra meeting in the financial district each way into and out of London from the airport. It also contributed to personal (work) cost savings of over $50 whichever way I sliced the alternatives. Furthermore, the convenience of Crossrail has enabled friends to commute into London in half the usual time for leisure activities, such as dining or theater, thereby increasing their propensity to visit the city.
In our technology-driven world, the concept of infrastructure often leads us to think of investments in software or hardware. However, lines of code, microprocessors, and AI-centric graphic cards don’t drive job creation or efficiencies across the economy to the same degree as tangible infrastructure investments in roads, bridges, and cities (referred to as “hard hat” spending).
In our increasingly divided nation, deciding on spending priorities can be contentious.
However, a refocus on true infrastructure might be a shared point of consensus. Historically, it is one area that both liberal and conservative economists have generally agreed upon as the best possible form of government spending as well as private sector partnerships since the inception of their field.