Here's a problem: we have been over-consuming and under-investing. And here's part of the solution: a major, smart, strategic program to revitalize the nation's infrastructure.
I know, "infrastructure" sounds really unexciting, not nearly as cool as a Mars probe or as obviously essential as health care reform. But investing in roads, bridges, water systems, schools and other public goods is a critical need, one that won't be met by the private sector. What's more, it's got some real political currency right now.
Conservatives love to turn everything over the market, but even these types recognize that markets under-invest in public goods and for a very simple reason: private firms can't claim enough of a return on such investments, so they fail to invest enough in them.
Take schools, for example. Private schools exist, of course, but they are a niche market, either providing a "luxury good" for those who can afford it or a specialized good for those who want their kids' education to occur in a more religious context. Few disagree that in the absence of a public system, we'd under-invest in educating our citizenry.
So one reason to make public investments is that if we fail to do so, we'll all be worse off. If our highway system is falling apart -- the U.S. Department of Transportation has identified more than 6,000 high-priority, structurally deficient bridges that need to be replaced -- if our schools are physically inadequate to the task at hand -- in New York City alone, officials have identified $1.7 billion of deferred maintenance projects on 800 city school buildings -- we will fail to realize our economic potential, no matter what happens in corporate America.
That case has been well made by progressives for awhile, most recently at EPI, where we've articulated a robust infrastructure agenda. But there is another reason why this idea may have particular urgency now: to replace the demand lost to the coming downturn in consumer spending.
One of the more remarkable trends in recent years has been the steady climb in consumer spending as a share of the economy. For years, we learned that consumption is two-thirds of GDP. But over the last decade it climbed to 71%, the highest share on record, and a shift equivalent to $575 billion today. (In Europe, btw, the average consumption share is about 55%.)
We've borrowed and spent our way through the 2000s, even while incomes were flat for most families. Much of this was brought to you by your local housing bubble, and now that home prices are once again experiencing the pull of gravity, that window is closed.
Where there once was a bubble, we now have deleveraging households struggling through a tough job market, with key commodity prices through the roof. I know, betting against the American consumer has been a losing proposition for decades, but this time, it's very likely that 71% consumption share is coming down. And that's a loss of a lot of economic demand, and less demand means fewer jobs.
In the short run, infrastructure investment could offset the cyclical downturn we're in right now. But over the longer term, if consumption really begins to grow more slowly, we'll want to kick up public investment to pick up the slack.
The threat of climate change should also be pushing us toward new infrastructure. Here we can combine basic infrastructure needs with new, green technologies, like the extremely cool green rebuild of TC Williams High School in my own hometown.
I mentioned politics above. Last week, Obama delivered an important economic speech that cast infrastructure investment as a key part of his economic plan. To fund the work, he wants to create a National Infrastructure Reinvestment Bank. It's a financing mechanism that's been around for awhile -- Hillary Clinton touted this too -- that would create an independent bank, like the Fed or FDIC, to evaluate and fund these projects.
To capitalize the bank, Obama proposed $60 billion over ten years. Where would he get that kind of money? From ending the war; it's a classic "swords into ploughshares" move.
Progressives have talked about the need for making these investments for years, but conservative ideology coupled with government failure has blocked us. The stage may finally be set for overcoming these barriers. The needs are deeply pressing, both in terms of repairing and greening the nation's infrastructure and stimulating economic demand and job creation. And, if we play of cards, or our ballots, right, we might just have the personnel in place to get this done.
Follow Jared Bernstein on Twitter: www.twitter.com/econjared