Common Tragedies

Thoughts on Environmental Economics

Smart stimulus

Posted by Daniel Hall on December 9, 2008

I don’t know if Ryan Avent and Alex Tabarrok would find a lot to agree on politically if they sat down for a chat but they are singing the same tune in the blogosphere this morning.  I’d like to add my voice to the chorus.

First, Alex says some smart things this morning about infrastructure stimulus:

The first thing people think about when someone says “infrastructure” is roads and bridges.  That’s unfortunate because we already spend over $100 billion a year on transportation infrastructure and the truth is we don’t need that much more.  Peter Orzag, President-Elect Obama’s choice for OMB estimated – when Director of the CBO – that an additional $20 billion in spending, mostly to maintain current transportation infrastructure, would achieve 83% of the net benefits to be had from more transportation infrastructure spending.  Moreover, in many cases, congestion pricing would be both greener and more efficient than greater spending. …

Even more valuable than transportation infrastructure would be greater investment in  electricity infrastructure, a smart grid. … Overall, blackouts cost the U.S. on the order of $100 billion a year. [DH: Alex does not source this, but Mike Giberson suggests a source.]

The smart gird is a not one idea but many technologies such as real-time pricing (smart meters), superconductive smart cable, and plug-n-play architecture that combine to produce a grid that is decentralized, self-healing, robust, and smart for both producers and consumers.

Alex is right on here: we already spend a lot on roads but not much on the electric grid, and the marginal returns to more spending on the latter are likely higher than the former.  Further, we need smarter policies for managing both resources, particularly congestion and real-time pricing to efficiently allocate demand to high-value uses.

Meanwhile, Ryan talks about how to spend money on roads (recommended) and then adds:

let me draw your attention to the Center for American progress’ $350 billion stimulus proposal. It includes $18 billion in spending on roads and bridges, and a total of $19 billion for transit. The former is about 50% of average annual spending on highways, while the latter is about 200% of average annual spending on transit (and the money allocated for New Starts is about 300% the annual average for that line item). I think it’s safe to say that these kinds of numbers are probably getting a good look from (soon-to-be) administration officials.

Wow, $18 billion for roads, huh?  It is almost like someone out there* was listening when Peter Orszag suggested $20 billion was about the right number.

Finally, if you do actually check the details of that CAP stimulus proposal, guess what else you find?  You guessed it, stimulus money for upgrading the electric transmission grid, $10 billion in all.

All that should be music to the ears of economists — now if we could just convince folks to try out this congestion pricing plan….

*For anyone who has been totally ignoring the news recently, this is the ‘Center for American Progress’ as in the ‘heart and soul of Obama’s transition team’.

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