Last week, Larry Summers repeated his plea for the U.S. to invest more in its crumbling infrastructure. He—and the latest World Economic Outlook (PDF) from the International Monetary Fund—are imploring governments to issue additional debt to finance roads, bridges, water treatment, and extension of power grids. Even the most conservative estimates suggest that the projects would pay for themselves, especially with real interest rates below 1 percent.
Investing in infrastructure may seem like a no-brainer, but financing it is more complicated. Most infrastructure projects are chosen and paid for at the state and local level. Even politicians’ favorite example of the U.S.’s “third world” infrastructure, New Yorks airports, are under the domain of the local Port Authority of New York and New Jersey. About three-quarters of U.S. highway spending is financed by state and local governments. Which projects are chosen and how they are financed comes down to local politics. And local governments are not making infrastructure investment a priority.