Seeking Alpha
Long/short equity, value, growth
Profile| Send Message|
( followers)  

On May 23, Dan was driving across a river bridge when he looked forward and saw nothing ahead of him except a huge puff of dust.

A 160-foot section of a major river bridge on Interstate 5 had collapsed in front of Dan's eyes after a truck's drilling equipment load bumped against the framework of the bridge. Fortunately, no one was killed and Dan was able to escape with minor injuries.

The bridge served as a crucial link in a transportation route from British Columbia to California that more than 71,000 drivers travel across each day. Unfortunately, put in the context of this nation's declining infrastructure, the only thing surprising about the bridge collapse was that it didn't result in any fatalities.

According to the AP, the bridge was built in 1955 and had a poor sufficiency rating of 57.4 out of 100. What's more alarming is the fact that there are 759 more bridges in Washington state alone that currently have worse sufficiency ratings. Across the nation, there are 66,749 structurally deficient and 84,748 functionally obsolete bridges, adding up to about a quarter of all bridges in the U.S. Structurally deficient bridges have one or more major defects yet are still traveled across by 283 million people every day. Functionally obsolete bridges are ones built to out-of-date standards that should be updated. Many of these older bridges also make up the 18,000 fracture-critical bridges in the U.S. These bridges lack redundancy, which means that failure of a single bridge component could cause the bridge to collapse. The I-5 river bridge was fracture-critical.

Now consider this: bridges are actually bright spots in the U.S. infrastructure. In the 2013 American Society of Civil Engineers Report Card, bridges were given a C+ rating, the second highest out of 16 categories (lower only than solid waste). Overall, the U.S. infrastructure received a D+ rating, with such critical categories as aviation, roads, and drinking water receiving significantly lower grades (D's) than bridges.

The subpar state of this country's infrastructure is racking up significant economic costs. According to the FAA, the national cost of air congestion was $22B in 2012 and is expected to skyrocket to $63B in 2030 if the nation's airports continue to be overextended. Similarly, congestion on urban highways costs the economy $101B annually in lost productivity and fuel. Much of the drinking water infrastructure of the U.S. needs to be replaced/updated, with an estimated 240,000 water main breaks per year. The list of improvements needed goes on: the report also noted that nearly 14,000 have been classified as "high hazard" (failure is anticipated to cause a loss of life).

In fact, if the government doesn't increase infrastructure investment, inefficiencies will add up to cost significantly more than the actual investment costs. According to the American Society of Civil Engineers, if the U.S. doesn't invest an additional $157 billion per year in infrastructure between now and 2020, "the nation will lose $3.1 trillion in GNP (gross national product), $1.1 trillion in trade, a $3,100 per year drop in personal disposable income, $2.4 trillion in lost consumer spending, and a little over 3.1 million jobs."

The U.S. is in dire need of infrastructure investment and now's the ideal time for the government to invest in this nation's infrastructure. Although the U.S. economy is rebounding, it has by no means fully recovered from the Great Recession. Significant government investment in infrastructure will boost short-run aggregate demand in the economy and facilitate the recovery. Moreover, this investment also has the potential to support medium-run and long-run economic activity through expanding the economy's productive capacity.

If the U.S. government does invest in infrastructure, it would be utilizing an extremely effective form of government stimulus. A study from the Federal Reserve Bank of San Francisco shows that the infrastructure fiscal multiplier is approximately two: every dollar of infrastructure spending boosts economic output by two dollars. Moreover, the study notes that the fiscal multiplier increases significantly during economic downturns, with infrastructure spending in 2009 and 2010 having an economic effect four times larger than normal. Considering that this economy is still digging itself out of such a downturn, constructive investments by the government in the crucial foundations of our economy should be welcomed.

But they're not. Despite the apparent benefits, partisan gridlock has stalled progress in infrastructure investment. The Highway Trust Fund, which provides federal construction aid to states, is projected to go broke next year. Here's some perspective on U.S. public construction spending as a percentage of GDP, courtesy of Business Insider's Joe Wiesenthal:

(click to enlarge)

As a percentage of GDP, U.S. public construction spending is at its lowest point in more than 20 years at a time when bridges and highways should be repaired, not breaking into pieces.

To put this in a global perspective, the rest of the developed world spends an average of 52.7% on transportation infrastructure than the U.S. As a result, according to the World Economic Forum, the U.S. has slid from fifth in 2002 to 25th in the world in terms of infrastructure quality.

We need to change this. A boon in infrastructure investment by the government will be a benefit to all Americans, a public good that will help strengthen this country's long-term economic outlook. Now's the right time to invest in the lifeline of this country. If we don't, we too will look forward one day and see nothing except a puff of dust.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Collapsing Bridges