Thursday, December 22, 2011

The Economic Impact of USA's Failure to Invest in Infrastructure

Last week, Financial Armageddon posted an article that included hard numbers on the decline in spending on infrastructure as a percentage of GDP.
Total public spending on transport and water infrastructure has fallen steadily since the 1960s and now stands at 2.4% of GDP. Europe, by contrast, invests 5% of GDP in its infrastructure, while China is racing into the future at 9%. America’s spending as a share of GDP has not come close to European levels for over 50 years. Over that time funds for both capital investments and operations and maintenance have steadily dropped.
Even more interesting, a brief summary of a new report by the American Society of Civil Engineers, "Failure to Act: The Economic Impact of Current Investment Trends in Water & Wastewater Treatment Infrastructure" This is the first time I can remember that someone has ventured a projection of the negative impacts of our failure to invest adequately in our infrastructure.
By 2020, the predicted deficit for sustaining water delivery and wastewater treatment infrastructure will be $84 billion. This may lead to $206 billion in increased costs for businesses and households between now and 2020. In a worst case scenario, the U.S. will lose nearly 700,000 jobs by 2020. Unless the infrastructure deficit is addressed by 2040, 1.4 million jobs will be at risk in addition to what is otherwise anticipated for that year.

The impacts of these infrastructure-related job losses will be spread throughout the economy in low-wage, middle-wage and high-wage jobs. In 2020, almost 500,000 jobs will be threatened in sectors that have been traditional employers of people without extensive formal educations or entry-level workers.23 Conversely, in generally accepted high-end sectors of the economy, 184,000 jobs will be at risk.24 Unless the infrastructure gap is addressed, by 2040 its impacts will put at risk almost 1.2 million jobs within basic sectors, while a relatively stable net amount of 192,000 jobs in knowledge-based industries may be jeopardized. In this latter grouping, approximately 415,000 jobs will be threatened; however, medical services are expected to grow between 2020 and 2040 due to increasing outlays to fight water-borne illnesses.

The impacts on jobs are a result of costs to businesses and households managing unreliable water delivery and wastewater treatment services. Between now and 2020, the cumulative loss in business sales will be $734 billion and the cumulative loss to the nation’s economy will be $416 billion in GDP (Table 3). Impacts are expected to continue to worsen. In the year 2040 alone, the impact will be $481 billion in lost business sales and $252 billion in lost GDP.26 Moreover, the situation is expected to worsen as the gap between needs and investment continues to grow over time. Average annual losses in GDP are estimated to be $42 billion from 2011 to 2020 and $185 million from 2021 to 2040.

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