Infrastructure spending grows the economy, so they say. Well, maybe not. I am not convinced. Observationally infrastructure spending occurs when the economy has already grown. Consider this:-
The Causey Arch was commissioned and financed by the Grand Allies coal cartel to take coal to the growing Tyneside conurbation. That is the demand from Tyneside could not be met by the existing transport of packhorse trains and carts so the plateway was built to increase the supply of coal. Tyneside had already grown and the 'infrastructure' followed that growth.
The town where I gain my living has a traffic problem. There are two roads one eastbound and one westbound round the dock area that carries all through traffic and acts as a local distributor. Over the last 20 years or so I have watched as this gyratory system has got more and more clogged as the Town has grown and developed. Economic growth has already happened.
As you will have realised the traffic has a negative externality. Land prices are probably depressed by this, or more likely removing the traffic would increase the attractiveness of locations in the area. You should note that there are a number of partially- and un-developed sites in the location, a couple of which were bought out of receivership.
There is a plan to solve all this and at the same time provide access to an island site in the Wet Dock to make it suitable for development. From memory the budget is £70m or so. You will notice that the plan gaily admits that spending this money will make the Island Site valuable. And of course 'drive economic growth'.
Three points.
One clearly Ipswich has already grown. This new infrastructure is being built to relieve the traffic problems created by this growth.
Two. Spending this £70m of other peoples money will hand windfall gains to all the landowners around the gyratory system and a handsome uplift in the value of the Island Site which will accrue to its owners, Associated British Ports. Why is everyone else paying to finance these windfall gains to a small number of landlords?
Three. Motorists are not paying the costs of their pollution. Why are they being gifted an improved route?
The thing is there are only four ways that such infrastructure can be financed, and three of them are flawed.
One, finance can be raised by taxation. This is taking money out of the economy. It's a zero sum.
Two. The government can borrow money in the market. This makes less finance available for private investment.
Three. It can print the money. Which is a form of taxation.
Or...
Four. LVT could be applied to the landowners who would therefore pay in proportion to their gains and tolls could be levied on traffic using the crossing.
I confess that this is a personal niggle that I need to get off my chest. And the fact that Ben Gummer (ex) local MP was in favour of it is enough to condemn it.
19 comments:
I don't know why Suffolk CC aren't implementing it in this case (I'd guess a combination of cronyism and ideological aversion to taxing wealthy landowners), but there's an existing funding model designed especially for schemes like this which approximates a LVT: the S106 and MCIL charges used in London to pay for infrastructure schemes out of the windfall gain to landowners.
S106 and CIL are crap for a number of reasons. CIL is a one off so the land value is never captured again. In the case of S206, these are vulnerable to repudiation, e.g. if the developer can put together some numbers showing that their profit forecasts are now lower, they can strong arm the council into reducing affordable homes. And those affordable homes end up in the BTL sector and/or rent collected by the banks within a few decades anyway...
Why the distinction between privately and publicly financed infrastructure? The benefits are the same.
MW ?
I am not making a comparison between private and publicly financed infrastructure.
I am saying two things.
One, that infrastructure follows economic growth. It does not cause it. At best it eases bottlenecks. Bottlenecks that have come about due to economic growth.
And two, 'good' infrastructure like the Upper Orwell Crossing is best financed by those who benefit, in this case landowners and traffic.
Why is everyone else paying to finance these windfall gains to a small number of landlords?
Because they're stumping up the dosh?
“Infrastructure spending grows the economy, so they say. Well, maybe not. I am not convinced. Observationally infrastructure spending occurs when the economy has already grown. Consider this:-
The Causey Arch was commissioned and financed by the Grand Allies coal cartel to take coal to the growing Tyneside conurbation. That is the demand from Tyneside could not be met by the existing transport of packhorse trains and carts so the plateway was built to increase the supply of coal. Tyneside had already grown and the 'infrastructure' followed that growth.”
On the one hand you say Tyneside was growing, next minute you say that Tyneside had already grown. Which is it? The positions clearly contradict one another. To say Tyneside had ‘already grown’ is pretty disingenuous when it grew massively from that point, and to even call 1720s, pre-industrial revolution Tyneside a conurbation is laughable, too!
Also, you quite clearly state that demand could not be met by the existing transport, if so, then it’s quite clear that Causey Arch (your favourite isolated example) helped to create economic growth as the growth couldn’t occur without it.
Infrastructure is a facilitator of economic growth
“One clearly Ipswich has already grown. This new infrastructure is being built to relieve the traffic problems created by this growth.”
1. Already grown makes the assumption that it cannot grow anymore, it can.
2. The traffic problems weren’t created by the growth, they were created by inefficient allocation of a finite resource – road space. If congestion charging was in place (regionally/nationally) and there was adequate public transport, then the traffic problems probably wouldn’t have existed in the first place.
“Two. Spending this £70m of other peoples money will hand windfall gains to all the landowners around the gyratory system and a handsome uplift in the value of the Island Site which will accrue to its owners, Associated British Ports. Why is everyone else paying to finance these windfall gains to a small number of landlords?”
Even if this is the case, it still creates, relatively limited, growth and benefits, because as inefficient as our tax system is, it does claw back some of the economic rent and allow some of the value to flow to non government/land owning individuals. Of course the benefits to society created aren’t even close to what could happen with LVT.
“Three. Motorists are not paying the costs of their pollution. Why are they being gifted an improved route?”
Tackling it from a congestion perspective will root out the pollution problems which exist because driving it too cheap.
JJ.
I accept that my English was not perfect.
The demand from the Tyneside (conurbation) collection of locations had reached the point where the existing infrastructure could not meet demand. That is economic growth had already taken place. The Grand Allies built the plateway to feed the existing demand and with extra capacity to feed the hoped for growth. The existing economic growth made the Arch economically viable.
Ipswich. The economic growth has already happened. That's why the (effectively) inner bypass and bridge are required. The current infrastructure has become inadequate. Ipso fatso economic growth preceeds infrastructure spending.
The cost of that spend will immediately benefit two classes of people. Landowners (as admitted by the proposal) and traffic. Why are not they paying the cost?
I am not in any way assuming Ipswich cannot grow any more. Self evidently relieving the bottleneck will enable more growth. But that bottleneck has occurred because the growth has already happened.
Ipswich has lots of public transport. It's the Suffolk County Town. A lot of people, me included, travel in from outlying rural locations. It is a practical impossibility and probably inefficient to provide frequent and convenient public transport for all of us. Inside Ipswich public transport is good. Introducing road pricing for the particular issue here - the dock gyratory system, probably would not help much as the route is a connector and distributor. There is no other viable alternative.
Your last sentence. Eh?
Infrastructure spending can and often does go to waste, e.g. bridges to nowhere. But generally, if you build infrastructure where there is already strong activity, it will stoke the fire I think
Mombers. Yup. The former - In the 'waste' corner, the Humber Bridge. In the 'stoking the fire' corner, The Upper Orwell Crossing.
“The demand from the Tyneside (conurbation) collection of locations had reached the point where the existing infrastructure could not meet demand. That is economic growth had already taken place. The Grand Allies built the plateway to feed the existing demand and with extra capacity to feed the hoped for growth. The existing economic growth made the Arch economically viable.
“Ipswich. The economic growth has already happened. That's why the (effectively) inner bypass and bridge are required. The current infrastructure has become inadequate. Ipso fatso economic growth preceeds infrastructure spending.”
This is just semantics! For some reason you Austrians/libertains love to bog debates down with this!
In my opinion, what you’re describing is not economic growth, but demand. That is, the inner bypass is required, because demand for road space exceeds supply. However, I swear you’ve previously stated that supply creates demand, not the other way round??
The question for you is – what created the economic growth in the first place? Surely it was the previous infrastructure? What happens if there never built the railways, roads, sewers that serve Ipswich? I know you’ll say it was impossible, but they are the reasons it grew and it couldn’t without them. The reality is, if we take it all the way back far enough, we can see that economic growth wasn’t the original reason towns were established and grew, it was need.
There are countless examples of infrastructure creating its own growth, in many cases, completely shifted the importance of towns, elevating some and devaluing others – you’ve got Stamford & Peterborough and Marlborough & Swindon, to name two. Not to mention Metroland!
Also, isn’t infrastructure paid for by borrowing against future economic growth created by that infrastructure? Suggesting that economic growth follows infrastructure… In reality it does both, at least until you go back to the beginning
“The cost of that spend will immediately benefit two classes of people. Landowners (as admitted by the proposal) and traffic. Why are not they paying the cost?”
As I said, and you ignored, they are not the only groups which will benefit. If that was the case then there would be no point in building any infrastructure with the current tax system as there would be no benefits. As inefficient as the current system is, wealth and growth is created.
Also, if “traffic” benefits then so, indirectly, does society. For example, if journey times decrease then the cost of supplying goods and services surely decreases, a lot of this will leak into higher rents, whether directly (commercial rents) or indirectly (“customer rents”), but the government will also be able to claw back some of it through its inefficient tax system. Enough to cover its cost?
“I am not in any way assuming Ipswich cannot grow any more. Self evidently relieving the bottleneck will enable more growth. But that bottleneck has occurred because the growth has already happened.”
Just because you keep saying it doesn’t mean it’s true. The growth that happened, happened because of the existing infrastructure, if it hadn’t have been built there’d been no growth.
The bottleneck occurred, when it did, because, once again, they didn’t price the roads/driving from the get go.
And, even if the bottleneck, hadn't occurred, building the road infrastructure that is now needed, would still have provided benefits.
“Ipswich has lots of public transport. It's the Suffolk County Town. A lot of people, me included, travel in from outlying rural locations. It is a practical impossibility and probably inefficient to provide frequent and convenient public transport for all of us. Inside Ipswich public transport is good. Introducing road pricing for the particular issue here - the dock gyratory system, probably would not help much as the route is a connector and distributor. There is no other viable alternative.”
You quite clearly didn’t read what I wrote. You mentioned that the traffic was because of the growth, I said that it was because of inefficient allocation of road space (a point you ignored). I went onto say that if it had always been priced then there would’ve have been those problems in the first place.
The problem is that you’re viewing it from the prism of how things are. That is, you and others live in rural areas because of the way things grew, ignoring the fact that the infrastructure, planning and tax system facilitated and encourage people like you to live outside of Ipswich. Ipswich isn’t densely populated (neither by UK or global standards) and if the powers that be had focused development from the 1920s/30s on density and compact settlements instead of subsidising the opposite (see 1926 Housing Act), then it becoming a problem may have taken longer. If the focus had never been on encouraging car use, which it was, high car use would never have happened, at least to no more of an extent than happened in inner London. Ipswich should have a larger population living within the same area.
Anyway, based on the current system of course it would help. Everyone has their price and they would easily be able to force people who don’t need to drive to not drive and most importantly make living in locations where driving is necessary, unattractive. This is the natural way of things and if done nationally, so a town like Ipswich doesn’t had the advantage to rival towns, it would clearly remove traffic. It would work in exactly the same way rail fares encourage people to live in inner London, even in relatively high crime areas over staid suburbs. Even then, as Mark says, rail fares are probably too cheap.
http://earthsharing.org/visualizing-earth-sharing/
“Your last sentence. Eh?”
Pollution is exacerbated by congestion and driving, reduce the congestion and you reduce pollution.
Finally, Lola, what Mombers said doesn't really back-up your point. 'Where there is already strong activity' is not the same as 'economic growth proceeds infrastructure'. It's more, good locations encourage economic activity, these locations require infrastructure to maximise the potential of the economic activity they encourage and, at the same time, infrasture makes good locations better locations, encouraging more enconomic activity. Rinse and repeat.
Well, the Council think that £100M spent on three new bridges will generate £6.5Bn in regeneration. If that is really the case, the landowners could pay to build the bridges themselves and still be quids in. They could recoup some of the costs by charging motorists to use them. Problem solved.
JJ, as the title suggests, it's chicken and egg.
The title may suggest it, but Lola doesn't in the first paragragh and is clearly not arguing from that position...
MW. Thanks. I was getting bored and out in the sunshine (well in the shed actually) was a better place to be than in front of the laptop.
Serendipity strike AGAIN...
https://www.city-journal.org/html/if-you-build-it-14606.html
L, there's a Laffer Curve of everything, with the Humber Bridge at one end and the Hoover Dam (or Aswan Dam, or Suez Canal) at the other. It's a question of hitting the golden middle.
MW. Indeed. The trick is to work out how best to get that sweet spot. IMHO government is very bad at that as its incentives are not 'profit', that is wealth creation. And if you hand a monopoly to the private sector you just get rent seeking. But if you look at things like the Upper Orwell Crossing with the eyes of Georgism sometimes it is possible to hit that sweet spot. Or rather the chances of hitting it are higher.
L, I think most taxpayer funded roads etc are "about right", Humber Bridge and HS2 are noticeable exceptions.
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