Infrastructure Spending as a means of Increasing Economic Output
Herbert M Barber, Jr, PhD, PhD is the chief executive officer of Xicon Economics, a highly-specialized consulting firm with expertise in economics, research, and statistics. Dr. Barber is one of approximately 10 experts in the world specializing in leveraging large-scale economic endeavors in industry and infrastructure as a means of increasing economic output in economies. Dr. Barber holds 5 earned academic degrees from Georgia Southern University, Florida State University, and Mississippi State University. Dr. Barber can be contacted at [email protected]
Infrastructure spending continues to be touted as a means of increasing economic output across the United States. Bridge, highway, rail, port, energy, and a host of other infrastructures have remained the target of legislators for decades as a means of increasing GDP, jobs, personal incomes, and taxes. However, leveraging infrastructure spending as catalysts for increasing economic output is a risky endeavor, one that can lead to catastrophic endings when not evaluated properly.
Unfortunately, we have borne witness to countless large-scale infrastructure spending projects that, at best, resulted in superfluous spending, and at worst, resulted in endeavors that redlined economies before the construction phase was complete, crippling local economies in the process as they grasped to fund their share of such endeavors. Subsequently, it is with similar trepidation that one must consider infrastructure spending as a means of increasing economic output, as such endeavors are sophisticated undertakings that must be evaluated with utmost care and respect.
For example, we recently conducted a complex financial and economic impact study for deepening of the St. Johns River at the Port of Jacksonville (USA).1 Years in the making, the one billion dollar project was touted by proponents as imperative to the vitality of JAXPORT competing for post-Panamax shipping from Asia that require deeper drafts. Conversely, for opponents, the project was touted as the poster child of environmental concerns. Then again, we were left in the middle to bring sense to the madness, as in reality, most infrastructure projects are not as strong economically as politicians prefer to believe, nor are they as environmentally destructive as environmentalists contend.
For harbor deepening at JAXPORT, the current question remains not whether environmental concerns can be managed and/or mitigated; or whether the project is financially and economically feasible. Environmental concerns can in fact be managed and/or mitigated; and under the most conservative of scenarios one could realistically conceive, the harbor deepening project will yield USD3.8 billion through 2030 (BC=4.82) in direct business revenues alone.1 Of course, all would be well if this was the only dilemma. The question now centers on the interrelationships between port activities and other sector activities in Jacksonville MSA, north Florida, and the southeastern United States, as these relationships are vitally important to fully understanding the dynamics of port economics; as a port does not exist as a means unto itself. No, existence of a port is a derivative of demand; as demand increases, port activities increase, and as demand decreases, port activities decrease.
But what industry sectors cause increases in port demand? At least one fair assumption would be that of the manufacturing sector. Thus, consider the relationship between the port sector and manufacturing sector in Jacksonville MSA more closely.
Economic output in the manufacturing sector of Florida has a statistically significant effect (p<.01) on total economic output of the state of Florida.2 Overall economic output generated in the manufacturing sector as a percentage of total Jacksonville MSA GDP has declined for nearly three decades, however, from representing 25 percent of the state’s total output in 1997 to only 20 percent in 2013. Graphically these declines appear small enough to be overlooked. However, in application, following the 2008 economic collapse in the US, money supply in Jacksonville MSA decreased by approximately USD2.2 billion – in a single year. Of that total loss, Jacksonville’s manufacturing sector accounted for nearly one billion dollars (USD989 million). Subsequently, we would assume this decrease would have a devastating effect on port output, when in fact, there was no relationship altogether. In fact, “when only considering the last few years (2005-2012), not only did total annual container revenue at JAXPORT have no effect on total annual manufacturing revenue in Jacksonville MSA, F(1,6)=7.9x10-3, p=.932; total annual manufacturing revenue in Jacksonville MSA had no statistically significant effect on container revenue, F(1,6)=7.9x10-3, p=.932. The relationship was non-existent (r=-.036). This, overwhelmingly, is problematic.”1 Ponder these findings; this simple example notes the complexities associated with attempting to leverage infrastructure spending as catalysts for economic growth, as well as the level of sophistication necessary for analyzing such interdependencies. Unfortunately, until we see more entities mandating sound engineering economic analyses and modeling of projects as systems within the greater economy will we realize fewer failed projects.