I’ve always been a strong believer in markets. More importantly, as an engineer and a planner, I used to look at the world around me and believe it to be an expression of the free market. The highways, the suburban subdivisions, and the big box stores all represented to me an expression of market preference. This is how I lived—how most people in my life lived—and I just knew that, given the choice, most everyone would want a single-family home on a large lot along a cul-de-sac on the outskirts of town.

The fact that I was paid to build this stuff just made me one of the good guys responding to market demand. Cities that hired me were smart because they were committed to growth, what I considered to be the ultimate measurement of humans serving each other within a free market system. If people didn’t want this, developers wouldn’t build it—developers had to operate in a free market too—and cities wouldn’t demand it. And it was obvious to me that the cities that were growing were doing better because those were the only ones that could afford to hire me.

In the mid-2000’s I started to question these (up to then, unquestioned) beliefs. A series of projects I was working on pushed the borderline of the absurd and made me ask some hard questions. I wrote about one of these projects in Part 2, and I’ll write about more in the future, but first I’m going to pause. To explain the path I went down—questioning the assumption that the infrastructure projects I was working on were an obvious good—I first need to explain what I’ve come to understand infrastructure to be.

What is Infrastructure?

In very simple terms, infrastructure is a platform for expanding wealth. The reason to build infrastructure is that it builds wealth in a place beyond what would happen without infrastructure. Period. That’s it.

If infrastructure doesn’t build enough wealth to justify its construction, it’s not a productive investment. It’s merely a form of consumptive spending.

Of course, that’s not what I used to think. I used to buy into all the narratives for why infrastructure was such an unquestionably positive thing (and I’ll acknowledge up front that, as the guy being paid to make that happen, I had little financial incentive to question those narratives). Let me go through a few of those incomplete narratives.

Growth. The ubiquitous macroeconomic narrative is that investments in infrastructure grow the economy. This is unquestionably true, but a very limited observation. It’s like saying that sugar gives you energy; it’s a true statement, but also very incomplete in its description of the effects of sugar consumption. I ran my own consulting firm for more than a decade and understood—sometimes as a painful lesson—that growing the business didn’t always make us more prosperous or successful. Experiencing short-term growth is not hard, especially for a city, if there is no concern for the long term. I’ve written extensively about the difference between growth and productive growth, including in my upcoming book Strong Towns: A Bottom-Up Revolution for Rebuilding American Prosperity, as well as in Five Ways Macro-Economists Get Local Infrastructure Wrong and What Clearly Makes Us Richer.

Jobs. Closely related to growth is the idea that infrastructure somehow makes a great jobs program. This is another one I talk about in my upcoming book, and I’m going to quote Chapter 4 here:

Economists like to argue that, in times of economic hardship, if we pay someone to dig a ditch and then pay them again to fill it back in, we’ll stimulate the economy in helpful ways. The case for infrastructure spending is an extension of that logic: If instead of digging and filling a ditch, we spend the money on concrete, steel, and asphalt, we’re actually better off because we’ve built something useful. What is obvious but not acknowledged in that narrative is that, with the ditch, we ultimately end up back where we started. No long-term liability. In contrast, when we build a road or a bridge or a mile of pipe, we’re left with an eternal maintenance obligation. If the project costs more than the wealth it creates – which most of the projects we are undertaking today do – then we’re just getting poorer, regardless of job creation. We’d be better off digging and filling the ditch. Or just giving people money without laundering it through an infrastructure spending program.

Also read: If It Creates Jobs Then It Must Be Good.

Environmental Protection. I gave a talk on Cape Cod last year. One of the burning issues there was the perceived need to install a sewage collection and treatment system because the people who live there now are doing serious damage to the bay with their sewage. Having spent quite a bit of time in Massachusetts, especially some of its poorer cities, the logic of (the relatively affluent) Cape Cod residents was insightful: they believed the state should pay the hundreds of millions of dollars for the sewage system. That might happen—I helped build many government-funded sewage treatment systems for rich people in my engineering days—but it’s a special kind of cognitive dissonance to believe both that the bay should be cleaned up and that the (relatively affluent) people damaging it—and whose enjoyment and property values depend on it—shouldn’t pay for it.

We may ultimately spend money on infrastructure for environmental cleanup and to prevent future environmental damage. In economic terms, this would be considered “consumption” and not “investment.” It will take lots of successful investment to support consumption of that type (another reason for environmentalists to join us in insisting that infrastructure be treated as a wealth-building platform).

Social Justice. I would not have included this in a list a few years ago—I certainly never considered this argument back in my engineering days—but I put it in here because of the growing number of people who have expressed it to me. Especially in places like Flint, Michigan, where people are drinking contaminated water, we have a moral obligation to build them the same quality of system that the wealthy, affluent, and well-connected have, or so the narrative goes. I wrote about Flint specifically in A Simple Idea for Flint where I agreed with the moral obligation to act but made the case that building a system not supported by the community’s tax base was only going to make struggling people struggle more, that there were more tactical ways to address the problem that would also empower communities of people.

An apples-to-apples measurement of justice—the affluent person has a water tower, thus the disenfranchised person should also have a water tower—ignores the carrying costs of infrastructure systems. The more we can free poor communities up from bearing these long-term burdens, the easier path to prosperity they will have (although the fewer engineers we will potentially employ).

Community Marketing. This is a strange one, but I include it here because I’ve heard it a lot. It’s a municipal version of dressing for the job you want. Looking successful is the first step towards being successful. Of course, if you buy an expensive outfit but have no marketable skills or job prospects, it’s not going to matter. And, worse, if you also buy an expensive car to really look the part, when now you also have ongoing payments and maintenance expenses. Building infrastructure is the culmination of success, not the catalyst for it. If you don’t have the wealth to sustain what you are building, instead of building infrastructure, just take the money and throw your residents a big party. You’ll get to rock bottom quicker, and you won’t have an unproductive road you now have to maintain forever.

Voters Want It. I always find this to be the most ridiculous of all suppositions. There are a lot of things I want and, if the government was willing to pay for them—or just dramatically reduce the cost for me—I’d probably engage in more of them. If the government bought me box seats to the Minnesota Twins game, I’d want box seats for the Twins game. As it is, I sit in the bleachers (and am quite happy). This is essentially the rebuttal I made to Randal O’Toole many years ago in Let Them Eat Lobster! Every preference comes as a price point. As I alluded to earlier, the (relatively affluent) residents of Cape Cod are perfectly content to destroy their water with their own sewage because the cost to clean it up is too high, but they’ll also respond favorably if the (relatively poor) residents of Springfield agree to be taxed to pay for it. Individual preference means nothing without a price attached.

All of these narratives are what I would consider secondary or subordinate reasons for building infrastructure. They are just fine—I’m not going to disagree with any of them—so long as the primary rationale is satisfied. Infrastructure must build enough wealth within the community to justify its construction. Otherwise, it’s not really an investment: it’s merely consumptive spending.

As a way of understanding the difference between productive and unproductive infrastructure spending, let’s explore a common question that arises in suburban communities: the question of how to deal with stormwater.

An Example: Ditches or Drains?

Probably the most dramatic shift in development intensity—and the need for wealth creation—can be seen in suburban landscapes when there is a choice between handling stormwater with ditches or with drains, pipes, and other intense infrastructure. This is a pet peeve of mine because a certain set of suburban environmentalists—obsessed with the environmental impact of stormwater but also not fans of intense urban development—often force the more intensive alternative, something engineers are happy to deliver. There is no quicker way to destroy the balance sheet of the community or, quite frankly, the environment.

Let’s consider 400 feet of suburban street. Constructing a ditch on the edge of the street will cost some money to move the dirt, shape the ground, and then establish ground cover. If the street is new and there is grading equipment on site for the street surface, ditching costs are minimal. If ditches are being added to an existing street, it might cost a little more but we’re still not talking a lot of money. In most instances, this is going to be a few dollars a foot. Certainly less than $10 per foot, which would mean $4,000 for the entire street. Very cheap, with modest (but important) ongoing maintenance.

Instead of a ditch, consider an engineered stormwater collection system. First, you’re going to build concrete curb and gutter along both sides of the entire street (or some equivalent, although concrete is way cheaper than granite, for example). That’s 800 feet of curb and gutter. I’m going to estimate $4 per foot here, but a much higher cost wouldn’t surprise me. That’s $3,200 for the curb.

Now you need catch basins. This is where the water drains in. There will be two at each end of the street. I’m going to estimate these at around $4,000 each, although prices will vary. There will also be at least one manhole. I’m going to estimate that at a mid-range depth and say $6,000. At that rate, we now have $22,000 in catch basins and a manhole.

Now we need pipe. People will be driving on this, so we’re going to need to use Reinforced Concrete Pipe (RCP). I’ll go minimalist here because RCP really escalates in price quickly when you go up in size. Let’s assume 24” pipe at $140 per foot, installed. If the street is only 24 feet wide (narrow for a suburban street), then two crossings total 48 feet, in addition to the 400-foot length of the street. In total, 448 feet of pipe will cost roughly $63,000.

In summary:

Curb and Gutter: $3,200

Catch basins and manhole: $22,000

RCP: $63,000

Total Estimated Cost: $90,000

I feel like this is ridiculously low—I’m not factoring in any soft costs—but it doesn’t matter to make the point. Even in this example, the difference in cost between a simple ditch and the more intensely engineered system is 20x. And while the ditch needs to be mowed and occasionally cleaned out, the engineered drainage system is going to need frequent cleaning, which is very intense and expensive. And the engineered system will ultimately need to be replaced, almost certainly with local dollars.

Next time you find yourself driving through a suburban subdivision, look at the edge of the street. Do you see a ditch or do you see a curb along with some catch basins? Try to find areas with each and then ask yourself a simple question: Does the section with the intensely engineered drainage system look to be 30 times more valuable than the part with the ditch? Forget 20x: is it even 2 times as valuable? Do you see any discernible difference in the wealth creation?

The answer to all of these questions is almost certainly: no. Some areas have ditches and some have engineered drainage systems, but that has little to no discernible impact on what we expect to see built there. Yet, how does that make any sense at all? When we—the taxpayers of a city, as represented by our elected officials—put a 20x investment in the ground (or take over the long term liability to maintain and ultimately replace that 20x investment), we should expect at least 20x more associated wealth creation. How can we not?

Yet, we don’t. We don’t connect these things at all. We are happy with the cash we get today from the new growth, we think of infrastructure as an immediate problem to solve in making that transaction happen, and that’s it. If you get a chance, go look for yourself. It’s painfully obvious, and that’s just the stormwater, which is relatively simple to visualize compared to water and sanitary sewer systems.

One quick note to the environmentalists (I count myself among you in spirit): requiring expensive drainage systems is a great idea if it is coupled with a very intense development strategy—one that concentrates enough wealth to justify the expense. The alternatives are:

(a) an expensive system (not financially viable) coupled with continued horizontal development (bad for the environment), or

(b) spread things out in a dilution being the solution to pollution strategy, which works to a point. But, in my opinion, most suburban development is far beyond that point (though ask the people on Cape Cod for their opinion).

Tomorrow I’m going to go through a simple example comparing the wealth creation of a development to its ongoing maintenance costs. I’ll discuss the implications of the large fiscal gap and what would need to happen for that gap to be closed. In subsequent posts, I’m going to talk about the nature of markets and how we should think about them in a Strong Towns framework, what it means for a city to be insolvent, and how static, suburban development patterns are doomed to fail when infrastructure is understood as an infinite obligation.

Top image from Wikimedia.