How economists can boost state capacity to build transportation, housing, and energy infrastructure

Across the U.S., an inability to build quickly and efficiently has pushed up the cost of everything from basic highway repairs to electricity transmission. From 1960 to 1980, real spending per mile on Interstate construction increased more than three-fold. Today, it costs several times as much to build transit infrastructure in the U.S. than it does in other countries.

This problem extends to other major areas of the U.S. economy. An undersupply of housing has led to a crisis in affordable housing, and every year health care prices reach new heights. Spending on health care now makes up about 20% of the U.S. economy, even as needed health care services remain out of reach for millions of Americans. For millions of families, spending on childcare is their largest monthly expense, averaging around $2,500 a month in major cities like New York or Washington, D.C.

The Tobin Center for Economic Policy at Yale University works to reduce the time between research and impact by helping economists engage with the public policy process and bring ideas to the policy arena. Through the center’s State Capacity Initiative, we support economists studying what’s behind these rising costs, and what we can do to get back on track.

To learn more about rising costs and barriers to building infrastructure, we sat down with Tobin Center affiliate and Yale Law School Professor Zach Liscow. Liscow, who previously served as Chief Economist of the White House Office of Management and Budget, has produced some of the most rigorous evidence to-date on what's driving delays and higher costs on U.S. infrastructure projects nationwide.

Liscow’s past work highlighting the need for permitting reform has made the case for policy action at the federal level. In the conversation below, Liscow talks to Tobin Center Executive Director David Wilkinson about the need for economists to pivot and study state and local policy and capacity on infrastructure. You can watch the whole video or read the highlights.

1. We need more research on the specific causes of rising infrastructure costs.

“Before a few years ago, we did not know that the cost of building transportation infrastructure increased dramatically over the last several decades,” Liscow said. “We did not know that it costs a few times as much to build transit infrastructure in the United States than in other countries.” Liscow says academics who bring rigorous analysis to these challenges can inform better, more effective policy.

“Knowing that there is a problem to solve is motivating for trying to find solutions,” Liscow said. “Once you know these high-level facts, you then need to dig in to find the specific causes, and that’s hard, and it takes years to figure out. We’re just beginning that work.”

2. The federal government doesn’t (for the most part) build infrastructure, and researchers should turn their attention to helping state and local governments increase capacity.

Too often, exclusive focus on the federal government overlooks the opportunity for policy progress at the state level.

“The fact is the federal government, by and large, does not build transportation infrastructure,” Liscow said. “It’s built by the state governments and it’s built by the local governments.”

Looking forward, Liscow wants to bring into focus the roles of state and local governments across a variety of policy problems—and how to increase their capacity to address these problems.

3. With access to state-level data, economists can uncover immediate and practical learnings for state governments.

Making state data more available to researchers is one of the most important steps to producing useful research, Liscow says.

One of Liscow’s recent papers on the costs of building transportation infrastructure relied on data he and his co-author “painstakingly” collected from across the country, as well as data from surveys of state employees.

The result of this hard work was actionable recommendations for states looking to bring down the cost of infrastructure projects.

One recommendation, for example, is to ensure states advertise available contracts so the state receives more bids for the work from more contractors. Although one additional bidder is associated with 8.3% lower highway resurfacing project cost per mile, Liscow and his co-author found that 70% of states rarely do outreach.

“We found that one significant predictor of lower costs is when states advertise [projects],” Liscow said. “Many states don’t do that. States that do have lower costs.”

Other cost-reducing measures states can adopt include fewer restrictions on sub-contracting—to create opportunities to work with more cost-effective vendors—and hiring and retaining good engineers in the public sector.

“Data can really show what drives up costs, what drives down costs,” Liscow said.

4. Studying a piece of legislation’s effect on the budget can influence its chance of passage.

Why can infrastructure investments be so hard to pass through Congress? Measuring the full fiscal effects of policies is difficult. Congressional budget calculators often do not have the capacity to account for productivity gains, which means some value is not reflected in the “sticker price” of legislation.

For example, Liscow said, in budget calculation world, “the impact of building more electrical infrastructure on prices of electricity in your house is zero.”

Economists have an opportunity to quantify savings and productivity gains that budget scorekeepers can use to more accurately forecast the effects of legislation.

“Once you know that this budget impact is extremely important,” Liscow said, “[you] can have a pretty big impact on what’s passed in Congress.”

5. Liscow is optimistic that we can get building again.

The first step to tackling these big challenges is to bring them into the public arena for study and discussion. That’s one aim of the Tobin Center’s State Capacity Initiative, and the center’s motivation for funding and sharing this important research.

“No one was talking about these things a handful of years ago,” Liscow said. “Now it’s a big part of the conversation. I’m optimistic that, with time, these changes will translate into policy.”