A 19th century American jobs plan

From the moment President Joe Biden unveiled his $2.3 trillion infrastructure proposal on March 31, it has seemed a bridge too far. The president described his American Jobs Plan as a “once-in-a-generation investment in America” that would build the world’s most resilient, innovative economy.

But GOP critics immediately went on the attack. The Republican National Committee decried the plan as “another multitrillion-dollar far left wish list.” Sen. John Barrasso of Wyoming echoed the committee, saying that “the plan President Biden unveiled today is an out-of-control socialist spending spree.”

Concerns among more moderate Republicans—and probably even some Democrats—who support the idea of infrastructure investment included the cost, how to pay for it (Biden said corporate tax hikes would cover it) and what’s included in the sprawling bill (the GOP complained that only 7 percent of the money would go “for what Americans traditionally think of as infrastructure”).

Since March 31, Biden has argued passionately for his plan but also shown openness to paring it to some extent—not enough, however, to close the gap in his recent negotiations with Republican Sen. Shelley Moore Capito. Now, a bipartisan group of centrist senators is trying to persuade Biden and Democratic congressional leaders to accept a package with a much smaller price tag and narrower focus. The moderates’ goal would appear to be less-expensive legislation that comes with a guarantee for American taxpayers: the plan will spend money wisely and produce a strong return on investment.

The problem, of course, is that no such guarantee is possible. Whether in business or in the public sector, every investment to some degree is a gamble. But that fact should not obscure another: Such bets can pay off.

Rochester is proof of that.

Clinton’s Ditch

In 1810, there were no recorded inhabitants in what today is downtown Rochester. That year, a group including DeWitt Clinton passed through the area on an exploratory trip. Their purpose: to determine whether it would be possible to build a canal that stretched across New York. The canal project was approved in 1817, and by 1822—three years before construction was completed—more than 3,300 people had settled where the new canal intersected the Genesee River. By 1840, Rochester’s population had mushroomed to more than 20,000, and manufacturing and trade—particularly in the flour industry—were booming.

“The Erie Canal’s course through downtown had an impact that was immediate and transformational,” observed Thomas Grasso in his history of Rochester and the Erie Canal, written for the 2010 World Canals Conference. “From virtually nothing sprang a great city.”

Rochester, of course, is only a small part of the Erie Canal brought into being. As the late Peter Bernstein wrote in his 2005 book, “Wedding of the Waters,” the canal’s construction would lead to “an historic explosion of commerce, ideas and technological change. By bringing the interior to the seas and the seas into the interior, the Erie Canal would shape a great nation, knit the sinews of the Industrial Revolution, propel globalization … and revolutionize the production and supply of food for the entire world.” 

Work on the Erie Canal started on July 4, 1817, at Rome. It was officially completed on Oct. 26, 1825. Over those eight years, daunting engineering and construction challenges needed to be overcome. The struggle to obtain the necessary funding from the state Legislature had been no less difficult.

It was easy to be a skeptic. The idea of connecting coastal areas to the continent’s interior was not new; others had tried, and failed. 

Among them was George Washington, who proposed converting the Potomac River into a canal. His undertaking, like the other early attempts, was a private venture. (Perhaps Washington had listened to Thomas Jefferson, who once wrote that “public undertakings are carelessly managed and much money spent to little purpose.”) Bernstein’s book says Washington’s Patowmack Co. had some true engineering achievements, but the venture went bankrupt and failed to achieve its goal.

In New York, an early example of a public-private partnership—the Western Inland Lock Navigation Co.—won legislative approval to create a route connecting the Mohawk River to Lake Ontario and possibly the Finger Lakes. This venture too ran out of money. “(It) made clear, wrote Bernstein, “that ventures this large would overwhelm the limited resources of private investors.”

In the end, it was an elected official—DeWitt Clinton, who became New York governor on July 1, 1817—who transformed the idea of a canal stretching 363 miles across New York into reality. It was dubbed Clinton’s Ditch by the many opponents who thought the project was sheer folly. He eventually obtained $7 million from the Legislature to fund construction after numerous tries (and after the federal government reneged on promises to help pay for the canal). To raise the funds, the state sold bonds to the public and foreign financial markets. 

In a side-by-side comparison of Washington’s private venture and Clinton’s public project, Bernstein wrote: “Suppose we had to bet today on which project would turn out to be the more successful effort, geography aside: a profit-seeking venture controlled by one of the great executives and administrators of all time, or a state-financed project managed by a committee of politicians. The choice seems to be an obvious one.”

Yet the private venture went bust and the public enterprise was completed on schedule, very close to the original cost estimates “and without a single significant blunder or failure along the way.” And when revenues far exceeded operating expenses once the canal opened, the bonds were paid off early.

Paul Krugman, a liberal economist (and Nobel Prize winner), pointed to the Erie Canal project in an opinion piece on Biden’s infrastructure plan. He wrote that “as a share of state GDP, the canal was probably the equivalent of a $1 trillion national project today.” He also wrote that large-scale public investments were “as American as apple pie,” citing as other examples the Panama Canal, the national railway and highway systems, rural electrification, public higher education and the space program. It’s an argument the White House has made too: “The American Jobs Plan will invest in America in a way we have not invested since we built the interstate highways and won the Space Race.”

Given these success stories, does anything other than shortsightedness, obstinacy and partisan politics explain the American Jobs Plan’s uphill struggle?

Smart bets

Where I live in the village of Fairport—which, like the city of Rochester, did not exist before Clinton’s Ditch—it’s a short walk to the Erie Canal, where, after the canal system’s use for commercial shipping declined, the focus has shifted to recreation and tourism. For years, I’ve biked the canal path, rowed its waters, enjoyed meals with friends at village eateries—and wondered why the Erie Canal did not become a model of public-sector investment replicated over and over.

A fair amount of research led me to this conclusion: While Clinton’s Ditch shows what’s possible, it’s also a lesson in the odds against such undertakings. 

One hurdle is the tricky politics of winning approval for legislation on the scale of the American Jobs Plan. Success also requires being smart about what to invest in. While there are no sure bets, some investments—for instance, ones that target increases in productivity—are more likely to generate a solid return. A 2018 Congressional Budget Office analysis that outlines which approaches to infrastructure spending are most productive highlights certain types of investment. The CBO report also includes cautionary words on ill-advised allocations, including this example: rural highways typically get more congressional funding even though urban highways are in worse shape (a reflection of the geography of political clout in Washington).

A smart bet also requires investing in the future, not the past. Of the Erie Canal, Bernstein wrote that over time “this skinny ditch in upstate New York would demonstrate that trade and commerce are the keys to the expansion of prosperity and freedom itself.” But building a second Erie Canal today would be lunacy. Likewise, though research shows the economic boost generated by spending on the interstate highway system, building a second highway system across the U.S. would deliver few if any productivity gains. By contrast, investment in the development and adoption of renewable energy sources, if successful, in time could be recouped many times over.

And sometimes funding future growth requires letting go of outdated definitions. As Linda Bilmes, an expert on public budgeting and finance at Harvard Kennedy School, has put it: “As a country, we have really underinvested in our infrastructure defined broadly, and that includes the human capital.” (The Biden administration says public domestic investment as a share of the U.S. economy has declined by more than 40 percent since the 1960s.)

Traditional infrastructure spending often gets bipartisan support because it creates jobs. The president says his plan will add millions of new jobs; a report from the Georgetown University Center on Education and the Workforce issued a few days before Biden unveiled his proposal estimated that a $1.5 trillion infrastructure program would create or save 15 million jobs over 10 years. But even with the need to fully recover from the pandemic’s economic shock, the real measure of the plan’s success is the long-term growth and economic security that result.

            Total payroll jobs in millions (actual and forecast based on $1.5 trillion in infrastructure spending)

So, bottom line, is the American Jobs Plan a credible proposal to “reimagine and rebuild a new economy,” as the White House asserts, or ineffective spending on a historic scale? 

As proposed, the money would be spent on everything from bridges and roads ($115 billion) and other “infrastructure resilience” ($50 billion) to the electric grid and clean energy ($100 billion), high-speed broadband ($100 billion) research and development ($180 billion) and manufacturing and business ($300 billion), along with workforce development programs targeted at underserved groups ($100 billion), affordable housing ($213 billion), home- or community-based care for the elderly and people with disabilities ($400 billion) and many, many other line items.

Any infrastructure legislation that wins congressional approval, though, almost certainly would be a compromise bill. Lawmakers will need to hammer out what to keep and what to cut. Will the decisions be reasoned or politically driven? Time will tell.

History is filled with examples of bad investments—money spent on failed 19^th century canal projects among them. Yet it also offers reminders that failure to invest for future economic growth and resilience might be the greater folly.

Paul Ericson is Rochester Beacon executive editor.