Thursday, September 4, 2008

Infrastructure Boondoggling

Governments are on track to spend a record $300 billion this year on schools, roads, bridges, and other projects...That's a 7% increase on top of a 12.4% jump last year."

Dennis Cauchon, "Building Projects Shore Up Economy," USA Today, August 20, 2008

"Megaprojects are often borne of good intentions but end as abject failures...Either politicians, planners, and consultants are lying outright to get the projects funded, or they're guilty of "optimism bias," succumbing to the pschological tendency to overestimate the likelihood of positive events."

Ryan Blitstein, Derailing the Boondoggle," Miller-McCune, September 2008

Not a small problem given the $1.6 trillion estimates for infrastructure repair and enhancement and the short and long term infrastructure investment schemes being floated in Washington and on the campaign trail. There's a sense that we have a backlog of ready-to-go projects that, contrary to common opinion, can be builit quickly and efficiently. And think of all the "green" aspirations bubbling around the country.

The real problem is with megaprojects like the U.S. Capitol Visitor Center, the Big Dig in Boston, Millenium Park, the subway extension to Dulles, or the proposed Olympics for Chicago. Consistently, these projects (and many overseas as well) come in way over budget: they cost a lot more and they take a lot longer. Although I prefer the "lying" explanation to the getting out of hand of "optimism," there's no doubt that megaprojects are more complicated, longer term, and face great risks and uncertainties. But it's also true that the competitive politics of winning bids and the centrality of these projects to local politics that inflates their costs.

If we want to get the most out of renewed infrastructure investments for the economy at all levels we need to spend some more time on "ethics" training, new cost estimating and benchmarking techniques (e.g.,reference class forecasting), and regular old oversight. If not, we are likely -- especially in these budget times -- to face scandals as well as multipliers.

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