So, what is this thing called infrastructure?

A recent news item quoted snippets from the two candidates about the economy:

"I will rebuild the middle class and create millions of new jobs by investing in infrastructure and renewable energy," vowed Obama.

McCain pledged to "open markets around the globe for our products, cut taxes and expand domestic production of energy ... I will create jobs and get the economy on the right track."

I find Obama's use of the term infrastructure interesting, not because our infrastructure is not in need of investment, but because it is probably one of the more neglected and misunderstood elements of America.

On the other hand, McCain touts "market expansion" as the cure all. Expanding markets create jobs. You know, like the vast expansion of the mortgage market.

First, one should keep in mind that many significant elements of our infrastructure are not serious long term "GDP multipliers". Rebuilding sorely neglected bridges creates jobs for the construction project's duration. The bridge may be enduring, but the jobs are not. Thus, the cash infusion is finite, and any workers trained and employed in these projects will be looking for new employment at the project's completion. Yet, we need to bite the bullet and tend to this task. To me, the sound approach would be a long term infrastructure building and maintenance program that would establish, at the least, a stable labor pool, and an "industry" with a long term life expectancy. The difficulty is doing this in a tax averse, profit seeking society. We must have "growing markets", and if we are talking about tax funded infrastructure, the end result is higher taxes to "grow the market opportunities", especially if profit making firms have a vested interest in the "market". But many elements of infrastructure are societal needs, not simple capitalist markets.

So, we must avoid the pitfalls of never ending public works projects. Taxes must support necessary infrastructure. Infrastructure vital to the nation's well being. Otherwise, we become like the former Soviet Union, where vast fortunes were spent building unnecessary facilities solely to create jobs - year after year after year. Exquisite amphitheaters for band performances to entertain passing boats along the Volga River waterway, for example. When we cruised up the Volga in 1992, we saw numerous amphitheaters, facing the river, kept neat and clean, but never used. As our Russian friend said, "Build it. Engage a staff to keep it clean. Lots of jobs. Lots of Jobs. But nothing meaningful produced - not even music." Adding to the horrific burden that caused the government to collapse of its own weight.

And all infrastructure is not simply brick and mortar. Consider air transportation. Since the start of airline deregulation, the US has really had no serious air transportation policy. Safety regulations, operating regulations, airport building programs and the air traffic control system, yes. Those four areas are pretty much what represents the infrastructure of the US air transport system, and these are what are addressed in allocating the current resources and planning for the future air transportation needs of the country. Notice I didn't mention airlines. During the blood bath of "Fare Wars" in the early 1990's, Bob Crandall, then CEO of American Airlines, said that airlines were no longer anything other that the purveyors of a commodity - "cheap seats between point A and Point B". Anyone with enough borrowed money could enter "the market" with a couple of aircraft and offer cheap seats, whether or not these seats were necessary, and whether or not the business plan could ever realistically offer a profit. These low price airlines drove the rest of the industry to match their prices, as any cash flow is better than no cash flow.

Now, one might say the the flying public benefited, because they were able to save considerable money in airfares, and many more people got the opportunity to fly. On the other hand, look closely at what this "commodity" approach to airlines has created over the last 18 or so years. Employment in the industry is highly unstable. Real wage levels in the industry have fallen. Route structures are unpredictable. Every major airline (I'm including Southwest) in existence in 1990, except two, has either gone out of business or declared bankruptcy to stay in business. Billions in retirement plans as well as employee and investor saving have evaporated. All but one major airline now ships its "major maintenance" tasks to foreign sites, where quality oversight is questionable. But even if the quality is OK, highly skilled jobs are lost in the US, diminishing the domestic size of this talented labor pool in the long run. And, as we now see, all airlines are having to significantly reduce total capacity to survive, driving fares up and eliminating cities from the route network. And this contraction has hit the domestic market harder than international routes, resulting in fewer US jobs. In short, allowing "market forces" to make airlines commodity suppliers rather than an integral part of the air transportation infrastructure has had enormous long term societal cost.

If you want to jump up and shout, "What about Southwest?", I would respond that Southwest is a "niche" airline that has wisely identified and dominates its niche. It is not part of the US airline "system" in any respect other than using airports and air traffic control. You cannot book travel through Southwest outside its own system. Part of the savings in using Southwest is its use of outlying or secondary airports. If you want to travel from Amarillo, TX (as well as dozens of other cities that Southwest serves) to London, for example, you will have to change airports (at your time and expense) to connect to the transatlantic flight, carrying your baggage with you in the taxi, train or bus. And, if your SW flight is late or canceled, the airline to which you are connecting has no legal obligation to accommodate this problem. Unlike "regular" airlines, a Southwest ticket carries no cash value outside Southwest. I am not saying Southwest isn't great. I am just saying that upon close inspection, it is operating in a system of its own and provides a service separate and different from what we see as the "air transportation system". It does, however do its job well and at benefit to the flying public. But if all airlines were to adopt Southwest's model, there would be no "system" and travel would be truly chaotic.

Placing the airlines into the "infrastructure" of the air transportation system of the US would indeed stabilize the industry, and that could be done to a great measure by establishing a national air transportation policy. Here in Europe, the discounters are restricted to point to point niche markets by requiring them to generally use a secondary airport at one end of each route. Niche markets are recognized and encouraged. What Southwest does to lower costs, European regulators do to preserve infrastructure. And everybody benefits.

But the air transport system is not the only element of infrastructure that has fallen prey to free market forces. Anyone remember ENRON, or the financial "system"?

"Infrastructure" has such a noble ring. And, in the main, US infrastructure in many areas is deteriorating, often to make way for "free market" profits, as well as to gain political capital by lowering taxes. But in the end, failing to recognize, build and maintain essential infrastructure delivers a down stream bill which often far exceeds the tax savings and short term profits initially enjoyed.

Hopefully, Mr Obama knows a bit more about infrastructure than our national track record demonstrates. Should he be the successful candidate, and if he understands even the basics of national infrastructure, we may very well benefit.

Al