One of the key building blocks of a healthy and growing economy is top notch infrastructure. What is infrastructure? Well, these days we have heard a lot of debate about this and it’s a worthwhile topic to examine.
In the old days, infrastructure was nothing more than roads and bridges that horse-carts could run through and railroad that were the main mode of long-distance travel. As the pace of technological innovation accelerated and we invented the cars and planes, the definition expanded to include highways, gas stations, airports and more. Later, when we created the life sciences industry and the internet, pharmacies and high-speed internet became part of the infrastructure. Today, the definition is quite broad, as it should be, since our economy is much larger than it used to be and has many sectors, and each sector has its own infrastructure in order to function properly.
Infrastructure is rather important. It allows for better functioning of each sector and the overall economy. If you are in the transportation sector of the economy, good roads and rail tracks lead to easier delivery of passengers and goods. If you are in the telecom industry, strong fiber optic cables and extensive amount of them allow for faster transfer of data and a more productive workforce. One of the overlooked benefits of a strong infrastructure is its impact on the wages of workers and inflation. When people work in an economy with a strong infrastructure and they can be more productive in their jobs, it leads to higher wage growth. And, this wage growth is not inflationary. That’s because a higher wage for someone who is producing more is not inflationary. If your unit of production per hour goes up, paying you more for that hour is in line with your production. However, if your production is the same but you get paid more, that’s wage inflation.
Infrastructure investment by type, 1947–2017
America invested in infrastructure heavily in the early and mid part of the 20th century. That led to rapid technological progress and economic growth that was broad-based and benefited everyone. The wage growth from all of the good jobs created from these investments helped create the middle class. The resulting productivity of the workers from the output of this top notch infrastructure led to faster wage growth and a thriving middle class. At the time, it was understood by everyone that this investment in infrastructure of America was necessary to be competitive economically and that it benefited everyone. As such, paying taxes to fund this type of investment was considered a no brainer. Somewhere along the road, that changed. And that change in mindset had serious consequences for our country.
Next, let’s see what happened and what the consequences have been.