and ed. [applause] no break. you gu -- report transportation. the senior research associate at the stanford woods institute for the environment, the director of policy at the water in the west.

matthew turner is a professor of economics at brown who has written quite a bit about transportation. dan wilson is at the federal reserve bank of san francisco. and cliff is a colleague at brookings. pretend we had a resident of the united states who has a short attention span. pretend, that he ran for office saying i want to spend a lot more money on infrastructure. pretend that maybe this tax credit thing was something that peter navarro thought up and would never resurface. what would you tell them about how we want to wisely spend the money and based on what evidence? i have asked that each of them give us a seven or eight minute spiel that they would give in the oval office. we will have some interaction.

maybe i can start with you because we have not talked about water. quite a bit of focus on water lately. the supply of but also the pipes. it depends on access to clean water. water is a hidden infrastructure partly because people don't know where the water is coming from and going to the connection is i cut on the water and it comes out. they don't have an understanding of what it takes for water provided to bring the water to you and what it takes to clean it up and put it back into the environment. this is connect has led into lack of interest and enthusiasm to invest in the water sector as a whole.

when it comes to water, we talk about some interest in investing in the infrastructure of replacing the pipes. the numbers are very insignificant compared to what you really need to be done. a lot of the water infrastructure is 40 years old or. they are aging and reaching the end of their lifetime. we talk about investment in the money on the table. we need to be very smart in the way we invest with this money. when it comes to smart investments and the rings of thing promoted is asset management, tried to focus on the fact that the infrastructure tends -- we have to be first of all larry mentioned there's something important, we generally do very reactive to

fix water challenges, water albums. everybody tries to go and fix it rather than being proactive, understanding what the and try to invest in those challenges or read zones. asset management is a great example for that. a lot of the cities can use this system to evaluate their assets to see how these systems are working. investment, this set of assets they have. a good example, the sanitation district in the bay area, they were having a lot of overflow issues. they were told that they have to fix this cemetery overflow challenge. saidwent to the users and do you want to raise the rates to pay for this fix?

that. did not vote for the rates were increased. they bought a company, they work with them. they did some evaluation of the system. they identified what are the read zones. what are the base points that if they do not fix, they are going to have a break in the system and they ended up doing a better job of fixing some of those. they went back to the public afterwards and the public was willing to pay for some of those investments that they made because it was a smart investment. that is a very good example of asset management. if you go beyond that, one of the sector is shifting and having a paradigm

shift. we are as a government, we are not necessarily reaching that point yet. 20 years ago, the energy sector had a crisis. they dealt with it, they try to change the way they managed energy. -- access to reliable water supplies -- how we can be smarter again

and use data to manage our system more effectively. there are so many technologies -- using theng .xisting data how do they respond to price change? how do they respond to the climate variability and the different messaging and try to understand that people -- the demand for water is changing. using this data to become smarter in the way we manage our water system and then, using that information to see what kind of infrastructure we need in the future. a lot of the water utilities thinking about that infrastructure, big pipeline, .ig aqueduct maybe the next generation system does not require another

aqueduct to bring water to us. we can replace some of our infrastructure from local projects. example is itreat sort of has this broad umbrella because when you think about water scarcity issues, it can help to enhance some of the water supply issues we have. it captures the rainwater. about east coast, d.c. using great infrastructure to deal with water quality issues. there are issues that works for both sides of the coast and the middle. and addresses that issue. one thing i would like for everyone to think about is that when you teach about water, we

have put it in different buckets. we have organizations that brings water to you -- that bring water to you. they collect the water, they put it back into the environment. these are all different silos that we have created. the reality is this is all one water. the same water we need to deal with floods, we can be better in taking that water, storing it, reusing it so when it comes to going back to some of the local solutions we can use and reusing it. you go back to recycling, what kind of demand we have for water? how is it going to impacted test impact it --

impact it? how can we connect -- water supply which is >> if the president said to you, i have been hearing a lot of talk about user fees, should we finance the pipes of flint? the flood recycling on the west coast by charging more for water or should i take advantage of the low interest rates that larry talks about and have a giant infrastructure project like eisenhower's highways? >> we are having this conversation in california on some of these. the reality is when you talk about water, we are not recovering the cost of investment that we need to make for the future. the -- for every dollar of revenue we have to invest four

dollars for capital investment to uptake and future investments for our water infrastructure. the amount weing have to for the water infrastructure that we have. going back to the public knowledge, policy is important. there is a lot of resistance for our user fees, but as you raise public awareness, water is cheap. think about how much your playing for your water. when people are willing to pay $100 for the cell phones, for every family of the household has a cell phone. how much are you paying for your water? and my house, single-family home, almost $100 for water. that is nothing compared to what we -- what advantages water

brings to you. we don't think about this. if the water doesn't come out of in in the- [indiscernible] -- in the energy sector, in california, we started having blackouts, people realized i do need electricity to survive daily. people were much more willing to think about what are the next options. we did have user fees in california. good.er fee actually are if you can so transparency in the way you're using them. i take this user fee and .nvested index, y, z go back to the public and say what you invested it on. the same thing with water. we had this public its chart. they were supposed to be invested in energy efficiency.

innovative energy and for structure such as energy. that has a big impact on energy efficiency in california which has been significant in understanding where our demand is going to be in the future. demand management is the cheapest way of doing -- of dealing with future needs. those fees went to some of the water energy utility to invest. >> thank you very much. let's turn to transportation. friend who is a fishery biologists. he thinks that fish are important. i think transportation infrastructure is important. before i start, let me try and

give you something on this. imagine taking all of the -- and stacking it in a pile and stacking the money that you use to pay for that next to it. that second money would be gdp. if you think of assigning those thatrs to the the factors the major pile stock, about half of the pile would go to wages. if you think about assigning the part of the pile the ghost of boats and trains, it would be about 5%. you can bring it up to 15% if you think about commuting costs and the time people spend in their cars. it is like the self-help book saying. the important thing is people, not things. how do we think about how thertant transportation is?

problem with thinking about just rotation is being a small factor is we wonder, if we reduce the cost, can we somehow matchup jobs and people and tools and buildings so we can make more from less so the world works better and we are richer? that process is hard to observe. should think about examples. we want to think about which project's refund. not every transportation project is good to have that. the detroit example is classic. in st. louis, they turned the stop lights off at 6:00 on weekdays because nobody is using those roads. they have more infrastructure than they need.

let's consider improving the i-95 corridor. we will do that. we'll add a lane the hallway. we need to drive from confidence to new york. it probably will cost $10 billion. let's think about how that might create economic growth. whiche that some company as a consequence of that .eduction what that tells us is that company really doesn't care very much where it locates. that company is liable only because it can get to new york in 2 -- two hours and 50 minutes . those people had some other thing they could do which is almost exactly as good.

spending that $10 billion to get to new york in 10 minutes instead of three hours does not give us a lot of that magic where we can combine people and tasks a lot better. now, if you look at the data on these kinds of things, it is really easy to find examples where that improvement in connections from new york to providence would cause some this is which would have otherwise located to north carolina to locate in providence. that is not creating economic growth. that is changing what production happens. when you look at transportation projects, the first effect that you should think of is not that it is creating economic growth but it is shifting around. if we think of chance protection projects that way, and we want to apply careful cost-benefit analysis, what should we do?

everything that is insane is absolutely right -- that has been said is absolutely right. away, you are devoting your resources to things that are valuable. we have these revealed preferences. what else can we do? the other thing we could do if adding transportation if the structure to a place ships people and economic activities, where do we want people? we want people in the places they want to go or where they are rich. instead of loading roads and places that are empty, where no one wants to be, build them in seattle, san francisco. if you live in seattle, statistically, identical workers make almost as much as that same worker in southern texas. build -- this is a heavy lift politically. this is the opposite.

build them in places that are because heght? expand the capacity of those places to house people and people will go there. there we are not thinking on the magic of this thing that is very hard to see. i convinced is small. and for structure let's is combined things better and make more from less. we are banking on the fact that we know that some placer better at making stuff than others. that is a big effect. little things besides that. don't build like rails that need subsidies. every time i think about confidence, providence is a little town and it is out of the

way and not very important. milliont to spend $100 to build a small light rail system. you do the math on the basis of the projected ridership. these are projections by people who want to be paid by building the thing. there's just no way to make that make sense. buses on the way to go congestion pricing, we all love that. the seas are rising. we still have 40 or 50 years before it begets -- before it gets to be a crisis. most of the time we will lose if we fight that. holland does it and we will be

up to do it sometimes but most of the time we will lose the battle. the good thing is we have 40 or 50 years to plan. that is a long time in the life of a building. if you plan an orderly retreat, it will not be a disaster. we stand and fight, we are going to end up underwater. another part of this thing, we want to build our infrastructure so we can manage an orderly retreat from something we can predict will happen on the coast. >> juarez providence of the spectrum? >> providence this subject to periodic hurricanes. it is only above water because of a massive seawall. >> another reason not to spend money. >> the light rail system which really be underwater. another good reason. >> thanks. >> the first thing i would tell the president is to repeat what you mentioned before.

-- theing i say today is views of the federal reserve bank of san francisco. so, i would start by asking what do we mean when we are trying to get the highest return on infrastructure spending, what exactly do we mean by return? what kind of return? in terms of gdp? employment? measurehing more hard -- more hard to measure like a longer run benefit. i'm going to focus my remarks on the macroeconomic returns, thinking about gdp and employment. here is the horizon we're talking about. if we are try to think about it for such spending as a stimulus

policy. we're trying to think of this as something that could stimulate the economy in the near term. the economic research is not very optimistic on that. especially in the current economic environment. case for a longer lunch positive strong return to gdp on employment -- or employment is stronger. in terms of why the short run low, there ise three reasons. first, theoretical research has consistently come to the conclusion that the short run economic multipliers on government spending tends to be

much lower in expansions than recessions. -- whenbecause you have you have massive government spending, it tends to crowd out private sector activity. when you have an expansion, you're already at capacity exchange. clear thatis pretty the multiplier is going to be low. evidence that i have done in the papers i have worked on. it is low in expansions. this is a short run bang for the buck.

i did a paper with a colleague for the in br macroeconomic conference. we will look at the path of gdp and employment in response to shock to infrastructure spending. we will looking specifically at the experience of states and how they get different amounts of federal funding for highways from the federal government. who want to exploit the variation to say can we get more? diluted more in terms of gdp in the near term and over the longer-term. we found that on average, you get a shock to federal highway ramps, the funding for projects that led to an increase in state gdp immediately in the first one or two years after that shock. that faded away. they need at the second round

effect of 60 years later, i will come back to that second round effect in just a minute. in terms of the near term effect, we found that was there on average but when we looked at whether that affect was whethert depending on the state was in a recession or expansion, we found -- if you're in expansion, we found no effect on gdp or employment in the near term from this shock. again, that is aside from the longer run benefit that we did find. reason why you might expect a -- front end for such spending is at least if your thinking about employment, infrastructure -- modern transmission projects tend to be

not very labor-intensive. and workch i have done i've seen from others found that the labor labor share in major transportation projects is small. these tend to not be very useful as a jobs stimulus in the short run. found that that we there was a bigger impact, a six to eight years after some initial funding increase in infrastructure spending, so that beent has down the road quite sizable and didn't seem to matter what state of the economy was when the funding started. there is a sucker case to be made for him for such a spending having these medium run

benefits. those benefits, that is true for employment and gdp. those benefits are a supply-side shock. in terms of macroeconomic theory, the thinking is you have long time to build a labs with and for such a spending. you have a lot of construction activity happening over many years but there is no benefit to the private sector until many years later, on average six to eight years. when the public capital comes on line investing in this and then finally you have a new bridge, new highway, that is when you get the supply-side benefit. productivity increase, private sector in general becomes more productive as you have this improvement. that is there.

if that is the goal, if you are try and get a high return in terms of a longer run or medium run economic benefit, then there is a strong case to be made. then, lastly, i would say in terms of -- we are going to do infrastructure spending. if somebody says we are doing infrastructure spending no matter what, tell me where are the highest returns. one thing i would say is that putting the money through state and local governments seems like the appropriate way to go, this is some other research i did. whether state and local government actually spends the transportationon on transportation. there were concerns in the 2009 stimulus act that the money that the federal government was

for transportation was not going to be spent on chess petition, but it would be used to pay down debt, i nancy tax down debt, finance tax cuts. the states did spend the money on transportation. -- it led to charities spending more. they ended up spending more than a dollar over the next two years on transportation. states maintained these lifts of -- these lists of projects. they are well in position to spend this money. believe that the government is incapable of ranking transportation projects in order of their value

long-term returns? state and local governments are enlightened and will not be influenced by politics? >> i would say that traditionally, we have in our highway bills, we have paid for the nation's roads through federal highway grants to states . that system has been in place. because of that system, states maintained these lists. they try to identify projects they like to work on. as they get funding, they work on those projects. we have an existing system in place to spend that money. having the federal government choose -- >> confident in the government that it is making efficient choices? >> as confident as the federal government is making those choices. >> i was going to mention five considerations to think about

transportation infrastructure. after laying those out, i will turn to the project. we will take those five considerations into account. i will be constructive and say this is a big thing we ought to spend money on. the first one is cost-benefit. this is critical in my world. this is a problem in transportation and infrastructure. the system is not designed to do that. money goes in but it is not necessarily going to those areas in the country that will generate the highest. everybody gets in on it. once you go inside, you can do better. the npo's are going at it. it is not just going to those parts of the state that would

generate the highest return. everybody gets in on it. you have those constraints built into the system. add on some other regulations on capital labor, you are not going to expect the way the whole thing is designed you are going to get many projects with benefits that exceed costs. the second consideration is the thing has to be lyrically appealing and popular. this is a lyrically pervasive system. if i'm going to suggest a project, i am going to have to say what am i going to get out of it? .2 projects that get completed as opposed to maintain are good things that help you get elected. you wonder what that possibly is? have to wait. either consideration is technology. a critical part of infrastructure in this country is it is not up-to-date with technology.

a million things that could be done. engineers are chomping at the bit saying, do this, it will make it so much better. it is not done because we have status quo bias. i want to come up with something that is technologically new. it is something we haven't done before. this illustrates here is something we can do. consideration is sub optimal pricing. the system is not designed to be efficient but in a very distortionary way. the prices are inefficient. investment is not done based on benefit cost analysis. that spews where money goes. you are defeating yourself oftentimes for not making the best capacity.

i want a project that is going to illustrate the importance of sub optimal pricing and investment in creating so much distortions that we have now. a quick footnote, i want to talk about the macro and micro. there is a question that there should be some sort of conflict. all the micro concerns about cost analysis on, those should reinforce and be consistent with the macro perspective on how we pursue infrastructure. ask the following macro questions. i was given an amount of money and i want to increase employment, what should i do? subsidize capital? subsidize labor? i can see your brains working. we're taking derivatives. you are try to see what parameter values is it going to

be? i'm going to get more employment with labor? capital? whatever the answer is, the distortion is we haven't capital is going to hurt the capital at the structure subsidies to try and solve this macro problem. my point is if the macro and that macronderstand can perform better, then that is how we want to sell capital subsidization. now, how we do things is going to be the worst. the final thing, privatization. when i mentioned the word, privatization, i do not mean a -private. we do not want them in partnership in government. that is not competition when

they get together. i want to think about it way of exposing the importance of amortization. those in my considerations. what is my project? i want to more minutes. -- i want two more minutes. >> don't wait for the one-liners. heatedmy project is runways at major airports along the east coast and midwest. some spending money, let's hit up the tarmac and the terminal areas. -- let's heat up the tarmac and the terminal areas. some people actually heat their driveways. there is no snow no accumulation on these things. green bay packers football stadium, they have a heated field. they are not playing in a nice bowl anymore. -- in an ice bowl anymore.

you see a snow forecast, you crank the thing on, the coils underneath. there will not be a millimeter of snow no accumulation. it hits and it is going to melt. you are not going to have two feet of snow. that is it. why is this good? benefit cost, right? it is the delay savings. when your delays, it turns into cancellations. you have to get your next flight which could be hours. up.can see things charting cost airlines -- remember your plane is just stuck. -- put all that together operating costs, politically,

totally a winner. not the coolest thing in the --ld, all you know are 1% all the 1% others have heated driveways. it is still something that is new. pricing investment, what is our beyoncewith runways? and jay-z they come in and see the outgoing president, the ceos come in to see the the incoming president. we commercial people have to pay a lot more. that is putting a lot of pressure. the distortion is rising investment. finally, the punchline of the whole thing. privatization. reverse the question. the president says this seems like an obvious idea. why don't the public sector airports do this?

what incentive do they have to do something like this echo -- like this? why would a public sector airport which certainly is not in the business of maximizing economic growth, you can blame the system is set up, you can blame the kind of managers, they are not good say we want to put these things in and save travelers time. it is going to cost us money. let's face it, financially they are not that much better off. we'll get our money anyway, right? consider the private sector. suppose we privatized logan, providence, rhode island, new hampshire, right? you don't think one of those airports would say let's put in a heated runway? just think of the benefits they would get.

i have no doubt if we privatized our airports initially as the market works, someone would experiment and realize yes, people realize the value of a heated runway. we are going to charge them for it. low and behold, we better do uss to because it is killing financially because people will come and use these guys. the only reason not to consider this is if we truly have global warming and we're not going to snow anymore. i really don't think this a chinese hoax. >> let's not waste a lot of money in flint, michigan because we trust people to be more productive. is that something -- how do i square that with you telling me

we have led and water pipes all over the country and we ought to spend money may be charged music fees where we can to replace them even in cities where we're losing populations? >> first of move a is really hard to community from one location unless you have jobs ready. soyou don't have skills, that is not going to work. think about it this way, you have communities that are -- capable of covering the cost of the service they need to get. there is an option to try to take some of the federal money between -- to invest in the communities that don't have the means to deal with their challenges. not necessarily send as much

money to the communities that do capacity.kind of they can deal with their own challenges. i know this might not be a very popular statement or i am not an economist, so i am saying from a socialist perspective, that may be the way to go. what the government to mention, we -- the systems we have in place have fixed costs associated with them, maintenance is a fixed cost. even if you don't use a job of water, that operating system has to go on. it is very important to remember that the way through the economics it is the opposite. every drop of water you pay a dollar, right? you put every dollar you are

paying $.40. you stop using that gallon, the person who is operating and maintaining that water infrastructure is still needing to pay for that system. connecting the revenue to the amount of water people use it doesn't work that way. ishin the energy sector did restructuring their crisis. trying to disconnect the cost. >> you are saying we should pay for electricity. the two things you would tell the president is the economist may pay to abandon these declining cities but socially you think that is a bad idea and you are willing to subsidize flint to let the people and stethoscope a little more? secondly, if pricing transportation is bad, pressing

water is even further from ideal? >> right. we talked about transportation. i want to mention you want to build new roads? bridges and new runways? think about water. be smart in the way you invest your dollar. think about collecting some of the water that lands on the you >> we can move to san francisco. if any of you guys want to weigh in on any of the things i just petition, i want to go to the audience. is there anything you want at? -- want to add? you like heated runways? >> sounds good to me. we don't need them in san francisco. we got a halfrds,

and just snow in washington, you may not get back to san francisco. let me turn to the audience. there's a question in the back there. >> teresa gordon. -- this concept that mayors don't want on infrastructure. i never really understood because if the value of infrastructure is reflected in the property with these skyscrapers above transportation, then mayors should be other saying i am doing deferred maintenance, isn't that great? homeowners should be chomping at the bit to reward them. i don't understand why there isn't more disclosure and perhaps the government to do something.

there was a role they came out a couple of years ago that state -- perhaps our government could provide a mechanism. i would love your reaction. this idea of veto power being distributed. that is true in local government . here to get improvement -- approvals from boards of concerned citizens but actual counties and cities and special districts that overlap. why can't the federal government require local governments to get their ducks in a row before rewarding discretionary money? over here. >> britney, why don't you come over on the side? chris stephen hendrickson, it seems like the theme from this panel is that we need a big increase in investment but the

reasons that are publicly popular are not good reasons to invest in infrastructure. premise ofto david's informing the president-elect on , is it better to leverage what the public seems to care about and do it in a good governance so the way? need to educate the public on why we need to make long-term strategic investments that for some reason don't -- the bottle argument does is into resonate >> way that jobs and gdp do? i think we are going to talk more about politics later. the guy in the back. >> retired government. meadituation like it lake has been becoming critical in the fact that the water level has job to the point where not

only is the question not efficient water supply, the generation has not been as low as it has been. is there a possibility it could be converted with a giant roof over it? the evaporation rate would greatly decrease in water supply would be more constant? >> the guy in the back? >> charles lane, washington post. the one thing nobody has discussed is the idea of an infrastructure bank. given all the questions that have been raised about efficiency of financing and choosing projects, anyone has a thought on that, i would be curious. x i would like to respond to one question on leveraging. public thatl the something is going to create a

lot of jobs, and it doesn't, nafta, you end up with long-term costs. that is my two cents. if the structure bank anyone. >> i will follow-up on that. the politics of it in the timing. the short run effect seems to be small. it is going to be damaging in terms of the long run politics trying to sell infrastructure as a year term stimulus. i think that gets to some of ,hese questions about politics that a mayor or governor trying public on a plan. now the political economy problem is the benefits may not come for many years in the future.

that person is out of office by that point. they have to be -- maybe this gets to the second question. you need to educate the public on what is the point of this to be able to sell them on something where the person selling them is not going to be in office to take credit when the benefits happen. >> the deferred maintenance thing is a really frustrating one. all of us who live in washington, dc, are very aware the cost of the deferred maintenance and the metro. .- in the metro it doesn't leave us wanting to give more money to the washington metro. no one was going to pay for nest later that didn't break. ordinarynot take extra foresight. principle the guiding is one that both ed and larry spoke to.

it is important to connect the cost of services with the price. you want people not to get stuff. you want people to pay to use things, something that reflects the cost of providing the service. and to the extent you make funding mechanisms complicated, it makes it harder for that to happen. the rules should be to make funding mechanisms be simple and as people propose institutions and funding mechanisms that are -- those is things you should look at with suspicions because it makes harder to untangle relationships between pete what people are willing to pay and what it costs. >> i want to get the point of my presentation across. i'm concerned that people missed the point. some basic considerations that justify project that are all meant. my punchline was there is no way public sector would ever do anything like this.

there is no way i'm going to say we should increased infrastructure spending, not in this clinical system. -- not in this political system. it is so riddled with status quo bias. everywhere you go along the line, it is not serious to think about reforming this in an efficient way. this is not an accident. very powerful interest along the line as well as status quo bias. something like it and for structure bank, this is something that is thrown out. what problem are you trying to solve? bank is goingture to be more of the same. we're not going to be improving efficiency.

none of that is going to happen. this is what we are doing with. fortunately, this is backing month ago, we had a program on autonomous vehicles. the private sector is coming through with innovations. improve theng to performance of the infrastructure. vast inefficiencies of the public sector and the things they could've done that they have not done. we will see. unfortunately, that is where things are moving. we will never see them. things are just addressing the fundamental problems. >> last word. >> and for structure bank, talk about doing that. -- infrastructure bank, i talked about doing that.

[inaudible] the lowest margin for the communities to get access to this money was $5 million. there are a lot of innovative water projects. project, they never fixed that $5 million limit. you never even get to that threshold. it doesn't matter if you say and for such a bank, greenbank, anything. they need to be more forward-looking. when you to think about what we need in the future and how do we systemshese financial that would address our 21st-century problems. >> i think that one thing that

comes from all of your presentations is that we should be careful that we are solving the absolution instead of the problems we already have. if we have a problem raising money, that is something the federal government does well. if we have trouble, that is something the public sector doesn't do well. if we had a shortage of jobs, macro economic policy, we can do something about it. if there is one thing that comes through is make sure the commission you have fixes the problem at the ham. i'm going to dismiss this panel. i'm going to invite my colleague and encourage us you to stay. if you stay, you get a free lunch. [applause]

>> donald trump ports -- jeff sessions is on capitol hill this morning to testify at his confirmation hearing. we have coverage from the judiciary committee at 9:30 a.m. eastern on c-span3 and c-span.org. you can watch the hearing tonight at it :00 p.m. eastern on c-span two. later, president obama delivers his farewell address to the nation from chicago. he will talk about his last eight years as president and offer some thoughts about what is ahead. that is live at 90 5 p.m. eastern here on c-span and c-span.org. you can listen on our radio app. ♪

♪ >> the inauguration of donald trump is friday, january 20 c-span will have live coverage of all the days events and ceremonies. watch live on c-span and c-span.org and listen live on the free c-span radio app. ♪ >> up next, a preview of the senator jeff sessions hearing to the attorney general from washington journal, this is an hour. announcer: "washington journal" continues. first of our two roundtables today on the nomination of jeff sessions for attorney general, we are joined in studio by susan crabtree, senior congressional reporter for "the washington examiner," and steve flowers. i want to begin with you.