Infrastructure renewal is a critical component of U.S. President Barack Obama’s strategy to repair the broken American economy. Economists and virtually every politician will debate the efficacy of the plan; however it is evident that the largest public works program since Franklin D. Roosevelt will shortly explode across the United States.
One unexplored area is the infrastructure requirements to channel fresh water from Canada to the southern U.S. Close your eyes and imagine the construction of the largest manmade river in history and cover 1,400 miles from Manitoba’s southern border to Dallas, Texas.
Interesting, but why now? Because within twenty years, according to Business Week the American south-west and California will face critical water shortages that could sabotage economic growth in these booming states. According to the United States Department of Agriculture, California and Texas have the two largest agricultural economies in the U.S., with cash receipts of $31.8 billion and $16.5 billion respectively. Their lifeblood is water.
To keep such agriculture and food critical supplies alive long-term will require new sources of water. The proposed water project would supply 5.4 billion cubic meters of fresh water annually to the thirsty south-west and California.
Currently, Texas alone consumes about 19 billion cubic meters annually. In the long-term. the continued expansion of these dynamic economies will require additional water from non-tradition sources.
Using the most recent cost of major water pipeline construction as a guide, the estimate project’s price tag is $42 billion and would take an estimated construction period of 15 years. The annual expenditure would be approximately $2.8 billion. The trade publication, Water Information, estimates that the U.S. will spend about $30 billion on its infrastructure in 2010, a perhaps modest figure given the current economic situation. Whatever the final infrastructure budget, an expenditure of $2.8 billion per year for life-giving water, may, for the next generation of southerners, be a good deal.
In terms of job creation, the U.S. Department of Commerce estimates that the number of jobs created, direct and indirect, for every $1 billion of expenditure on infrastructure to be 12,804 and the amount of total wages and benefits produced to be $693.7 million. The expenditure of $42 billion over 15 years would create 537,768 job years and a total wage/benefit of $29 billion. To be sure, questions will arise over the accuracy of the inputs/outputs used in the Department of Commerce model. Nevertheless, it provides one economic tool to understand a complex economic projection. It is a given that any form of government spending creates employment, however it is also true that each category of spending has a different impact on the economy. Infrastructure expenditure is not the highest or lowest, but somewhere in the middle.
Alan Greenspan, in a November 2002 speech noted that a powerful link exists between the creation of private wealth and the quality of infrastructure. In the case of an infrastructure providing fresh water the link to wealth creation to agriculture is obvious.
At present, several thousand proposed projects in the United States are competing for funding. Ideally, the private sector should fund such a project on a cost-recovery basis—just as energy companies build their own pipelines at their own cost and risk. Or governments could consider public-private partnerships.
At $42 billion, this water pipeline would be the single largest project among proposed infrastructure projects. While no economist can predict with certainty the full impact or even the wisdom of a project of this magnitude will have on the southern economy but on balance, there is less risk providing the certainty of water supply to the south then the alternative of standing pat.
For more on water policy, visit the Water Frontiers Project.