On the menu today: As New Hampshire GOP governor Chris Sununu observed, Congress allocated $1.2 trillion for new infrastructure projects, but none of it has been spent yet, which means yet another inflationary pressure is looming. What’s more, 50 states and an untold number of localities are about to try to launch hundreds of large-scale infrastructure projects simultaneously during a period of runaway inflation, lingering supply-chain problems, price spikes in raw materials, a construction-labor shortage, and an unprecedented spike in the cost of diesel fuel. This is just about the worst possible time to try to start a massive number of construction projects from coast to coast.
The Infrastructure-Spending Spree That Shouldn’t Be
New Hampshire GOP governor Chris Sununu appeared on yesterday’s Three Martini Lunch podcast and said:
Remember, this Biden administration has authorized all of this money to be spent. But this infrastructure money? Not a penny has been spent yet. Not a penny has been spent — it’s all been authorized, but there’s no dollars actually out the door. Wait until that starts happening! And then we’re gonna have issues with steel, with oil even further, because you need oil to make asphalt, right? With raw materials, cement and concrete. The cost of cement has gone up three or four times. I watch this stuff every day, because as a small state, we’re always trying to pool together our buying power, so that we can compete with the big guys, so to say. . . . We’re still going to feel these inflationary pressures, especially around gas and diesel, for a long time. Truckers, just getting the product from Bentonville, Ark., at Walmart to your Walmart in New Hampshire or whatever it might be, that cost that trucker another 1500 bucks, just in the price increase that happened last week. Two weeks later, he’s spending 1500 bucks more, just to transport that product. That’s going to bring the supply chain to a halt.
The governor is correct, and as far as I can tell, only those who work in the infrastructure-construction business are talking about the worsening problem. First, in addition to all our other inflationary pressures, in the coming months and years, state and local governments will spend another $1.2 trillion on infrastructure products. This sum is separate from the $1.9 trillion Covid-relief bill the president signed in March 2021, the $1.5 trillion omnibus spending bill he signed in March 2022, and various stopgap spending bills he has also signed.
Fifty states and a considerable number of localities will be trying to start and complete $1.2 trillion in construction projects simultaneously. What do state and local governments — or more specifically, their contractors — purchase when they’re working on infrastructure projects? As Sununu mentioned, concrete, steel for rebar, and asphalt, among other products. And all these products have grown considerably more expensive in the past two years.
The U.S. Bureau of Labor Statistics’ special index for construction materials as a whole stood at 256.4 back in January 2021. As of March 2022, it was at 344.3 — a 34 percent increase. The index for concrete stood at 179.8 in January 2021, and as of March 2022, it was at 200.3 — an 11 percent increase. The price of steel has been volatile, rising quickly and dropping quickly at different points in 2021, but it is still at a historically high price. And you’ve probably noticed the high price of oil.
Other construction costs are up, too. As of April, the cost of gypsum, used in ceiling tiles, plaster, and drywall, is up 20 percent since last year. The cost of insulation has risen about 17 percent in a year. Paint is in such short supply, paint manufacturers are buying back unused paint to reformulate into new products. (Eh, not quite, this article in American Painting Contractor is an April Fool’s Day joke. Thanks for dating the article March 30, guys. Nonetheless, the country is indeed facing a paint shortage.)
What do you think happens when all 50 states and an unknown but large number of localities all try to buy these products at once? What have we learned happens when demand rises steeply but supply remains the same? Prices skyrocket, and some consumers can’t get what they need or have to wait longer to get their products delivered.
On top of everything else, the cost of power tools is going up, too.
Wait, we haven’t even addressed the most pressing problem. Almost all the vehicles used in construction projects run on diesel fuel, and the price of diesel fuel keeps reaching all-time highs. No, says Sununu, there is no substitute:
Roughly 850,000 diesel-powered vehicles nationwide are in use bringing supplies, materials, and workers to and from U.S. construction sites. Earthmovers, bulldozers, bucket loaders, backhoes, cranes, pavers, excavators, and motor graders are all essential to building and expanding our economic infrastructure. For most of these machines, there is simply no substitute for diesel power. No viable alternative has yet emerged for equipment that exceeds 500 horsepower; some construction engines produce several thousand horsepower. In the construction sector, 98 percent of all energy use comes from diesel.
East Coast stockpiles of diesel fuel are at the lowest on record, and some industry watchers expect rationing of it this coming summer. How exactly are states and localities supposed to launch hundreds of new infrastructure products during a diesel-fuel shortage?
Even if a locality can secure and afford the steel, the concrete, the asphalt, the cost of operating all the construction equipment and all the necessary tools, there’s still the problem of manpower. Like a lot of other industries, the construction business is dealing with a labor shortage. The Associated General Contractors of America recently noted that job openings in construction hit an all-time high at the end of March, while the industry’s unemployment rate was the lowest ever recorded for April. There were 415,000 construction-industry job openings at the end of March, a jump of 69,000 or 20 percent from March 2021. (The association is calling for “an immediate expansion of work permits for foreign-born workers.”)
What does this mean? This means that the overwhelming majority of these projects are going to run way over their initially estimated budget and way behind their initially estimated schedule. The New York Times observed last November that, “Cost overruns, engineering challenges and political obstacles have made it all but impossible to complete a major, multibillion-dollar infrastructure project in the United States on budget and on schedule over the past decade.” And that was when inflation was still relatively normal and manageable.
You’re already seeing some public-works projects canceled because the costs rose so quickly. In Idaho, one new highway-interchange project and a road-resurfacing project are now delayed indefinitely: “Our goal was to start construction on the interchange this spring, but prices on materials have compelled both parties to step back and consider how to move forward,” state transportation project engineer Doral Hoff said.
The much-touted bipartisan infrastructure law is a bit like an ouroboros: The cost of these projects is rising quickly because of the cost of the materials, and the cost of the materials is rising quickly in part because the infrastructure-spending bill dramatically increased the demand and amount of money available for these projects. (The law is also an enormously complicated endeavor; as McKinsey Consulting wrote this week, it “includes roughly 240 separate funding streams that will flow to state and local governments either directly, in the form of grants and program funds; or indirectly, through local constituents such as private utilities, businesses, and individuals.”)
Maybe America really needs $1.2 trillion in new infrastructure projects. But by attempting to get these projects started during a period of runaway inflation, supply-chain problems, exploding diesel-fuel costs, and a labor shortage, the Biden administration and Democrats are ensuring that taxpayers get the minimal bang for their buck.
A Statement You’ll Want to Read
NR has published a joint statement on the state of the country signed by a wide range of American leaders, including: Ayaan Hirsi Ali, Andre Archie, Dan Crenshaw, Glenn C. Loury, Rachel Lu, Harvey C. Mansfield, Avik Roy, Pat Toomey, and many, many more:
We believe that America is a fundamentally fair society with bountiful opportunity; that its Founding was a world-historical event of the utmost importance and established governing institutions of enduring value; that its original sins have been honorably, if belatedly, repudiated; that it came to be wealthy and powerful primarily through its own internal strengths, not via expropriation and conquest; that its model of ordered liberty is a boon to human flourishing; that its people are a marvel and its greatest resource; that its best days needn’t be behind it, and that it remains a beacon to mankind.
Read the whole thing.
ADDENDUM: You can already see the push to make the national infant-formula shortage a matter of scapegoating Abbott Laboratories. And no doubt, as noted Monday, Abbott’s untimely shutdown of an important formula-manufacturing plant is a significant contributing factor in the current shortages. But the shutdown of one plant shouldn’t result in formula’s being out of stock in 40 percent of stores across the country. As our Dominic Pino observed, supply-chain issues are hitting almost every industry, but we aren’t seeing 40 percent of the stores across the country having empty shelves for every product. (Dominic also laid out how, when predetermined contracts with state governments are responsible for such a large segment of total purchases, suppliers don’t respond to the usual price signals of higher demand the way they ordinarily would.)
We should also keep in mind Abbott’s contentions and evidence that there’s a good chance the bacteria that sickened, and in two cases killed infants, did not come from their plant:
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Genetic sequencing on the two available samples from ill infants did not match strains of Cronobacter in our plant. Samples from ill infants did not match each other, meaning there was no connection between the two cases.
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In all four cases, the state, FDA, and/or CDC tested samples of the Abbott formula that was used by the child. In all four cases, all unopened containers tested negative.
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Open containers from the homes of the infants were also tested in three of the four cases; two of the three tested negative. The one positive was from an open container from the home of the infant, and it tested positive for two different strains of Cronobacter sakazakii, one of which matched the strain that caused the infant’s infection, and the other matched a strain found on a bottle of distilled water in the home used to mix the formula. Again, neither strain matched strains found in our plant.