Good morning. Im david wessel. Im director of the hutchens senator on fiscal and monetary policy. The hutchens center was formed three years ago now. This is actually our third anniversary, to improve the quality of fiscal and monetary policy, and public understanding of it. And i think that this is actually a very good embodiment of what we had in mind when we started the hutchens center with a generous gift from mr. Hutchens. We believe theres a role for research in both shaping good economic policy, and in helping the public better understand it. And certainly, infrastructure, spending, and investment in Human Capital are one of those things that or two of those things that are often reduced to bumper stickers, sometimes with no evidence whatsoever behind them. I just want to say a word about the hutchens center. As of today, we have done 44 events. Today we will publish our 26th and 27th working papers. Weve done 19 explainers, part of our public understanding, and produced one computer game, a game that helps educate people on the federal budget. And theres going to be a laptop or ipad set up outside if anybody wants to try it. But today we have a very simple question, unfortunately not such a simple answer. So say you want to spend more money on Public Investment. That seemed popular during the president ial campaign. Where should you spend it to get the highest return, and on what evidence. And so our attempt today is to get to begin with some discussion of the evidence, and the arguments for Public Investment. Those of you who have looked at program know we will start with a keynote from Larry Summers, who among other accomplishments, is cochairman of the Hutchins Center advisory committee, to be followed by a conversation with ed glazer that ill moderate, then we have a panel of academics i will introduce later to talk more about the evidence on physical infrastructure. Then we will turn to Human Capital. It was our belief that too often, the conversation in washington has separates investments in physical capital and Human Capital, and we attempt today to bring them together into one thing. The other thing weve tried very hard to do is avoid advocacy for one particular form of Public Investment based on the interests of the people who are promoting it. Theres an entire industry thats dedicated to telling us that we ought to put all of our tax money into prek and another industry thats dedicated to no, we ought to put it all into roads and bridges. We hope today to shed some light on the evidence for this and the arguments and also the questions that remain to be answered, because i think that we would be foolish if we pretended that all the questions had answers. Following the panel that i will moderate, we are fortunate to have kristen butcher from Wellesley College who will talk about the aspects of which transfer payments, particularly low income family, can be considered investment. Then we will break for lunch and return with sarah turner, who will talk about education and what we have learned about research and education and the efficacy of that over the last few years. Been a lot of work done. Then we will move to a discussion, i will introduce the people later, about the politics and practicalities. Its a long day. I appreciate everybody coming on time. We are on cspan and Huffington Post and the brookings website, so be careful what you say. But not too careful. That applies to everybody except you, larry. You dont have to be careful. Theres coffee outside. The bathrooms are in the back. My colleagues here at brookings would appreciate it if you, when you get up, if you take the papers on the floor and put them in the recycling in the back. With that, Larry Summers. Thanks very much, david, and i am glad to be here and to participate in this event on what i think are a very consequential set of subjects. If you are looking for either predictions as to what will happen in the next several months in washington, or you are looking for politically feasible judgments about what could happen in washington over the next several months, my talk is not the one you should Pay Attention to. Instead, i want to do four things this morning. First, talk in a broadway about why i think infrastructure is so important. Second, make what i think is the overwhelming case for a program of expanded investment in infrastructure maintenance. Third, make what i think is the more speculative but still compelling case for a Broader Program of Infrastructure Improvement and fourth, remark on the Important Role of markets, prices and the like in improving the ways in which we invest in infrastructure. So question one, why do i think infrastructure is so important and a compelling need in the United States right now. At one level, there are a variety of studies which i suspect will be discussed in subsequent panels that make a case that the return on Infrastructure Investment as conventionally measured is relatively high, at least compared to the government borrowing rate which for the long term in real terms in the United States is now very very close to zero. At a broader level, there is there are a set of economic observations that would suggest to me at least that conventional measures of rates of return are likely to understate the benefits of at least many categories of Infrastructure Investment. We know that more open trade generates economic benefits that substantially exceed any calculation of conventional dead weight losses, perhaps because of the spur of efficiency from competition, perhaps because of the economies of scale from larger economic aggregates, perhaps from the greater facilitation of specialization. In the same way, we know in ways that are not predicted by at least the simple economic theories taught in basic courses that levels of productivity are much higher in the presence of substantial agglomerations of people than they are in the absence of such agglomerations. Again, evidence that bringing people together yields benefits. What does infrastructure do . Infrastructure permits in substantial part larger interchange and reduces effective distances, thereby facilitating trade and agglomeration. It would therefore be very surprising if the private benefits of infrastructure were not exceeded by the social benefits. I have wondered about this for many many years since reading the work of robert fogle on the Trans Continental Railroad. The historians in general believe that the Trans Continental Railroad was central to the success of the American Economy in the last third of the 19th century. That was the general view of historians. Fogle demonstrated that if you did a calculation and you said well, transportation is x percent of gdp and the railroads are half as expensive as canals would have been and you multiply the two numbers together, the whole thing could only have been 2 or 3 of gdp and therefore the whole thing was not ultimately very important and all the historians were wrong. Maybe. Or maybe fogle didnt recognize and didnt take account of the various other tradelike benefits that were facilitated by the knitting together across the country that the Infrastructure Investment permitted. I suspect at least some of the latter. Second reason why i believe Infrastructure Investment is so important at both a broader economic and social level is that in a world where most things are increasingly mobile, private capital almost completely, ideas almost completely, private companies, enormously. A nations infrastructure is distinctively local and is distinctively defining of its strength. That means that in an economic sense, an investment in infrastructure creates pull ineffects attracting mobile factors from abroad to the more attractive infrastructure rather than having benefits, a substantial part of which diffuse outside of our country. I also believe that at a time when we should, if we learned anything from the last election, is the importance of responsible nationalism. That the idea of a Common Infrastructure in which all americans can take pride in its quality, is a potentially important constitutive element of our nation. So i think there are a priori considerations for believing that infrastructure is profoundly important. Second, a case for maintenance. It seems to me is overwhelming. The American Society for Civil Engineers estimates that extra burdens on automobile owners, because of poorly repaired roads in the state of massachusetts are about 2. 3 billion which extrapolates to over 100 billion for the United States as a whole. Depending on just how you do the calculation, it is between 50 cents and 1 tax on gasoline that motorists pay each year in extra automobile repairs because of poorly repaired roads. It is inconceivable to me that fixing that is not an investment with an extraordinarily high rate of return. Now, i have no idea whether the American Society of Civil Engineers has made that estimate with precision, whether that estimate is right to within a factor of two or not. But if it is even close to right, it surely makes a case for very substantial increases in maintenance investment. The same point, and this is not something that will easily be quantified with a statistical estimate, was made for me years ago when i was treasury secretary and i, as was my habit at that time, every time i visited an american city, went and visited a high school and gave a talk about the importance of Financial Education and education more generally. I gave such a talk, it was i thought at the time a pretty good talk, and a young teacher came up to me and said secretary summers, that was a really interesting talk, but ill tell you what i think the kids dont understand. I said whats that . She said well, you said that their education was the most important thing in the world, but the paint is chipping off the walls of all the classrooms in this school and it isnt chipping off the walls of mcdonalds, it isnt chipping off the walls at walmart, it isnt chipping off the walls almost any other place except at the school, so why should they think that this society regards their education as the most important thing in the world . And im not usually at a loss for words, but i had no effective answer, but what i do know is that there are 10,000 schools across america where faint is chipping off the walls and i do know that on somebodys estimate, 20 of the chemistry labs in american high schools have hvac systems that dont work so the kids get sick when they do the labs. Now, that cant be right. Heres another thought. Fixing this is fiscal prudence. The evidence is people have done these studies on delayed road construction, delayed road repair, and its what you would think, prevention is cheaper than cure, waiting for the road bridge to collapse is much more expensive than buttressing the bridge before it collapses. Yet we have a set of Measurement Systems that measure with elaborate precision and require congressional approval on a periodic basis every time we increase the value of the dollar debt of the country. But deferred maintenance is every bit as much a debt burden on the next generation. It is one that cumulates and compounds at a much higher rate and we have no mechanism for measuring it, let alone limiting it, let alone containing it. The final reason why i think the case for more maintenance is compelling, i will go a little bit over time here, guys, and that is that all of the incentives for all of the actors are against maintenance. Nobody ever named a maintenance project. Nobody ever got recognized for a maintenance project. Nobody ever much got blamed for deferring maintenance during the time while they were in office. And so all of the incentives are to defer maintenance and also to defer premaintenance. I learned this when i was president of harvard. There were all these people running around saying harvard should be more green and you just should be more green and make programs to be more green, and frankly as an economist, i was not hugely impressed by this stuff but then i learned a little more about it, and heres what it turned out happened in twothirds of the buildings built at harvard between 1990 and 2005. Somebody was in charge of the project. They had a budget. They were overshooting their budget. The part they were overshooting their budget because they had underestimated things. In part they were overshooting their budget because the faculty wanted fancier laboratories or fancier offices or whatever so the budget was being overshot. So everybody was mad. What did they do . They took out at the last moment the insulation plans. In order to save money. Well, they did save money. They got in under budget. Of course, they paid 20 cents a year in extra heating costs and air conditioning costs for every dollar they spent, so it was completely stupid in terms of the universitys financial health, but the incentives there were overwhelming to do it. If you dont think thats pervasive in Infrastructure Investment, what the Public Sector does across the country, i have a bridge i would like to sell you. So i think the case is overwhelming that we should be spending substantially more on maintenance. How much, if you take that 100 billion a year in damage to automobiles, its hard for me to believe that there wouldnt be a pretty compelling case for spending half a percent of gdp more each year on the on maintenance at least for the next decade as we work off the backlog. Theres more. The treasury did a study or commissioned a study. I cant judge, again, the precise wisdom of the calculation. The study was done by infrastructure advocates but it emphasized that there were 40 projects across the country that cumulatively would cost about 200 million and would in present value have benefits of somewhere between 500 billion and 1. 1 trillion. I cant evaluate each of the projects. Heres one i think i know a little bit about. The air Traffic Control system of the United States. It is based on radar. Ill tell you three initials that have nothing to do with the air Traffic Control system of the United States of america. Gps. I have been banging on, some of you probably heard me say it, about jfk airport, laguardia, how terrible they were, and how this made a case for Infrastructure Investment, how its terrible. Well, eventually what i figured would happen, did happen, which was the guy who was in charge, the guy from the Port Authority, called me to try to get me to stop and he knew, he was a shrewd guy, he knew he wasnt going to get me to stop a good story unless he gave me a better story. So he decided to tell me more than i knew about the air Traffic Control system. He said how does the air Traffic Control system work when it gets really congested over logan, excuse me, over the new york area . He said well, they do some of it on the screens, the radar screens, but there isnt actually enough capacity for all the green dots and so theres another technology they use, thumb tacks, yellow stickies and an oak bulletin board. This is the new york area air Traffic Control in what calls itself the greatest country in the world. That cannot make sense. The Energy Losses because we do not have a sensible National Power grid Transmission System do not make sense. The safety losses because we transport energy on trucks and trains rather than through pipelines do not make sense. It would not surprise me if there were substantial benefits to a sensibly designed National Broadband program, though that is i think a less clear question. I am familiar with all these analyses about how mass transit doesnt work and how high speed rail really isnt cost benefit given how spread out American Cities are. I am. In some cases, im sure those analyses are right. On the other hand, its hard to believe that we are not awfully grateful that people built a subway in manhattan 100 years ago. Hard to believe that were not awfully grateful that that happened. It seems to me when we think about our obligations to posterity in a world where things become much, much more costly to do, we need to recognize the creation of those option values as a value. So i think theres a strong case for a substantially more ambitious national Infrastructure Investment program, perhaps on the order of 1 of gdp each year going forward. Finally, what about the role of the private sector, what about the role of prices. The case for user fees, the case for congestion tolls, is it seems to me an overwhelming one to anyone who thinks about the economics. There is no reason why people who use infrastructure more heavily should not pay for it. Theres no reason why we shouldnt create infrastructure, to the point where it yields benefits that are not to the point where it is fully used at a zero price. So part of any comprehensive approach to infrastructure it seems to me has to be much more reliance on user fees. Part of any National Strategy for addres