Managing risks

By Alan Greenspan

There can be little doubt that a major modernisation of our infrastructure is long overdue. It is easy to demonstrate the time and motor fuel wasted in traffic jams owing to failure to keep road capacity growing in line with the number of vehicles on the road.

But fixing the public infrastructure is no easy task. Funding is the major obstacle. Our fiscal position is daunting. To balance the budget, we need to raise revenue by a fourth or cut outlays by a fifth, or some combination of the two.

Increasing federal outlays on infrastructure will increase the deficit (negative savings) and must be matched, ex-post, by a comparable rise in savings less capital investment by households and private business or by increasing our rate of borrowing from abroad. To the extent that increased deficit spending curtails capital investment in other sectors, it is a depressant to economic growth in the short term and productivity in the long term…

Our infrastructure deficiencies are part of a larger problem confronting the US — the amount of our resources we set aside for contingencies.

The choice of funding buffers is one of the most important decisions that societies must make, whether by conscious policy or by default.

If policymakers, private and public, choose to buffer their populations against every conceivable risk, the nation’s current standards of living would, of necessity, decline.

From “The Map and the Territory: Risk, Human Nature and the Future of Forecasting”.