This started out as a response to a post on Joe’s site, but got long enough I thought it warranted a post of its own. Jim Wooten writes (emphasis mine):

Gov. Sonny Perdue has appointed a congestion mitigation task force. Its charge should be clear: Subject every transportation project to competitive cost-benefit analysis. Buy solutions that result in the greatest congestion relief for the dollar. The task force should, too, set goals for gridlock improvement and measure the progress.

And Joe responds:

Anytime I’ve tried arguing my case against c-b analysis, I feel as though I’ve been met with dismissals. Does anyone realize the significance that c-b analysis carries on how our region is planned out, and just how shortsighted a tool this is?

The Atlanta Regional Commission already recognizes (PDF) that the operations and maintenance of our existing infrastructure represents 46% of the cost of the Mobility 2030 plan. That means 46% of the money that’s spent on improving our existing system will go toward what we already have. As more roads are built, that portion of the pie will grow, which means there will only be less monetary room to accomodate any further growth.

In other words, the more roads we build now, the less we can build later. The more roads we build now, the more we have to spend on maintenance. The more roads we build now, the less we have available later to build other options.

I whole-heartedly agree with Joe on this point, and think there’s a lot of short-term thinking going on at all levels of government and business right now. I don’t trust publicly-traded companies for what I see as the same reason Joe doesn’t trust the cost-benefit analysis as a model for regional transportation planning.

Companies traded publicly are slaves to quarterly earnings, which means they are prone to skim a few more bucks off the top of infrastructure and R&D budgets to make investors happy if earnings are down in a given quarter. That mentality has a huge effect on long-term growth potential and on general sustainability of the business model that isn’t reflected by a short-term cost-benefit analysis.

For example, Company A and Company B are both using the same outdated computer systems to manage their respective inventories. Company A drops X number of dollars on a new computer system, which pisses the investors off because their dividends go down for a couple of quarters. Company B chugs along with its DOS terminals, and its investors are happy because they’re receiving higher dividends than the stockholders in Company A are receiving.

Then, a couple of years later, Company A’s investment pays off, and it starts taking Company B’s business away. Company B’s computer systems, because they have languished while inventory has grown, will now cost more to upgrade than they would have a few years earlier. So, now, there’s not only the added cost of upgrading the computer systems, but also the opportunity cost from losing business to Company A in the meantime. Company A, if it’s smart, will invest some of its new-found earnings in more R&D, which will make it that much harder for Company B to dig itself out of the hole it dug itself into.

I will acknowledge that opportunity cost is a difficult thing to account for with any credibility. Nobody has a crystal ball. Still, going purely on the immediate cost-benefit without accounting for long-term effects is a recipe for suicide.

Applying this mentality to infrastructure planning, bad planning 50 years ago through now led to sprawl, which led to increasingly higher consumption of gasoline. That higher consumption means that — even if gasoline were the same price relatively, which it’s not — that residents are spending an increasing percentage of their incomes on gasoline. If people are spending more money on gasoline, then less of their money is going into local businesses. And if less money goes into local businesses, businesses eventually start going under. And, when businesses go under, there are less jobs. From there, there’s no telling how long the cycle would feed on itself.

A cost-benefit analysis won’t tell you any of that because it assumes all surrounding variables remain the same. It’s a bubble, and eventually it will pop. The only question is “when,” not “if,” at the pace we’re going.