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President-elect Obama has proposed major spending to revitalize America’s infrastructure. But how? First, where we have gone and where we are is the result of an historical co-evolution of public transportation infrastructure and private economic investment. Where we need to go is toward more efficient modes of transport that economize on fuel and energy use and reduce greenhouse gas (GHG) emissions. But how we get there is bounded to a significant degree by this past and present: what economists call “path-dependency.” Second, the historical evolution of public infrastructure has been important to the U.S. economy not simply because it supplemented private sector investments, but because the public investments raised private rates of return over time. National highways and bridges have made possible a shift in the carrying costs of inventory, one consequence of which has been to improve efficiencies in the delivery and availability of consumer goods. As more efficiencies in the use of scarce energy are sought economy-wide, business will be forced to find concentrations of activity along the nodes of supply chains that are more efficient. These adjustments can be facilitated by public infrastructure investments allowing for flexibility in intermodal transport activity, which can be a key aspect of the new administration’s national energy strategy. This brief discussion is divided into three parts: (1) the economics of infrastructure and its relationship to just-in-time inventory management; (2) an example drawn from the food industry case of fresh fruits and vegetables; (3) recommendations for a public investment strategy that maximizes the opportunities for efficiencies along the supply chain, thus conserving energy.


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