The United States has an infrastructure problem.
By some estimates, America needs about $3 trillion of investment in its critical infrastructure to support its crumbling bridges, highways, dams and other structures. That’s a big number. The American Society of Civil Engineers’ grades our infrastructure as a D+, and the World Economic Forum ranks the U.S. 16th in overall infrastructure quality, behind France, Spain and Japan.
The good news is that, if you go to Washington today, about the only thing that people in government can agree on is the need for more infrastructure investment. It’s a central issue that we all, as a country, need to solve together. And we know that. But, even despite this massive need, it just isn’t happening.
Worse, there is about $20 trillion sitting on the sidelines in pension funds and other funds that could be used to support these types of projects. The returns are there, the investors are interested, but people just aren’t investing in infrastructure yet. Why not?
A Broken System
One thing I’ve learned over the years is that, for a problem to get as big as $3 trillion, there must be something wrong with the system.
At iSelect, we make use of systems dynamics, a set of concepts that I first studied during my time at M.I.T., when making our determinations about the companies and industries we invest in. System dynamics is the science of understanding how things change over time. It’s about figuring out how things work, an application of the scientific method to other areas. I believe it is a useful way of looking at the world and making sense of big problems such as infrastructure investment.
It can be deep and complex, but the goal of systems dynamics is to use simulations or models to study and break down problems, so we can later go in and improve them without making costly mistakes or going down blind alleys. It allows us to model out different potential outcomes and use them to make decisions in a way that is much cheaper than flying real airplanes or changing real cities.
In truth, when you deal with big complex concepts you’re generally only seeing a portion of the problem, and you end up making decisions based on this incomplete information. You’re wrong not because you don’t understand the issue, but because you’re leaving out a lot of factors that, simply because the way the human brain works, you can’t see and can’t comprehend as part of the whole system.
Systems dynamics solves these blind spots by forcing policymakers to take a big picture view when creating their own problem solving models. It’s something that our elected officials in Washington might benefit from right now, and it can also benefit us as investors.
I recently sat down with Dave Peterson and Tom Fiddaman from data modeling and analytics firm Ventana Systems to discuss potential applications of systems dynamics and what all of this can bring to America’s infrastructure debate. Listen to our podcast conversation above.