1/11
Although engineers in democracies may look longingly at the ability of authoritarian governments to force through major infrastructure projects, it is a mistake to think that this is the important difference between...
wsj.com/articles/what-…
Although engineers in democracies may look longingly at the ability of authoritarian governments to force through major infrastructure projects, it is a mistake to think that this is the important difference between...
wsj.com/articles/what-…
2/11
infrastructure building in China and the US. The checks and balances in democratic systems may reduce efficiency, but they are better at long-term adjustment, and so the differences reflect little more than the standard trade-offs between the two systems.
infrastructure building in China and the US. The checks and balances in democratic systems may reduce efficiency, but they are better at long-term adjustment, and so the differences reflect little more than the standard trade-offs between the two systems.
3/11
What really matters is the relationship between desired and actual investment. In the early 1990s, when it really began its infrastructure-building spree, after five decades of war and Maoism China was hugely underinvested in infrastructure for its level of development.
What really matters is the relationship between desired and actual investment. In the early 1990s, when it really began its infrastructure-building spree, after five decades of war and Maoism China was hugely underinvested in infrastructure for its level of development.
4/11
In that case almost everything it built was economically viable – i.e. contributed more value to the economy than it cost – and the associated rise in debt was more than matched by a rise in the debt-servicing capacity of the economy, for which GDP was a proxy.
In that case almost everything it built was economically viable – i.e. contributed more value to the economy than it cost – and the associated rise in debt was more than matched by a rise in the debt-servicing capacity of the economy, for which GDP was a proxy.
5/11
20 years later it is clear that China has overinvested in infrastructure, and infrastructure-building is now more about generating economic activity than it is about creating economic value. We know this must be the case because only when that happens will the debt...
20 years later it is clear that China has overinvested in infrastructure, and infrastructure-building is now more about generating economic activity than it is about creating economic value. We know this must be the case because only when that happens will the debt...
6/11
associated with investment rise faster than debt-servicing capacity, which is itself likely to be overstated by GDP.
This isn't a new problem. Brazil's spectacular infrastructure-building spree of the 1960s continued far longer than was justified, through the end of...
associated with investment rise faster than debt-servicing capacity, which is itself likely to be overstated by GDP.
This isn't a new problem. Brazil's spectacular infrastructure-building spree of the 1960s continued far longer than was justified, through the end of...
7/11
the 1970s, mainly to maintain high GDP growth rates and the Brazilian "miracle", just as Japan's rebuilding from the wreckage of WW2 continued far too long through the 1980s with its famous "bridges to nowhere". In both cases this left their host countries in the late...
the 1970s, mainly to maintain high GDP growth rates and the Brazilian "miracle", just as Japan's rebuilding from the wreckage of WW2 continued far too long through the 1980s with its famous "bridges to nowhere". In both cases this left their host countries in the late...
8/11
stages of their "growth miracles" with rapidly-rising debt and, ultimately, large debt burdens around which they suffered very difficult long-term adjustments.
As long as a country has substantial infrastructure needs (and the US does, especially in transportation), it...
stages of their "growth miracles" with rapidly-rising debt and, ultimately, large debt burdens around which they suffered very difficult long-term adjustments.
As long as a country has substantial infrastructure needs (and the US does, especially in transportation), it...
9/11
doesn't matter that the political systems that support infrastructure development in different countries like the US and China are different. Either way spending on infrastructure will make economic sense, the country will get richer, and the associated rise in debt...
doesn't matter that the political systems that support infrastructure development in different countries like the US and China are different. Either way spending on infrastructure will make economic sense, the country will get richer, and the associated rise in debt...
10/11
will be more than matched by a rise in the economy's real debt-servicing capacity – i.e. there will be no increase either in the country's debt burden or its inflation. And either way, once it begins to use government spending on infrastructure as a way of...
will be more than matched by a rise in the economy's real debt-servicing capacity – i.e. there will be no increase either in the country's debt burden or its inflation. And either way, once it begins to use government spending on infrastructure as a way of...
11/11
generating economic activity, even though it is no longer productive, the country's debt burden will rise and it will be economically worse off in the long run.
generating economic activity, even though it is no longer productive, the country's debt burden will rise and it will be economically worse off in the long run.
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