As President Trump’s «Infrastructure Week» comes to an ignominious end, we need look no further that China to be reminded that spending money on bridges to nowhere and cities of the future is anything but the stimulating panacea it is talked up to be…
As President Trump’s «Infrastructure Week» comes to an ignominious end, NIRP Umbrella’s Alex Deluce reminds us that spending money on bridges to nowhere and cities of the future is anything but the stimulating panacea it is talked up to be…
Is a Chinese credit bubble in the cards? Well, it will be interesting to see if China’s authorities can get through the unwind of US $3 trillion worth of excess credit and the distressed debt on banks’ balance sheets.
From 2009 to 2016, more than 10 trillion of Chinese investment was thrown at infrastructure, ghost cities, and corruption thanks to a helping hand from the Chinese banks and foreign lenders eager to participate in the Chinese growth story.
In fact, hundreds of new cities in China are essentially empty. The hope is that rural population someday move in.
Roughly 40% of the 300 million Chinese expected to move into a town by 2030 will mostly be moving to smaller cities in the “chengzhenhua” system.
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As OfTwoMinds’ Charles Hugh Smith recently explained, building bridges to nowhere isn’t just a waste of money in the present; it saddles the economy with productivity-draining costs for decades to come.
If there is anything the political left, right and center can agree upon, it’s the lasting benefits of spending more (borrowed) money on infrastructure: roadways, rail lines, airports, seaports, pipelines, dams, electrical lines and so on: the physical networks of advanced civilization.
That Roman roadways constructed 2,000 years ago are still visible illustrates the longstanding value of reliable infrastructure: Roman political control and trade depended on roadways and sea transport to tie the sprawling empire together.
This is the basic assumption behind the notion that virtually any and all infrastructure spending will create value far into the future.
But is this really true? Does rebuilding and/or adding infrastructure create economic value?
To answer, we need to look at two issues: productivity and cost-benefit.
Infrastructure creates new value when it boosts productivity, generally by lowering costs of moving goods, energy, etc.
The value created by increased productivity must far outweigh the cost.
Consider the classic «bridge to nowhere» infrastructure project: a bridge is constructed between a sparsely populated island and the mainland. The payoff is a handful of residents are spared the time and inconvenience required to ship their vehicles between the island and mainland on a ferry.
