We have earlier discussed three different views on investment and its effects on infrastructure. They are:
1. Concrete Benefits
2. Government Spending Booms Not So Great for Long-Term Growth
3. Bridges to Somewhere
The focus of all these three articles is a bit different: The first article talks about why the time is right for the U.S. to increase infrastructure spending. The second is the most theoretical of the three, providing concrete reasons for why panicked governments during recessions should not jump immediately at a Keynesian approach of, as Keynes was rumored to have said, hiring people to dig holes and then fill them back up again. The last article discusses the issue of causality (does infrastructure spending mean more GDP or does an increase in GDP cause infrastructure spending?).
It is worth piecing these three articles together to get an overall outlook on infrastructure and investment.
From the first article, we can see that successful infrastructure projects will produce enough revenue to not only cover the costs of the project, but also boost the economy. This article does warn us against investing in the wrong projects.
The second article discusses the reasons why investing in the wrong projects can be harmful, roughly stating these three points (more about those points can be found in the original blog post):
1. The projects governments resort to were usually those that were shelved because of its lack of popularity
2. The governments will be saddled with more debt (a fact that the first article disagrees with)
3. There will be diminishing returns when governments try to expand on old projects
The third article agrees that bad investments are harmful for those reasons, and then proceeds to show the benefit of good investments, especially in China. For example, a high-altitude railway from Tibet to Qinghai shows a 33% increase in the regional GDP.
John Maynard Keynes was not wrong when he urged governments to pump out jobs during tough times. What we must remember is to make sure those jobs are worthwhile, by making sure the projects are worthwhile. Otherwise, governments could be saddled with even more problems in the future.
1. Concrete Benefits
2. Government Spending Booms Not So Great for Long-Term Growth
3. Bridges to Somewhere
The focus of all these three articles is a bit different: The first article talks about why the time is right for the U.S. to increase infrastructure spending. The second is the most theoretical of the three, providing concrete reasons for why panicked governments during recessions should not jump immediately at a Keynesian approach of, as Keynes was rumored to have said, hiring people to dig holes and then fill them back up again. The last article discusses the issue of causality (does infrastructure spending mean more GDP or does an increase in GDP cause infrastructure spending?).
It is worth piecing these three articles together to get an overall outlook on infrastructure and investment.
From the first article, we can see that successful infrastructure projects will produce enough revenue to not only cover the costs of the project, but also boost the economy. This article does warn us against investing in the wrong projects.
The second article discusses the reasons why investing in the wrong projects can be harmful, roughly stating these three points (more about those points can be found in the original blog post):
1. The projects governments resort to were usually those that were shelved because of its lack of popularity
2. The governments will be saddled with more debt (a fact that the first article disagrees with)
3. There will be diminishing returns when governments try to expand on old projects
The third article agrees that bad investments are harmful for those reasons, and then proceeds to show the benefit of good investments, especially in China. For example, a high-altitude railway from Tibet to Qinghai shows a 33% increase in the regional GDP.
John Maynard Keynes was not wrong when he urged governments to pump out jobs during tough times. What we must remember is to make sure those jobs are worthwhile, by making sure the projects are worthwhile. Otherwise, governments could be saddled with even more problems in the future.
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