As Edward Luce notes in the FT this morning:
America's infrastructure is fast descending to second world status. The US spends just 2 per cent of its gross domestic product on roads, dams, bridges, energy and water systems
No wonder it's economy is failing.
If you deny the importance of publicly funded goods and infrastructure to the point where you fail to invest in them then you inevitably remove the foundations on which private prosperity is based.
I call this cappuccino theory. The black coffee is the foundation of a cappuccino and equates to the public sector and, amongst other things, the infrastructure it builds and maintains. The hot frothy milk of the private sector sits on top of that. But when the coffee runs out you're left with attempting to build private prosperity without any foundations in which to ground it. Alternatively, you just get warm milk, and that's what you have before an economy goes to sleep.
I explain this in more depth in The Courageous State.
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Surely Spain is a strong counterargument to this point of view. I was there last month. It has the most amazing infrastructure: new airports and railways, all empty and with everything running quickly and to time. In fact, there is one part of Spain (in the north) where there are 4 major airports, all recently modernised, within an 80km radius (Vigo, La Coruna and Santiago de Compostela, plus Porto over the border also in that circle). And 21% unemployment.
Oh come on – balance is vital
Of course Spain has also got it wrong
But it’s crass to argue that this means infrastructure is not important
Do you Channel Island’s lawyers never understand anything but black and white?
No, I am just saying that while infrastructure is necessary, it is not sufficient. The infrastructure in the UK is of course appalling and needs updating. No, that’s not quite true. Some of the infrastructure is ok, such as the arrivals hall at Heathrow, just before you go through passport control. I admired it for a good hour there a couple of weeks ago while out of perhaps 25 desks that had been built only 2 were manned. And BAA have the temerity to say without a 3rd runway Heathrow will become second rate!
Well if you didn’t spend so much time trying to undermine tax revenue the UK could afford to staff such desks
I blame you entirely
Perhaps the airport is a symbol of the property bubble, Low interest rates distort the allocation of capital in the economy, like all those empty houses in USA.
That’s a ludicrous claim: low interest rates simply allow more to happen
Empty houses in the US are not a sign that houses aren’t needed – they were sold. They’re a sign of weak demand because capital has now become totally risk averse
I know you may find such emotion irrational – but then the model of ecnomics you subscribe to clearly ignores the reality of the human condition
You need to read the Courageous State
OK so what do you think caused the massive property bubble in Spain?
The Spanish “property bubble” was caused by unscrupulous property developers, financed by almost equally unscrupulous banks, “persuading” local mayors to give planning permission to build almost anything, anywhere. All of this driven by “Market Research” and “Feasibility Studies” (of a kind) indicating that there were at least 5 million northern Europeans who aspired to live and/or retire to Spain
As a result there is now almost 2 million unsold /unfinished houses languishing in Spain owned by … mostly the banks! With the infrastructure of newly built motorways, railways and airports also owned by … mostly the banks.
Spain blames the world economic crisis for the down-turn in demand for houses.
And it still believes that eventually it will become the European California.
Which could be even more disastrous?
On a brighter note: Although some may consider it a “have for persons on the run”… The country has never aspired to being a tax haven!
Richard, I had a letter published in the Guardian last week in response to a Simon Jenkins article. I linked the lack of spending on infrastructure to excessive military spending resulting from the pernicious influence of the miltary-industrial complex. Eisenhower warned against this in 1961 so it does seem that he was right. Now the result is that America is in decline. Unfortuantely we will have to experience the dying throes of this empire and it will probably be even more unpleasant than what has gone before, for example bombing Iran and the dire consequences.
Indeed
Good letter too – I saw it
Didn’t President Kirchner tell the film maker Oliver Stone that George W Bush believed that the only exit from a recession was war? His two didn’t exactly do it, did they?