How bad are things in China?

There has been A LOT of talk about slowed growth in China over these past few weeks. And it’s a bit scary. After all, what happens in China will affect us all, as they have essentially been one of the few bright spots in the global economy, and have been the engine that pulled the global economy out of the Great Recession of 2008.

I have a friend currently in China, and I asked him what he was seeing on the ground there. It seems that people are remaining relatively optimistic and that there isn’t a discernible difference in people’s behavior when observed from the streets. So on the surface, everything appears to be normal.

However, he says that if you dive deeper and actually start talking to Chinese citizens, you’ll see that they have many of the same concerns that we have in America.

The difference is that most investors in the stock market in China are not institutional investors. On average they aren’t highly sophisticated and are more prone to making mistakes than their institutional counterparts. Unfortunately they are also the hardest hit in times of economic downturn.

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What Los Angeles’ failing infrastructure tells us about America’s future

There was once a time when Americans used to pride themselves on the quality of their roads, the efficiency of their aqueducts, the tenacity of their bridges and the magnitude of their ports. So did the ancient Romans. Concerning the latter, it suffices to say that out of the hundreds of Roman bridges that were built only a handful survive. Several were destroyed by invading armies of Visigoths, Vandals, Franks, Huns and other barbarian armies; others fell into disrepair as the empire contracted and eventually, as the empire petered out, so too did its bridges. All roads didn’t lead to Rome, and those that did weren’t in very good condition. This, of course, happened over a period spanning several centuries and due to the unfolding of a multitude of events that changed the course of history. In their attempt to trump the mighty Romans themselves, the Americans seem poised to achieve this state in a matter of years.

In their attempt to trump the Romans, American politicians have proven very resilient and the state of public infrastructure bears countenance to that. Creaky bridges and overburdened roads have come to replace one of the symbols of American pride.

Data from The Economist provides an even more ignominious revelation. Turns out that the US ranked behind Spain, a country smaller than Texas, in percentage of GDP invested on roads. And to rub salt to the wounds, this was data from 2011, when Spain was at the height of it’s financial crisis. The state of America’s airports is no better. In 2013, Boeing began to make aircraft with folding wing-tips to prevent further damages caused by the aircraft trying to squeeze into the tiny airport hangers. That the world’s largest economy could have such a dismal state of infrastructure is a big surprise to everyone, not least the tourists who witness such sights moments after they land.

american decline
Water pipe leakages in Los Angeles are at an all time high

The prime reason for this state is quite simple: most of America’s infrastructure is simply too old. The period after World War 2 saw an immense program of government spending on infrastructure, but much of what was made then had a lifeline of about fifty years. They are now way past their expiry date and need to be replaced or repaired. Almost half of America’s bridges fall into this category.

So does LA’s aging water-pipe system. Aging is a relatively mild word in fact; dead might be a more appropriate one.

According to LA times about one-fifth of the city’s water pipes were installed before 1931.

  An estimated 1 billion dollars is needed to fix them, money which the Department of Power and Water simply does not have. And despite its 1.3 billion dollar plan to fix LA’s waterworks, neither does it have any clue how to raise the money. With taxes low and state spending lower, it’s unlikely that anything can be done about it soon. Leaks by area have risen to more than a 100 in some places (even residential ones) and are only expected to rise more.

One might ask what the Congressmen and Senators are doing about this. One will not receive a pleasing answer. For although there have been some proposals to spend more on infrastructure, they have met stiff opposition. The Republicans, who control most statehouses, governorships, and the Congress, do not give any sign of budging an inch from their policy of small government and low taxes. State spending is only declining at a steady rate and chances of it increasing in the future seem bleak as long as the Republicans remain in control.

But all hope is not lost. The United States became the world’s largest economy chiefly due to it’s private sector, and it is this sector that can now save it. Private investment on infrastructure should be encouraged, especially as interest rates are still at an-all time low. Public-private partnerships, subsidies and loan guarantees are the key to harness the power of the private sector. John Darley, a Congressman from Maryland, proposed a bill in 2014 that would give firms a tax break on repatriated foreign profits if a portion of the money sent back is invested in infrastructure. Though it remains stuck in Congress, such initiatives can provide a way to stop the decline in infrastructure, and with support for them gaining among the population, can even lead to a reversal of this decline.

 

 

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