Infrastructure « Quotulatiousness

July 1, 2012

“Canada was born in debt”

Filed under: Cancon, Economics, Government, History, Railways — Tags: CPR, Debt, Infrastructure — Nicholas @ 11:08

At the Worthwhile Canadian Initiative blog, Livio Di Matteo explains one of the less mentioned but urgent reasons behind confederation in 1867:

The trials and tribulations of the European Union, its debt crisis and the Euro and the suggestion that part of the solution lies in a stronger fiscal union reminds me of the forces behind the drive for Canadian confederation in the mid-nineteenth century. Canadians are usually taught in school that major forces driving Confederation were the potential threat of territorial aggrandizement by the United States in the wake of the Civil War or the need for a larger market given Britain’s move to free trade and the end of Reciprocity with the Americans or the desire to generate the economic resources to build a railway to the west so that it could serve as an investment frontier.

One factor that receives very little mention is the fact that the prior to 1867 the colonies of British North America were heavily in debt and faced a fiscal crisis of their own. The solution to the colonial debt crisis that Confederation allowed was the creation of the federal government that was given strong revenue raising powers and assumed provincial debts and thereby stabilized the public credit. Public debt charges in 1867 already accounted for 29 percent of federal budgetary expenditure and by 1880 had only been whittled down to about 24 percent. Canada was born in debt.

Canada was created with a large debt as the provincial and local levels of government had invested heavily in transportation infrastructure — canals and railways in particular. In 1850, there were only about 66 miles of track in operation but by 1860 about 2000 miles of track had been built in eastern Canada. The total cost of building these railways in British North America up to 1867 was 145.8 million dollars the bulk of which was for the Province of Canada — Ontario and Quebec. By way of comparison, Canada’s GDP in 1870 has been estimated at about 383 million dollars.

[. . .]

Confederation was designed to fix a massive debt problem. Creation of a new political entity — the dominion government — would allow for the current debt burden to be serviced and for more credit to be obtained on foreign markets to fund the railway projects of the late 19th century — the CPR, Canadian Northern, etc… Confederation was a solution to the debt crisis but required a form of government that reduced sovereignty for the member units in order to stabilize the public credit. In the Canadian case, as acrimonious as the discussions were, the process was facilitated by the fact that the member units were all British colonies with similar institutions.

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June 1, 2012

This is why I always cheer for whoever is bidding against Toronto to host the Olympics

Filed under: Britain, Economics, Sports — Tags: Infrastructure, London, Olympics, Subsidies, Tourism — Nicholas @ 00:02

If publicly funded professional sports stadiums are bad for the local economy (and they almost always are), “winning” the bid to host the Olympic Games is far worse:

The history of the modern Olympics (and of other large-scale sporting events) reveals a consistent pattern. Organizers or local politicians in the host city commission “impact studies,” which almost always promise extravagant economic benefits. Studies performed after the event, however, find no positive effect at all — let alone one approaching the initial estimates. So it isn’t surprising that a PriceWaterhouseCoopers study commissioned by the British government forecasts that the Games would add about $9.4 billion to London’s GDP between 2005 and 2016. That seems like a large number until you realize that the London metro area’s GDP is roughly $712 billion annually. If the Games’ benefits were spread evenly throughout the decade, they would increase London’s GDP level by 0.1 percent each year.

Further, that $9.4 billion benefit pales compared with the cost of hosting the Olympics. In 2002, the UK’s Department for Culture, Media and Sport estimated that the cost would be $2.8 billion. Ten years later, London’s budget for hosting the Games is $15 billion. Costs already run above that figure and are likely to rise to approximately $38 billion, according to an investigation by the TV network Sky Sports. That would easily dwarf the economic benefits that the PriceWaterhouseCoopers study predicts. Security alone will be extremely costly: more British troops will patrol London than there are currently at war in Afghanistan. And these figures don’t count many hidden and indirect costs of hosting the Olympics — most prominently, disruption to business and traffic congestion. Traffic in London is already difficult; with special lanes for Olympics-related traffic, daily commutes will become a nightmare. (London’s transportation commissioner, Peter Hendy, helpfully advises commuters to go to the pub to avoid rush hour.)

Update, 5 June: The good news just keeps on coming for the London Olympics:

The boom to the economy that the Government hoped the Games would bring to the capital appears to become a bust with tens of thousands to tourists spurning the hiked prices, congestion and heightened security.

While bookings for July and August are down by 35 per cent on last year other European capitals appear to be prospering from London’s gloom.

French ministers, who lost the Olympic bid to Britain, might be quietly rubbing their hands with glee not only for dodging the £10 billion Games bill but also with a 50 per cent rise in tourism bookings. Similarly Barcelona and Berlin have seen their tourist numbers soar by 100 per cent over the summer.

This is an example of why, when the announcement was made that Paris had lost out on the bid for the 2012 Olympics to London, Reason titled their coverage “Lucky Paris“.

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May 8, 2012

“If this drought continues much longer, we’re going to run out of umbrellas”

Filed under: Britain, Environment, Government — Tags: England, Infrastructure, Weather — Nicholas @ 10:40

Rob Lyons on the amusing juxtaposition of a “hosepipe ban” in the south of England and the wettest April since record keeping began:

It never rains but it pours scorn. That must be how many of England’s water companies feel as millions make fun of them. Having just declared a hosepipe ban and spent a fortune on posters declaring ‘WE ARE IN DROUGHT’, the heavens have opened. Result? The surreal combination of drought restrictions on water use going side-by-side with the wettest April since records began in 1910.

It is as if the declaration of drought were a latter-day raindance. Comedian Jimmy Carr quipped what everyone was thinking: ‘If this drought continues much longer, we’re going to run out of umbrellas.’ The combination of dramatic flooding in some parts of the country that are under drought restrictions caused one friend of mine to coin the term for our current water status: ‘flought’. Pictures of Thames Water’s bus adverts juxtaposed with people in the street huddling under brollies made newspaper front pages.

Yet, while the current situation is bizarre, the water companies do have a point. If the current storage sites are running low of water after two years of well-below-average rainfall, then we need to start preserving stocks. One month of heavy rain is welcome, but unless we have a particularly sodden summer and, more importantly, a damp-and-dreary winter, supplies could start to look very sparse indeed. That’s particularly true in the south and east of England, which depend on underground aquifers to store a large proportion of water supplies. The levels in these aquifers rely on winter rain to drip through the rocks above. Summer rain tends to run off, evaporate or get absorbed by growing plants. A quick look back to February and the warnings coming from Thames Water and others show how serious the problem had become before the deluge.

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May 7, 2012

Chicago and the everlasting rail bottleneck

Filed under: Economics, Railways, USA — Tags: Chicago, Infrastructure — Nicholas @ 15:36

Chicago is where rail traffic goes to get delayed:

When it comes to rail traffic, Chicago is America’s speed bump.

Shippers complain that a load of freight can make its way from Los Angeles to Chicago in 48 hours, then take 30 hours to travel across the city. A recent trainload of sulfur took some 27 hours to pass through Chicago — an average speed of 1.13 miles per hour, or about a quarter the pace of many electric wheelchairs.

With freight volume in the United States expected to grow by more than 80 percent in the next 20 years, delays are projected to only get worse.

The underlying reasons for this sprawling traffic jam are complex, involving history, economics and a nation’s disinclination to improve its roads, bridges, and rails.

Six of the nation’s seven biggest railroads pass through the city, a testament to Chicago’s economic might when the rail lines were laid from the 1800s on. Today, a quarter of all rail traffic in the nation touches Chicago. Nearly half of what is known as intermodal rail traffic, the big steel boxes that can be carried aboard ships, trains or trucks, roll by, or through, this city.

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April 18, 2011

Malinvestment the next big problem for China?

Filed under: China, Economics, Government — Tags: CentralPlanning, Infrastructure, Investment — Nicholas @ 09:54

Nouriel Roubini thinks that the Chinese central planners are missing the clues about overinvestment in their infrastructure binge:

China’s economy is overheating now, but, over time, its current overinvestment will prove deflationary both domestically and globally. Once increasing fixed investment becomes impossible — most likely after 2013 — China is poised for a sharp slowdown. Instead of focusing on securing a soft landing today, Chinese policymakers should be worrying about the brick wall that economic growth may hit in the second half of the quinquennium.

Despite the rhetoric of the new Five-Year Plan — which, like the previous one, aims to increase the share of consumption in GDP — the path of least resistance is the status quo. The new plan’s details reveal continued reliance on investment, including public housing, to support growth, rather than faster currency appreciation, substantial fiscal transfers to households, taxation and/or privatization of state-owned enterprises (SOEs), liberalization of the household registration (hukou) system, or an easing of financial repression.

China has grown for the last few decades on the back of export-led industrialization and a weak currency, which have resulted in high corporate and household savings rates and reliance on net exports and fixed investment (infrastructure, real estate, and industrial capacity for import-competing and export sectors). When net exports collapsed in 2008-09 from 11 percent of GDP to 5 percent, China’s leader reacted by further increasing the fixed-investment share of GDP from 42 percent to 47 percent.

Thus, China did not suffer a severe recession — as occurred in Japan, Germany, and elsewhere in emerging Asia in 2009 — only because fixed investment exploded. And the fixed-investment share of GDP has increased further in 2010-2011, to almost 50 percent.

The problem, of course, is that no country can be productive enough to reinvest 50 percent of GDP in new capital stock without eventually facing immense overcapacity and a staggering nonperforming loan problem. China is rife with overinvestment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.

H/T to Publius for the link.

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