INFRASTRUCTURE SPENDING AND THE ENERGY TRANSITION CHALLENGE
Infrastructure is the life blood of all economies, and without continuous maintenance and development, it will likely end up constraining output, productivity growth, stifling innovation, putting upward pressure on inflation, and by extension make an economy less competitive, and less attractive for investments.
The Covid-19 pandemic proved to be a brutal exposition of the many weaknesses in the global economic framework. It showed how most developed countries have neglected their infrastructure, have been complacent about supply chains, health security, movement of people and demographics of the workforce. It highlighted concentration risks (above all in semiconductor production), capital misallocation and market failures, above all given the opportunities that there have been to upgrade infrastructure, thanks to the technological revolution and a decade of near zero interest rates.
As but one example, consider this chart of the average age of the US capital stock, which is broadly reflective of trends elsewhere in the
The Hoover Dam - constructed between 1931 and 1936, during the Great Depression. Photo credit: Sergii Figurnyi / Shutterstock.
developed world. While one might argue that it shows that our structures and equipment have much improved durability, the counter argument would be that the technological advances since the end of the Cold War should have unleashed a replacement (or upgrade) cycle, which would logically flatten the trend, rather than the quite rapid ageing which has actually occurred since 1990, with an ageing gradient comparable to the 1930s Great Depression.
AVERAGE AGE OF U.S. FIXED ASSETS AND CONSUMER DURABLES - YEARS
23 22 21 20 19 18 17 16
Source: Charles Schwab, Bureau of Economic Analysis (BEA), as of 2020
22 | ADMISI - The Ghost In The Machine | Q3 Edition 2024
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