OUTSIDE OF THE HEAVY HANDED POST-GFC REGULATION OF THE FINANCIAL SECTOR, ABOVE ALL BANKS, NEITHER GOVERNMENTS NOR CENTRAL BANKS HAVE MADE ANY EFFORT TO EXERCISE ANY CRITICISM, LET ALONE CONSIDER FISCAL MEASURES TO SKEW INCENTIVES TOWARDS GENUINE CAPEX.


Some might argue that the chart on the average age of the US Capital Stock merely highlights that equipment and other durable goods such as autos and trucks just have a much longer shelf life, thanks to technological advances. But the fact that this trend has accelerated without any visible or meaningful inflection points implies that the huge technological advances since the end of the Cold War have not prompted a wave of CapEx to upgrade or renew capital stock. It should be added that the picture for this in other major economies looks very similar. Eminently the other striking aspect of this ageing capital stock is that G7 official interest rates have been at or close to zero since the GFC, and bearing in mind that major central banks had also pumped in close to $20 Trillion of QE prior to the pandemic, but clearly with little impact on this trend, which speaks to a colossal capital misallocation, despite the rapid growth in government and corporate debt levels (even before the pandemic related surge). The latter has largely been deployed primarily for financial engineering purposes, above all debt for equity swaps, share buybacks and special dividends.


Outside of the heavy handed post-GFC regulation of the financial sector, above all banks, neither governments nor central banks have made any effort to exercise any criticism, let alone consider fiscal measures to skew incentives towards genuine CapEx. As but one example, one could look at some of the measures implemented by Ludwig Erhard, Germany’s Economy Minister in the Adenauer regime to rebuild the German economy after World War II, particularly the skew in corporate taxation, which offered large incentives to reinvest profits in CapEx, while imposing hefty taxation of dividends. Many will obviously object to such ordo-liberalism, above all its constraint on the movement of capital, but the evidence on laissez-faire ‘rational choice’ capitalism and its financial engineering bed fellow is, to say the least, certainly not favourable.


19 | ADMISI - The Ghost In The Machine | Q4 Edition 2021


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