Home Upgrade Mania Comes to Washington

[Silverbird]

There's a big difference between upgrading your house and federal infrastructure projects. Upgrading your house was supposed to be a road to flipping it. In contrast, if the Brooklyn Bridge got a fix, it's not to sell it, who would want to buy the Brooklyn Bridge?:toung: And if your house falls down, or is too small now, well that's your house...but if a bridge falls down or is too small, a much different story.

 

[nnuut]

Around three or four years ago, as we now know to be the top of the market, television programs featuring the idea that if you have a house, fix it up, you can increase the value of the house immediately were on seemingly every channel.

The premise of the shows were that relatively small capital additions by the owner for upgrade (or merely repair) of critical systems and features that can at best be described as non-functional would greatly increase the value of the home. In hindsight, we know that the upgrades and repairs, while nice to have – created the illusion of wealth, not real wealth.

Most of the chatter among the economic cognoscenti revolves around the Keynesian idea that we can stimulate GDP by having the government spend money to upgrade critical systems. As the thinking goes, government spending will replace the shortfall in GDP and allow the US to avoid a recession.

Wealth is the result of productive activity which adds to the assets available for use, without a corresponding increase in debt. Spending by the government will result in productive activity – roads and bridges are in need of repair.

But are we to believe that the government spending increases will allow for the Assets to grow in excess of the Debt we are incurring? I think it would be very unlikely. So with respect to the actual wealth, we would decrease, but we would result in a higher GDP than would otherwise be experienced.

But like a company that manages earnings at expense of the balance sheet, there is an ultimate day where the charade cannot continue, if only due to a lack of lenders to fund newly issued debt. The Fed can be the “lender of last resort”, but the Fed cannot substitute it capacity to lend for private demand of debt for a long period without significant problems.

The idea that repair and maintenance of infrastructure as a method to increase national wealth is a false illusion, rooted in the short term analysis of next quarters GDP, which ultimately has a day of reckoning.

Good post Scribbler, possibly some short term gains in the employment picture, but debt is debt and must be repaid eventually. Just like housing, when it comes down to it, it's location and square footage the extras count but in this market not as much. They need to remove those FLIP THAT HOUSE programs off of the networks. Wake up USA and support Manufacturing, we need to have a product to sell, can't make it as a service sector much longer, compete, compete, make more, make better products at a reasonable price, that's the ticket. Take our economy back, put our people to work and we will have plenty money for infrastructure.

 

[alevin]

The idea that repair and maintenance of infrastructure as a method to increase national wealth is a false illusion, rooted in the short term analysis of next quarters GDP, which ultimately has a day of reckoning.

Oy, Scribbler, you've hit the nail on the head w/o hitting your thumb either. My hat's off. Preserving capital in an IRA (while still paying mutual fund maintenance fees for that IRA) is barely maintaining net worth, definitely not increasing it. Nearest quick analogy I can come up with. :embarrest:

 

[Scribbler]

Around three or four years ago, as we now know to be the top of the market, television programs featuring the idea that if you have a house, fix it up, you can increase the value of the house immediately were on seemingly every channel.

The premise of the shows were that relatively small capital additions by the owner for upgrade (or merely repair) of critical systems and features that can at best be described as non-functional would greatly increase the value of the home. In hindsight, we know that the upgrades and repairs, while nice to have – created the illusion of wealth, not real wealth.

Most of the chatter among the economic cognoscenti revolves around the Keynesian idea that we can stimulate GDP by having the government spend money to upgrade critical systems. As the thinking goes, government spending will replace the shortfall in GDP and allow the US to avoid a recession.

Wealth is the result of productive activity which adds to the assets available for use, without a corresponding increase in debt. Spending by the government will result in productive activity – roads and bridges are in need of repair.

But are we to believe that the government spending increases will allow for the Assets to grow in excess of the Debt we are incurring? I think it would be very unlikely. So with respect to the actual wealth, we would decrease, but we would result in a higher GDP than would otherwise be experienced.

But like a company that manages earnings at expense of the balance sheet, there is an ultimate day where the charade cannot continue, if only due to a lack of lenders to fund newly issued debt. The Fed can be the “lender of last resort”, but the Fed cannot substitute it capacity to lend for private demand of debt for a long period without significant problems.

The idea that repair and maintenance of infrastructure as a method to increase national wealth is a false illusion, rooted in the short term analysis of next quarters GDP, which ultimately has a day of reckoning.