Infrastructure Spending: Who Wins from the Great Depression Playbook?

Infrastructure Spending - Government Economic Stimulus

It was only a few months ago in October 2019, the new Australian Treasury Secretary Steven Kennedy warned against a mega infrastructure spend as a way to boost economic growth.

However, blowing an infrastructure bubble — inevitably blowing a land market bubble — is a well-worn strategy.

It was how the US got out of the Great Depression.

In 1933, British economist JM Keynes wrote an open letter to US President Franklin D Roosevelt supporting an expansive public works program that government borrowing could finance.

He got what he wanted. 40,000 new and 85,000 improved buildings, as well as thousands of new roads and bridges were constructed America wide.

Most are still in use today.

You may not know of that impact on land values this had due to the depth of the downturn.

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Everybody knows how bad the Great Depression was.

But renowned US economist Robert Shiller discovered a substantial recovery in US home prices prior to the Second World War.

Check it out…

Profit Watch - Infrastructure Spending - Government Stimulus

Source: Robert Shiller

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Those of us who study the Law of Rent are not surprised. This is exactly as we would expect.

We saw the spirit of Keynes resurrected again in the 2008 financial crisis.

Headlines around the world called for infrastructure initiatives — ‘The Revenge of Keynes’ (Le Monde), ‘The undeniable shift to Keynes’ (Financial Times), ‘What Would Keynes Have Done?’ (The New York Times).

It was Keynes’s moment again after decades of neglect.

The Obama administration spent $150 billion on infrastructure. China pledged $585 billion, India $500 billion, the European Union $252 billion, Japan $129 billion, Canada $12 billion, Australia $4.7 billion, Singapore $13.8 billion, Germany $42 billion…the list goes on.

That took the world out of the 2008 disaster. And here we go again…

This is going to be much bigger. And it’s going to take us right to the peak of the cycle…

Look what’s coming for Australia…

Here’s what Australia’s Infrastructure Minister Michael McCormack had to say on 21 April 2020:

I want to see bulldozers on the ground, I want to see heavy vehicles pushing dirt, and more workers in hi-vis on site…

We’ve already got $100 billion and that’s a record amount of money that we’re rolling out, so to bring some of that money forward is important. I like what I’ve received.

Despite most going into lockdowns, the one industry that has been encouraged to continue (globally) and/or the first to resume, is the construction sector.

Governments are targeting a ‘U’-shaped, or better still, a ‘V’-shaped recovery.

Consider that before COVID-19, Australia’s Federal Government already had a record AU$100 billion spend allocated to infrastructure.

The private owners of toll roads and airports have big plans too…

The Melbourne Airport owner, the major asset belonging to Australia Pacific Airports Corp (APAC), was planning capital works worth some $2.5 billion.

Transurban, Australia’s largest toll road operator was looking at capital contributions of $3.5 billion over the next four years across its portfolio of roads in Australia and the US.

By 2022, transport projects alone were set to hit $22 billion.

And now we can add to this the ‘COVID Panic’ infrastructure spending plans that includes a further $2.7 billion in Victoria, $40 billion in NSW, $350 million SA, $49.5 billion in QLD, and $140 million in WA…to name but a few.

And in New Zealand there’s a NZ$12 billion ‘New Zealand Upgrade’ infrastructure spend.

Plus, there’s the $1.8 billion in federal funds to go to local councils to accelerate infrastructure projects ‘that support jobs’ — and feed into land prices!

This makes 2020 a screaming opportunity to get set for the new land boom brewing around Australia — and indeed the world.


Catherine CashmoreSignature

Catherine Cashmore,
For Profit Watch

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