Why is Infrastructure spending discouraged by the ESRI?

veryangryman

Am i missing a beat or are these people just thick? There is no space on the roads, railways or indeed Luas around Dublin. Every euro spent on this makes money back for the state.

Now i don't want everyone to back up my point, but can you advise why these highly paid state agencies are advising not to help our workers get to work? What is their logic?

They are not a state agency, they are independent of government. Its one of the main reasons why they are listened to as they don't have any bias expect to ensure economic growth and stability

bk

I'm a bit confused, where has the ESRI said they discourage infrastructure investment?

They had a release today where they said increased investment in services is needed due to deficits arising from under investment during the recession (very true).

They seem to be only warning that greatly increasing government expenditure (investing in services and infrastructure) AND also decreasing taxes at the same time can overheat the economy and hurt governments debt position and is very risky.

And again they are right about this, while cutting taxes is politically popular, it is usually the wrong thing to do when an economy is doing very well. See counter cyclical economic policy.

Dardania

bk wrote: »

I'm a bit confused, where has the ESRI said they discourage infrastructure investment?

They had a release today where they said increased investment in services is needed due to deficits arising from under investment during the recession (very true).

They seem to be only warning that greatly increasing government expenditure (investing in services and infrastructure) AND also decreasing taxes at the same time can overheat the economy and hurt governments debt position and is very risky.

And again they are right about this, while cutting taxes is politically popular, it is usually the wrong thing to do when an economy is doing very well. See counter cyclical economic policy.

This is the crux of the problem. 
There is a finite capacity to build infrastructure - at some point, if you throw all the capital you have at building infrastructure, you will soak up all the capacity (tradesmen and contractors) who will only increase their prices in response. 
Which leads to, among other problems, loads of people entering the industry, drop in quality until they're up to speed, a few years of good infra delivery, and just in time for the next recession, we'll have loads of people used to good lifestyle, trained in an industry which doesn't have any investment capital left. Sound familiar?

We are well on the way to the next recession with the recent trajectory of property

Geuze

veryangryman wrote: »

Am i missing a beat or are these people just thick? There is no space on the roads, railways or indeed Luas around Dublin. Every euro spent on this makes money back for the state.

Now i don't want everyone to back up my point, but can you advise why these highly paid state agencies are advising not to help our workers get to work? What is their logic?

They encourage infra exp:

"As the budgetary process commences, it is evident the Government has greater
discretion in terms of fiscal policy than in previous years. In order to ensure
sustainable growth over the medium term, the main challenge is to use these
extra resources to address some of the infrastructural deficits which emerged in
the post-2008 period without overheating a rapidly growing economy."

http://www.esri.ie/pubs/QEC2018SUM.pdf

listermint

Dardania wrote: »

This is the crux of the problem. 
There is a finite capacity to build infrastructure - at some point, if you throw all the capital you have at building infrastructure, you will soak up all the capacity (tradesmen and contractors) who will only increase their prices in response. 
Which leads to, among other problems, loads of people entering the industry, drop in quality until they're up to speed, a few years of good infra delivery, and just in time for the next recession, we'll have loads of people used to good lifestyle, trained in an industry which doesn't have any investment capital left. Sound familiar?

So the solution is to not build infrastructure , which can in itself hedge off impacts of downturns by making the place more marketable internationally . ?

Dardania

listermint wrote: »

Dardania wrote: »

This is the crux of the problem. 
There is a finite capacity to build infrastructure - at some point, if you throw all the capital you have at building infrastructure, you will soak up all the capacity (tradesmen and contractors) who will only increase their prices in response. 
Which leads to, among other problems, loads of people entering the industry, drop in quality until they're up to speed, a few years of good infra delivery, and just in time for the next recession, we'll have loads of people used to good lifestyle, trained in an industry which doesn't have any investment capital left. Sound familiar?

So the solution is to not build infrastructure , which can in itself hedge off impacts of downturns by making the place more marketable internationally   .  ?

Almost, but not quite - the solution is to build a sustainable amount of infrastructure. Don't spend every penny of spare capital you have on it, just what is prudent.
The government have to be careful when they spend (in general) - they have such a load of money to play with, they can distort markets. Which isn't something most individuals can do or need to care about.
And if the government spends sustainably, while saving (this famous rainy day fund) - when the next recession hits, they can continue spending on infra projects

cgcsb

Calling for prudence on infrastructure spending in Ireland is like warning an anorexic about the dangers of over eating.

We literally never overspent on our infrastructure. A few years ago the busiest railway in the state literally fell into the sea due to lack of maintenance. Our capital City lacks sufficient water infrastructure. The streets are like the surface of the moon and walking is the fastest way to get anywhere. This state has never built a new railway and the infrastructure built in recent times is already so overwhelmed by demand that catching up just to normal West Europe standards, might never happen.

marno21

One of the main issues I see with infrastructure development in Ireland, and I'll focus on roads, is that infrastructure development here is too cyclical, and this leads to resource shortages and overspending when it happens.

There was one month in 2008/9 that we spent €500m on new motorways. One month. Aside from PPPs, there was under €100m spent on new roads (construction) by the Government between Q4 2014 and Q2 2017. Now were are going ramping up spending with €600m worth of road projects now at tender or to be tendered by year end 2018. That means now that the civil engineering companies have gone from having no road projects to work on to many new ones coming on stream, and there will be resource bottlenecks, especially human resource bottlenecks associated with this. It's a similar situation to that in the field of housing.

Ireland needs to be reasonably constant when it comes to infrastructure spending, rather than the current "feast or famine" approach which only creates problems of its own in the long run

cgcsb

marno21 wrote: »

One of the main issues I see with infrastructure development in Ireland, and I'll focus on roads, is that infrastructure development here is too cyclical, and this leads to resource shortages and overspending when it happens.

There was one month in 2008/9 that we spent €500m on new motorways. One month. Aside from PPPs, there was under €100m spent on new roads (construction) by the Government between Q4 2014 and Q2 2017. Now were are going ramping up spending with €600m worth of road projects now at tender or to be tendered by year end 2018. That means now that the civil engineering companies have gone from having no road projects to work on to many new ones coming on stream, and there will be resource bottlenecks, especially human resource bottlenecks associated with this. It's a similar situation to that in the field of housing.

Ireland needs to be reasonably constant when it comes to infrastructure spending, rather than the current "feast or famine" approach which only creates problems of its own in the long run

agreed but that steady pace of infrastructure spending certainly needs to be a lot higher than what we have seen in recent years.

bk

Ideally, with a mature, developed economy, when the economy is doing well, you reduce expenditure on infrastructure and services and increase taxes. Which helps take some of the heat out of the economy.

When you hit a recession you then increase expenditure on infrastructure and services and reduce taxes. This helps keep money flowing in the economy in the recession. It helps to keep people from the building sector employed and allows infrastructure to be built for a lower cost and ready for when the economy picks up and it is needed.

This all helps to smooth out, the ups and downs and you don't end up getting the wide swings you saw like our last recession.

You also help reduce the brain drain problem. A big problem we have, because the building sector crashed during the recession, both public and private, lots of people lost their jobs and they didn't stick around, the emigrated to Canada, Australia, etc. where the building trade is booming. That leaves us with the problem that we now need lots of new homes and Metro's etc. but there is no one left around to build them. Ops... We are still feeling the effects of our very deep recession.

Of course I'm not suggesting that we don't build infrastructure now. The problem is that we aren't a mature, developed country due to our history and we still have a massive infrastructure deficit compared to other European countries. So we do need to build during both now and during a recession to try and keep up.

However we do need to start slowly moving towards this more mature model and a good start would be not to reduce taxes now when it isn't really needed and not to give into union demands for the usual rounds of big pay increases. Leave more money for infrastructure and help prepare the economy for the next downturn.

MayoSalmon

bk wrote: »

When you hit a recession you then increase expenditure on infrastructure and services and reduce taxes. This helps keep money flowing in the economy in the recession. It helps to keep people from the building sector employed and allows infrastructure to be built for a lower cost and ready for when the economy picks up and it is needed.

So spend more when your broke and try bail yourself out of a financial hole said government created in the first place.

Failed keynesian economic nonsense for which Japan is the poster-child for.

Dardania

MayoSalmon wrote: »

bk wrote: »

When you hit a recession you then increase expenditure on infrastructure and services and reduce taxes. This helps keep money flowing in the economy in the recession. It helps to keep people from the building sector employed and allows infrastructure to be built for a lower cost and ready for when the economy picks up and it is needed.

So spend more when your broke and try bail yourself out of a financial hole said government created in the first place.

Failed keynesian economic nonsense for which Japan is the poster-child for.

You’re missing the point. You don’t spend all of your money during the boom - you save a portion of it, so that you can spend it during a recession. You’re not broke.

Japan is a bit of a different case - they had massive over valuations back in the day, which they’re only catching up with now.

bk

MayoSalmon wrote: »

So spend more when your broke and try bail yourself out of a financial hole said government created in the first place.

Failed keynesian economic nonsense for which Japan is the poster-child for.

Dardania explained it. When the economy is doing very well, you don't decrease taxes and you reduce expenditure. This helps to keep the economy from overheating, but it also means the government has lots of extra money coming in, which it can then use to pay down it's debt and put aside for a rainy day fund.

Then when a recession hits, you have the money available to pump back into the economy and keep people employed and working during the recession. Which help to stop the recession from going so deep and allows you to come out of it faster.

This is what Germany and other mature economies do.

CatInABox

It's also what the current government are starting to do, or at least trying to start. See the rainy day fund.

MayoSalmon

Dardania wrote: »

You’re missing the point. You don’t spend all of your money during the boom - you save a portion of it, so that you can spend it during a recession. You’re not broke.

Japan is a bit of a different case - they had massive over valuations back in the day, which they’re only catching up with now.

Pure economic fallacy...what has you so convinced that government are better able to spend and save your own money than you?!

Dardania

MayoSalmon wrote: »

Dardania wrote: »

You’re missing the point. You don’t spend all of your money during the boom - you save a portion of it, so that you can spend it during a recession. You’re not broke.

Japan is a bit of a different case - they had massive over valuations back in the day, which they’re only catching up with now.

Pure economic fallacy...what has you so convinced that government are better able to spend and save your own money than you?!

I don't know what you're referring to as economic fallacy?
What has me convinced they are better able to spend and save my own money is probably the fact they can achieve economies of scale, due to the taxpayers all contributing to the same pot? I don't think the impact of me, for example, getting a tax rebate in the amount of my contribution to this rainy day fund will be as effective in developing shared infrastructure - I'd probably do a house upgrade with it or something that only benefits me.
We elect these people to govern us, so I should hope they're capable of doing the job.