A case for steady (and not rapid) infrastructure growth

What comes to your mind at the thought of rapidly built infrastructure story? Undoubtedly, China. All of us have had a relative or friend (and for some a personal experience) who travelled to China more than once, talk about how quickly China built its infrastucture. Isn’t it easy to draw a conclusion that infrastructure built faster is better? Isn’t is a no-brainer? May be not if you understand Vitaliy Katsenelson’sChina – The Mother of all black swans

The author states an excellent example in slide 13 (displayed below) which is the basis for this post.

China – The Mother of All Black Swans by Vitaliy Katsenelson – April 2010

It has been interesting few hours thinking of the repercussions since I read this example.

1 year of high demand for manpower, electricity, iron ore and other resources to run 100 steel mills will lead to rise in commodity prices, increase in lending rates due to high demand for credit, create void in others sectors since high demand for manpower will lead to higher salaries. If all this is not bad, what after a year? Commodity prices crash, unemployment raises & idle capacity in steel mills can create havoc. This leads to a downtrend in people and goods travelling less leading to under-utilisation of the very same bridges!

On the other hand, a gradual & steady growth avoids creation of excesses and offers the benefit of time to adjust the course of actions.

Meanwhile, if you went through the above presentation and came across the city of Ordos here is video on the empty city.