THE BLOG
09/29/2015 03:07 pm ET Updated Sep 28, 2016

Missed Connections

If you were hoping to receive relationship advice based on today's title, then this blogpost is not for you. Yet, my intention is to discuss an equally important topic, and at last one that has the potential to seriously improve communal relationships.

Traveling in Europe over the past weeks, with pit stops in several large metropolitan areas, was an eye-opener for me. I am not referring to the doom-and-gloom reports we have been issued related to economic malaise and monetary distress, but quite the contrary. Traditional and hip, Copenhagen, Denmark, is clustered with construction sites, a picture last seen in many parts of Europe when generous union funding and aggressive lending made it opportune to build at large. The difference, this time, seems to be a focus on public infrastructure, rather than (mostly speculative) residential real estate.

Only 270 miles to the south, in Berlin, Germany, the picture is nearly identical. As in Copenhagen, a major transportation project related to the city's subway system is underway. In contrast to what appears to be a cutting-edge aspiration in Denmark, the Berliners are still fixing their transportation network after years of underinvestment; this (not literally, but topically) brings me right to New York City. After nearly 18 years in the Big Apple, I cannot recall a major improvement to mass transit, even though the city's population has nearly reached its once year-2020 projection. Critics may argue that the monorail (aka "AirTrain JFK," connecting parts of NYC to JFK airport) should qualify, but that "thing" has proven to be rather ineffective and underutilized. Other projects, such as the expected 2nd Avenue subway, will do little to cater to the nearly 1.5 million commuters entering Manhattan for work every day.

Arguably, there are other sizable initiatives in the pipeline, but still NYC is not an exception when compared to the national level of infrastructure investment. The U.S. has seen its transportation funding as a share of GDP decline, since peaking during the Eisenhower era in the 1960s--and this is exactly what traveling from one place to another feels like, in many ways. Of course, then there is the "play with numbers," adjusting and (!) justifying purchasing power related to the cost of infrastructure, labor, price of materials, etc. The proof, however, as always, is in the proverbial pudding: just drive your car around the Tri-State Area (NY, NJ, CT), or pay a visit to LaGuardia airport, recently compared to something found in a third-world country.

The reality of the status quo in developing nations (or "third world," for the sake of our argument) is actually a different one, at least when judged by expected infrastructure investments around the world: total spending is projected to grow from $4 trillion in 2012 to more than $9 trillion per year by 2025. Overall, close to $78 trillion (or five times U.S. GDP at 2014 levels) is anticipated to be spent globally between the years of 2014 and 2025. The real twist is that nearly 60 percent of this "flow" will occur in the Asia-Pacific region; the argument that these nations have to "catch up" to infrastructure levels of the developed world is a shortsighted one, especially given that every dollar spent on infrastructure creates economic returns of anywhere between 5-25 percent--not bad for a "zero-interest-rate" environment.

As I suggested in Patchwork Investing, the U.S., unlike most other nations, is in a unique position to take advantage of a multiplicity of simultaneously occurring conditions, or, better stated, opportunities: a chronic underinvestment in its domestic infrastructure, paired with financing costs at historic lows and the related prospects of an improving labor market through job creation. Now is the time to make the connection between current socioeconomic requirements and preparing for a demanding future that will be characterized by demographic shifts, a continued trend toward city and coastal living, and increased needs of a fiercely growing global population.

With kind regards,

Matthias

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