The case against US infrastructure mega-spending
October 13, 2016
Welcome to the ninth issue of Konzept – Deutsche Bank Research’s flagship magazine. On our last cover was a Rubik’s cube in European yellow and blue with the squares arranged as a question mark. That was before Britain voted to leave the EU. Had we known the result we may have chosen an exclamation sign instead. But four months on, markets have recovered from their initial shock – sterling’s recent slide notwithstanding – while economic data seem to have ignored the referendum completely.
Do we risk making a similar mistake again in the US presidential election? After Brexit it would be brave to write off Donald Trump. Hence in this issue we focus instead on one intriguing element of the race: that in spite of disagreeing on almost everything, Hillary Clinton and Donald Trump have both included massive infrastructure investment plans in their manifestos. In fact, almost everyone in America seems to agree that huge fiscal spending programmes are a good thing. In our cover feature John Tierney makes the case against this consensus view.
Not that we’re bearish on the prospects for America – far from it. Our chief global strategist, Binky Chadha, argues in another feature that labour productivity growth may soon pick up again thanks to a stronger dollar and tight labour market. It is another contrarian view and has major implications for asset classes globally. We also take issue with those blaming a lack of corporate capital spending for America’s economic woes and in addition have a few suggestions on the thorny issue of company tax reform.
As ever we include some shorter pieces at the front of the magazine to whet your appetite. One article close to my heart is about how new and better data are accelerating gender diversity initiatives – particularly at financial services firms. Other articles range from an explanation of how to compare the signals from credit and equity derivatives when forecasting market returns, to the popularity of movie going in China. Rineesh Bansal also argues why stocks are behaving more like bonds these days and bonds like stocks.
Finally, our book review returns to 2008, when a fresher faced Barack Obama beat Hillary Clinton to the Democratic nomination. Game Change – a must read – has plenty of juicy insights for those obsessed with the current race for the US presidency. Also at the rear of the magazine, as usual, our spies report back from their latest conference crashing exploits. And our ever-popular infographic seems to show, mirroring the cover story, that higher infrastructure spending by American states does not lead to faster economic growth or even better infrastructure.
Group Chief Economist and Global Head of Research