Like almost everyone who studied physics, I try to look at problems in their asymptotic cases.  What happens if x is infinite or zero? In all cases this gives us a good insight about the solution of the problem. If it Is a closed solution, a possible solution or a even a plausible one,  every hypothesis that we raise can be excluded if it does not survive the stress of  the extremes. That’s why I created the stress test of “modern socialism”.Let us assume that we have the power over a country’s infrastructures.  We pick the most heavily used highway in the country with toll payment and we decide to build an exact replica, 10 meters aside, exactly parallel to the existing one and, when we finish building it, we destroy (or close) the old one.

  • For this project we can structure its project finance since it is the heavily used highway to allocate revenue to debt payment without any usage risk. So, from a financial point of view, this is a closed project and financially neutral.
  • Structurally, we get exactly the same highway and so, again, from this point of view is also neutral.
  • Economically, GDP will grow because money transactions will raise. Unemployment will drop, because workers will be needed to build the new highway. Tax revenue will grow because both companies and workers will have a raise in their revenue and commercial transactions will grow.

So, being financial and structurally neutral and economically great, we can do this to every   useful infrastructure in the country and rolling them add infinitum without the need for any other economic activity. Right? WRONG!

If you find where is the simple and natural flaw of this reasoning, congrats, you probably understand economy much better than you understand economics. If you don’t find any flaw, congrats again, you probably will be the next prime-minister of your (bankrupted) country.

Advertisements