In most macroeconomic models, new capital accumulates until it reaches an equilibrium level, where all investment goes toward repairing/replacing depreciated capital—resurfacing roads, replacing machines, repairing buildings rather than creating new roads, machines and buildings.
Must be something wrong with the models then, because that doesn’t sound like any place I’ve ever been. People don’t prioritize maintenance above any and all new stuff; it’s human nature to invest in new stuff even while old stuff crumbles.
The same is true for software. I wish there was a natural law limiting software bloat, but look around—do you think there’s such a law? Can you name any large project that reached equilibrium and stopped growing? I can’t. Sure, as the project grows it gets harder to maintain at the same quality, but people don’t let that stop them! They just relax the standard of quality, let older and less important features go unmaintained, and keep piling on new features anyway.
Good points, this gets more into the details of the relevant models. The short answer is that capital equilibrates on a faster timescale than growth happens.
About a year ago I did some research into where most capital investments in the US end up—i.e. what the major capital sinks are. The major items are:
infrastructure: power grid, roads, railroads, data transmission, pipelines, etc.
oil wells
buildings (both residential and commercial)
vehicles
Most of the things on that list need constant repair/replacement, and aren’t expanding much over time. The power grid, roads and other infrastructure (excluding data transmission) currently grow at a similar rate to the population, whereas they need repair/replacement at a much faster rate—so most of the invested capital goes to repair/replacement. Same for oil wells: shale deposits (which absorbed massive capital investments over the past decade) see well production drop off sharply after about two years. After that, they get replaced by new wells nearby. Vehicles follow a similar story to infrastructure: total number of vehicles grows at a similar rate to the population, but they wear out much faster than a human lifetime, so most vehicle purchases are replacements of old vehicles.
Now, this doesn’t mean that people “prioritize maintenance above new stuff”; replacement of an old capital asset serves the same economic role as repairing the old one. But it does mean that capital mostly goes to repair/replace rather than growth.
Since capital equilibrates on a faster timescale than growth, growth must be driven by other factors—notably innovation and population growth. In the context of a software company, population growth (i.e. growing engineer headcount) is the big one. Few companies can constantly add new features without either adding new engineers or abandoning old products/features. (To the extent that companies abandon old products/features in order to develop new ones, that would be economic innovation, at least if there’s net gain.)
Ah, I see. Your post drew a distinction between “repairing buildings” vs “creating new roads, machines and buildings”, but you meant something more subtle—do we build the new building to replace the old one, or because we need two buildings? That makes sense and I see that my comment was a bit off base.
Yeah, in retrospect I should have been more clear about that. Thanks for drawing attention to it, other people probably interpreted it the same way you did.
Must be something wrong with the models then, because that doesn’t sound like any place I’ve ever been. People don’t prioritize maintenance above any and all new stuff; it’s human nature to invest in new stuff even while old stuff crumbles.
The same is true for software. I wish there was a natural law limiting software bloat, but look around—do you think there’s such a law? Can you name any large project that reached equilibrium and stopped growing? I can’t. Sure, as the project grows it gets harder to maintain at the same quality, but people don’t let that stop them! They just relax the standard of quality, let older and less important features go unmaintained, and keep piling on new features anyway.
Good points, this gets more into the details of the relevant models. The short answer is that capital equilibrates on a faster timescale than growth happens.
About a year ago I did some research into where most capital investments in the US end up—i.e. what the major capital sinks are. The major items are:
infrastructure: power grid, roads, railroads, data transmission, pipelines, etc.
oil wells
buildings (both residential and commercial)
vehicles
Most of the things on that list need constant repair/replacement, and aren’t expanding much over time. The power grid, roads and other infrastructure (excluding data transmission) currently grow at a similar rate to the population, whereas they need repair/replacement at a much faster rate—so most of the invested capital goes to repair/replacement. Same for oil wells: shale deposits (which absorbed massive capital investments over the past decade) see well production drop off sharply after about two years. After that, they get replaced by new wells nearby. Vehicles follow a similar story to infrastructure: total number of vehicles grows at a similar rate to the population, but they wear out much faster than a human lifetime, so most vehicle purchases are replacements of old vehicles.
Now, this doesn’t mean that people “prioritize maintenance above new stuff”; replacement of an old capital asset serves the same economic role as repairing the old one. But it does mean that capital mostly goes to repair/replace rather than growth.
Since capital equilibrates on a faster timescale than growth, growth must be driven by other factors—notably innovation and population growth. In the context of a software company, population growth (i.e. growing engineer headcount) is the big one. Few companies can constantly add new features without either adding new engineers or abandoning old products/features. (To the extent that companies abandon old products/features in order to develop new ones, that would be economic innovation, at least if there’s net gain.)
Ah, I see. Your post drew a distinction between “repairing buildings” vs “creating new roads, machines and buildings”, but you meant something more subtle—do we build the new building to replace the old one, or because we need two buildings? That makes sense and I see that my comment was a bit off base.
Yeah, in retrospect I should have been more clear about that. Thanks for drawing attention to it, other people probably interpreted it the same way you did.