Tale of two cities and ghost towns

Many observers regard the rise of the unoccupied modern "ghost towns" in China, which have been funded through risk-laden local government financing vehicles, as symptoms of a coming collapse. But this view underestimates the inevitability - indeed, the necessity - of such challenges on the path to development.

In 2012, the venture capitalist William Janeway argued that economic development is a three-player game involving the state, private entrepreneurial innovation, and financial capitalism, with inevitable cyclical overshoots that create the conditions for the next wave of invention and output growth. The United States had ghost towns once it began investing in railways, mining, and industrialization in the mid-19th century. But it experienced no systemic crisis.

Without large-scale infrastructure investment, especially in transport, the productivity gains that enabled the US' emergence as an industrial power would not have been possible. Though the process included significant creative destruction, the rapid economic growth offset losses resulting from excess capacity.