Of Pharaohs and Financial Accounting

The Curious Case of a Cultural Investment in Upper Egypt

Consumption vs. Investment

US taxpayers are right to question any Federal government expenditure. Afterall, it’s their money. During a period of budget deficits, that right becomes somewhat of an obligation as the government (or any entity) can’t operate in perpetuity spending more than it takes in. And in a period of soul-crushing, mind-numbing, spreadsheet-breaking deficits, questioning government expenditures rises to the level of moral obligation. Our currency, our national security, even our very existence as an independent entity is at risk.

But that necessity to check the books closely begs an even bigger question: what is an expenditure and what is an investment in the future? Politicians and the thoughtful citizenry are happy to deride the former, often under the populist rubric of “waste, fraud, abuse.” No doubt in any large enterprise, WFA exists. It’s the unavoidable agency cost of living in a complex society. Less is always better than more, but no modern entity works with 100% efficiency. (The centralized economies I once studied were thought to be a way to avoid those problems. Turns out they produced vastly more WFA than our mostly free-market operations.) In contrast to the generalized concern about managing expenses, the same politicians and thoughtful citizenry are broadly supportive of investment in our country’s future, even if the budget is not always balanced.

Yet the accounting and finance rules provide at best a subjective answer as to the difference between a “bad” cost and a “good” investment. This is an instance where Justice Potter Stewart’s “I know it when I see it” standard is just not good enough. I had an opportunity to consider this paradox while on a recent trip to Egypt. I found myself at the Temple of Kom Ombo—age: 2100 years—on the banks of the Nile River, where I encountered a sign showing that USAID had recently financed a groundwater lowering project to protect the famous monument from further deterioration. A quick web search informed me that the project cost $9 million and was completed in 2019.

As a country, we are currently faced with the immediate challenge of paring back our expenses and ramping up our investments. But where does the Kom Ombo project fall?

Textbook clarity; real-world opacity.

Seeking the transparency, precision, and uniformity of a science, financial accounting assumes clean lines between assets and liabilities, between capital and labor, between investment and consumption. Finance 101 tells us that Consumption (expenses) yields pleasure today, and Investment yields returns tomorrow. That’s simple enough. A cheeseburger is consumption; a new factory is investment. Econ 101 operates the same way, using a simple formula to explain aggregate economic activity: GDP = C + I + G + (X – M--Consumption, Investment, Government spending, and Net exports. (The Egyptian project might show up briefly as G during construction, then vanish.)

The trouble arises, of course, when one encounters phenomena that yield no immediate gratification, no reliable cash flow, and yet—somehow—matter. Rarely is this uncertainty more evident than when the U.S. government dispatched staff and funds to help preserve a Pharaonic temple in Upper Egypt. Was this a simple cost or an investment in the future? While no one goes into temple drainage systems looking for a 15% internal rate of return, the USAID-funded groundwater lowering project at this ancient site may have offered a greater long-term return on investment—political, strategic, reputational—than many a Silicon Valley venture.

Beyond the temple’s actual preservation, that return took a simple form: Joseph Nye’s “soft power” of having “from the American people” prominently displayed on the grounds of an Egyptian national treasure. It’s a peculiar but instructive example of what one might call strategic noncommercial investment. And while it won't show up in the Congressional Budget Office’s calculations, it might just show up in the goodwill ledger of the Egyptian public. And for the U.S., cultivating it might be more durable (and certainly less costly) than rolling tanks across the Sinai.

Nye’s now-canonical notion of soft power—winning hearts and minds—has long made diplomats swoon and budget hawks groan. But if we follow the logic of a financial economist, the question becomes: can this soft power be modeled like any other asset? Let’s consider what makes an investment. Expected future benefits? Check. Discernible cash flows? Not directly—but let’s not forget that many corporate assets yield benefits only indirectly. Risk? Absolutely. Volatility? A low correlation with broader geopolitical turmoil makes it a great diversifier. In short, soft power can help secure trade deals, stall insurgencies, and keep military budgets slightly less grotesque. In helping Egypt preserve its temple, America is, in effect, buying into its own diplomatic dividend.

Time for a new accounting?

The dilemma for the financial economist is whether to treat such efforts as a form of charitable expense—or an asset to be capitalized. In an era where trademarks and brand equity occupy pride of place on balance sheets, is it perhaps time to consider influence itself as a line item? By that logic, soft power might be the diplomatic cousin to corporate goodwill—an immaterial asset with very real influence.

If nations were corporations, soft power would be listed under "intangible assets." It doesn’t generate revenue in the narrow sense, but it confers competitive advantage. It influences consumer (and ally) preferences, reduces customer acquisition costs (aka diplomacy), and increases resilience in the face of geopolitical shocks. This doesn’t mean all cultural aid is investment. Some projects are pure boondoggles. But where there is strategic foresight, multi-stakeholder benefit, and plausible economic spillover—yes, it qualifies.

One common argument against soft power spending is that it lacks accountability. But consider the alternative: letting political capital degrade because it’s not easily measured. Investment in reputation and in shared heritage—these are not vague notions. They are the very underpinnings of global commerce. You don’t sign treaties with countries you mistrust. You don’t sell them semiconductors either. In this light, the USAID temple project was less about Egypt’s past than about America’s future. As the dividend from America’s post-war leadership diminishes, new modes of return—slower, subtler—will become all the more essential.

The Kom Omba temples of the 21^st century

The uncertainty around a small and remote USAID project can also characterize what appears to be a hard-coded Investment. Capital misallocation in Investment can and does happen as much as it does in regular spending. While it’s not called WFA, the money is lost all the same. There are plenty of instances, often associated with new technology roll outs, such as the railroads in the 19^th century (most went bust), early automobile makers (most went bust), all that fiber put in the ground in the 1990s (much of it remained dark for a long time…), etc.

We are currently in the all-things AI and data-center investment phase, involving hundreds upon hundreds of billions of dollars. This spending boom left Everett Dirksen’s “real money” phase right out of the gate. Within just a few years, the write offs will begin. Ten billion here, twenty billion there. Soon it will be real money. At that point, some of the investment in these Temples of Technology will have become an expense. Those marginal expenses—to build a portion of the data centers—will have kept the economy moving the past few years, no less than the spending on a cheeseburger, but they will no longer enjoy the glow of being called a long-term investment in our country’s future. If we can write “off” tens of billions of cash spending on technology, perhaps we can write “on” a fraction of that amount in soft-power expenditure?

N.B. The author was a beneficiary early in his career of what were, in retrospect, soft-power government programs.

N.B. (2). If you’ve read this far, you deserve to know that I used a highly prompted AI engine to outline this argument about accounting for soft-power. Could you tell? Let me know in the comments or directly. Thank you.