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Are we not lucky?


Why does the global debate revolve around One idea. Spend more on mega public sector projects, that will create more jobs and create ‘demand’.

Same ideas; different 'authors'  |  Eureka cartoon from newyorker.com; artist & publication date absent at source  |  Click for image.

Same ideas; different ‘authors’ | Eureka cartoon from newyorker.com; artist & publication date absent at source | Click for image.

Bad times bring out bad ideas

With the global economy in a slowdown now for the fourth year, there is ‘consensus’ that the ‘government must do something’.

Apart from the problem of economic distortion that State intervention brings, there is an additional problem of consensus on what the governments must do.

Spend more.

The world, eurozone and UK economies are in a far worse state than expected. Yet Mr Cameron insists that “we are moving in the right direction”. Who is this “we”? UK gross domestic product is stuck at 4 per cent below its pre-crisis peak in what is the longest such slump since the 19th century, with no end in sight. Even if one believes that part of the pre-crisis output was an illusion, why should one accept that the UK economy has lost the capacity to grow altogether? How can Mr Cameron believe the economy is moving in the right direction when it is not moving?

As Jonathan Portes, director of the National Institute of Economic and Social Research, argues in a recent blog post: “With long-term government borrowing as cheap as in living memory, with unemployed workers and plenty of spare capacity, and with the UK suffering from both creaking infrastructure and a chronic lack of housing supply, now is the time for government to borrow and invest. This is not just basic macro-economics, it is common sense.”

With real interest rates close to zero – yes, zero – it is impossible to believe that the government cannot find investments to make itself, or investments it can make with the private sector, or private investments whose tail risks it can insure that do not earn more than the real cost of funds. If that were not true, the UK would be finished. Not only the economy, but the government itself is virtually certain to be better off if it undertook such investments and if it were to do its accounting in a rational way.

Yet, instead of taking advantage of the opportunity of a lifetime to repair and upgrade the capital stock, as Mr Portes notes: “Public sector net investment – spending on building roads, schools and hospitals – has been cut by about half over the past three years, and will be cut even further over the next two.”

He recommends a £30bn investment programme (about 2 per cent of GDP). I would go for far more. Note that the impact on the government’s debt stock would be trivial even if it brought no longer-term gains. Indeed, it would be modest at many times this level.

The result is likely to be a permanent reduction in the output of the UK, not to mention permanent damage to a whole generation of the unemployed. I have words for such behaviour. Not on this list is the word “sensible”. (via Cameron is consigning the UK to stagnation – FT.com).

Create life and death situations - and then present, only one option  |  Old tricks served me well cartoon from newyorker.com; artist & pub. date absent at source.  |  Click for source.

Create life and death situations – and then present, only one option | Old tricks served me well cartoon from newyorker.com; artist & pub. date absent at source. | Click for source.

What’s wrong

And the spending must be on ‘productive’ asset building.

Build more schools, roads, bridges, airports, docks, et al. Anything wrong with this, could seem like a valid question.

Plenty. Plenty wrong.

Big Bucks for Big Guys

We already have a situation where a paltry twelve corporate entities control our food supplies, another selected ten control news and thought flows; fewer than ten companies control the global car industry.

How about an interest subsidy of GBP30 billion to small businesses? That will mean GBP600 billion of lending to small business – based on lending equal to 20 times of interest. If it takes GBP100,000 to create a job, we are talking of 6 million jobs – @10,000 jobs for each GBP1 billion.

But this is, I am sure, not ‘possible’. So, lets go back to …

Big Spending …

Who will get the contracts for all these roads, buildings, airports, schools, docks. The same 10-20 major construction corporations that dominate the global economy.

And we will get jobs.

Aren’t we lucky that so many people in the academia and media think about our jobs – and our welfare.


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  1. May 24, 2012 at 4:53 am

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