Wednesday, 25 April 2012

Time to Invest

Many of the centre right who value a small State, low tax economy have questioned whether Boy Osborne is doing the right thing right now; one doesn't have to be a leftist Keynesian to see that government investment can stimulate economic growth. Investment is not of course the same as spending, something with which those on the left still haven't come to terms. Investment means exchanging land, labour, materials, plant or specie for an asset equivalent in value, such as building a house. Employing home-helps, librarians and nursery nurses just consumes wealth with no valuable asset to show at the end of it. The other major advantage of capital rather than consumptive spending is that it can be turned on and off like a tap, unlike the government employing people to provide services, which is rather a ratchet and once advanced is horribly hard to reverse.

The latest growth figures support the views of Simon Jenkins in the Guardian this morning; "Flexible exchange rates are a more painless way of forcing down labour costs and promoting trade than government austerity. Inflation is a better way of easing debt. The remedy for depressed demand is increased demand, simple as that. The risk of inflation in Britain at present is trivial compared with that of deflation and recession."

If Osborne is getting it wrong, at least he has the opportunity to get it right, unlike the Eurozone. Jenkins writes;
The euro was a Locarno dream. It was the last cry of the 20th century, envisaging a brave new order in which bankers and businessmen, workers and peasants, would stand arm in arm, singing Ode to Joy. All labour costs would become equal. There would be fiscal and regulatory integration across the entire continent. The euro would unlock the door of a united states of Europe. Ireland and Greece would be to Germany what Nevada is to New York. The euro would squeeze and stretch the peoples of Europe until they were one.

This concept of union must rank among the great mistakes of history. Like other pan-continental visions, it has proved no match for the crooked timber of European mankind. Its acolytes cannot bear revisionism or tolerate dissent. They have driven Greece into chaos and Spain into severe depression, with half its youth now unemployed. The Eurocrats do not care. Their incomes are secure. They dance only round the euro and claim its blood sacrifice. They will do anything but admit they were wrong.
A measured and affordable investment in smaller scale construction schemes, deliverable in the short term, may help the UK avoid the worst of the Eurozone. If the Chancellor announced £10m for each Council in the country today, schemes could start spending on site in three months, the total cost a fraction of that lost to the balance sheets of the multinational banks through QE with no economic benefits. While the Eurozone gets ready for a catastrophic collapse, it's time for Britain to invest.   

14 comments:

Scrobs... said...

"If the Chancellor announced £10m for each Council in the country today, schemes could start spending on site in three months, the total cost a fraction of that lost to the balance sheets of the multinational banks through QE with no economic benefits."

That would mean more town hall waste, Raedwald.

My view is that the big, properly run contractors should get the money to fund/kick-start new developments.

I have exactly that requirement for five projects needing a total of £80m, and one scheme could start this afternoon of the hurt money was on the table.

We're getting there with two big names, but not with the help of banks, or indeed councils, who restrict everything with continual stalling procedures and lack of commercial reality.

When the seed capital we are after is firmly in place, my biggest joy will be to see the faces of the bankers when they're told to tender for the debt finance again...

DeeDee99 said...

I echo Scrobs. If the Government gave each council £10 million to 'invest' without very tight parameters on what investments it could be used for, they would simply hire a few more Executive Officers, Green Deal Workers, EU-Liaison Officers and Media/PR Executives.

The Government itself could carry out this kind of small-scale investment - but instead it has chosen to borrow another £10billion to give to the IMF to prop up the Euro and intends wasting £32 billion (and the rest) on HS2 to please its EU Masters.

Still - looking on the bright side - when even the Guardian is permitting articles saying that the Euro is destroying Europe things must be looking up.

Pat said...

Or cut taxes by an equivalent amount and let ordinary people invest on their own behalf.

Weekend Yachtsman said...

"smaller scale construction schemes"

Oooh, Mr. R. Do I detect a smidgeon of special pleading here?

Weekend Yachtsman said...

Having now read the Graun article, I don't agree with it at all.

He basically wants more Keynesian stimulus. He basically believes that the answer to a problem brought on by too much spending and borrowing, is more spending and borrowing. He doesn't think inflation is a risk.

Deleveraging causes hardships and difficulties, no question; but the alternatives are far worse. Does anyone really believe that we can go on spending and borrowing more than we earn - for ever? Really?

Barnacle Bill said...

The day for investing was the day Cast Iron & Boy George moved into No 10 & No.11 Downing Strett respecatively.
They've missed the opportunity, hence we've double-dipping.

formertory said...

What Osborne's doing wrong is that he's not cutting enough whilst allowing special pleadings and the wrong expenditures to carry on.

Where's the Bonfire of the Quangos? Where's reform of MPs' pensions? Where's the reform of benefits? How can the payment of benefits to people earning twice the median wage possibly be justified? And if the answer is that universal benefits are cheaper to administer, find a means of administering them that's cheap - maybe through the tax codes system.

This country MUST reduce the costs of borrowing and since rates aren't going any lower, that means reducing borrowings. NOW. Neither an individual nor a country can bankrupt itself into prosperity.

Spending the same or more isn't an option, it seems to me. If it isn't borrowed it has to be from tax. It's taxation levels that are killing the economy, adding to employer and personal costs and reducing the propensity to spend.

If we're not careful, in a few years we'll be like Greece. Tax will be largely optional for anyone with tradable skills who can work for cash, and the rest of us will be funding the exponential growth of HMRC as it tries to "clamp down on tax evaders so hard working families don't lose out".

Elby the Beserk said...

1. Inflation is rampant for a large sector of the country. Those who have no more money than that which they spend on the basics - food, fuel and energy - have been experiencing inflation rates of around 10% for some two years now. Food in supermarkets now goes up in 10ps, not pennies. Standard shopping bag items will often go up 10%

2. Councils have far more important things to spend cash on than investment, as you can read here

http://www.taxpayersalliance.com/home/2012/04/research-town-hall-rich-list-2012.html

Liberista said...

I disagree Sir. a house is not an investment, is a durable good, so is consumption.
lets assume that an illuminated government decides to give a tax discount to those who do house improvements. that would create a lot of work for the building industry. people would take money from the bank, the bank could not use that money to lend it (assuming banks do this thing and not the elaborate scams they do) to finance modern building equipment that would increase efficiency and decrease building costs, that extra money thrown at the building industry would increase demand, which would make prices increase.
this is actually what happened in many real estate bubbles in history, even recently. and i am assuming a best case scenario, merely a rax discount.
the state "investing" in small scale constructions is just more resources misallocation, resources taken from those who know better how to use them, and given to friends, clients, associates, based on politican convenience, or connivence...
the reality is that anything the stare does, will distort the market and ultimately damage the economy. been there, done that, etc..
regards

Blue Eyes said...

Inflating our way out of the debt mess only works if wages are rising, making the debts easier to pay off. Wages and national income are stagnant, while the price of food and power and transport rockets.

Agree that the gov can invest to get growth in the economy. Roads, broadband, etc.. But we also need supply side reforms so that business can take advantage. We need planning reform and business deregulation by the bucket load.

Dave and George seem too scared to introduce any meaningful free market reforms.

Johnm said...

The cause of the problems we have now, and the ones to come, is that the banks lent too much money. Not only that, but they did not have the money they lent. That is the problem with frational reserve banking. If you consider the governments debt, and interest, to be bad, then consider the problems attached to private debt which is far worse. The UK is the EU country with most debt. Give ten million to each council ?
A drop in the ocean, my council has over thirty million in "deposits" invested (abroad), many will be the same.

Johnm said...

The cause of the problems we have now, and the ones to come, is that the banks lent too much money. Not only that, but they did not have the money they lent. That is the problem with frational reserve banking. If you consider the governments debt, and interest, to be bad, then consider the problems attached to private debt which is far worse. The UK is the EU country with most debt. Give ten million to each council ?
A drop in the ocean, my council has over thirty million in "deposits" invested (abroad), many will be the same.

Dave_G said...

We need to invest in the things we NEED not the things we WANT (or have put upon us).

Anonymous said...

One 2012 pound is equal to approximately three 1912 pennies.

You want more inflation?

Italy pre Euro here we come!!