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Thursday 9 January 2020

The real news today isn't about a vacuous B-list actress

Sajid Javid will have his work cut out at the Treasury if he is to use government economic intervention to 'even up' the UK. Believe me, I've done my fair share of Treasury funded regeneration schemes; every significant regeneration scheme needs one not only to jump through microeconomic hoops but to provide stuff unheard of in private investment analysis. No Treasury case is complete without adjusting for Optimism Bias in the prescribed fashion and backing one's construction cost estimates with a Monte Carlo analysis of likely contractor bid values. It's all about additionality - sustainable improvements to the UK economy as a whole, and not just Keynsian helicopter money stimulating temporary demand in the economy. So here's what they'll be looking at
Deadweight
This is what would happen anyway, without government intervention. Not as easy to quantify as it appears because it is dynamic; Brexit will release a wave of pent up foreign direct investment, the certainty of a government with a majority will increase business confidence and even the government's policy strategy to intervene to even-up will affect regional investment. Brexit will also catalyse disinvestment decisions from the global corporates, the world's business gypsies, who even now are eying up Serbia for their next plant. Without having a good grasp of the baseline position - the deadweight - you cannot estimate the additionality that economic intervention creates.

Displacement
Up until now wisdom has been that public money is wasted if it just moves the same economic activity from one place to another. What, for example, are the additional economic benefits to the UK of the BBC moving operations from London to Salford? Here is a typical case of a business move motivated by lower factor costs - land, labour, housing and contractors are all cheaper in Manchester than in London, producing real gains for the BBC. If you can get the taxpayer to pay for the new factory, offices, studios or warehouses and enjoy the commercial benefits, brill. Except for the taxpayer, obv, who gains nothing. Sometimes called pork-barrel intervention; building a new plant in Joe Potato's constituency means a plant closing elsewhere.

This will be a critical consideration at the Treasury. Creating growth in the NE, NW, SW and elsewhere that just moves economic activity out of London and the SE is not evening-up but evening-down. And comes perilously close to gerrymandering.

Substitution
Sort of like displacement but within regions, localities or sectors. It's about exchanging economic factor inputs with no additional economic effects. Buying rice rather than potatoes from your local Sainsbury's alters your dinner menu but leaves your carbohydrate consumption unchanged. Employing unemployed workers who come with a government grant only to release an equivalent number of existing staff through redundancy / early retirement may refresh the firm's workforce (or lose scores of years of accumulated experience, depending how you look at it) but creates no additional economic activity. 
The Treasury do recognise that outcomes may be social and environmental as well as primarily economic, but when it comes down to demonstrating additionality, the costs and benefits must always be quantified economically. This is now what Andy Burnham and his colleagues elsewhere in the regions must now set their minds to do; the political rhetoric of the election is over, the hard graft now begins.

And that is the real news, not the vacuous posturing of a publicity obsessed B-movie actress that seems to dominate the press today.

25 comments:

DeeDee99 said...

You are correct that this is the real news, not the vacuous posturing of a publicity obsessed B-movie actress and her besotted, irresponsible and immature husband. But that's what the country will be talking about.

Nothing ticks the box of Optimism Bias and pork-barrel politics like HS2. Will Boris force the taxpayer, the vast majority of whom will gain no direct benefit from it, to fork out £100 billion+ to pay for the Establishment's favourite train set? Or will he have the guts to scrap it and spend the money on smaller regional schemes which will benefit "the little people."

I think he'll sign it off - with a lost of posturing about demanding the scheme be re-envisaged and the costs cut. I hope I'm wrong.

Mark said...

If Boris cancelled this monstrosity - as he should - who would actually kick off?

I suspect DeeDee is right, but another option is that it will just keep getting kicked down the round and perhaps quietly fizzle out.

Apparently, around £7.5 billion has already been spent. What could that have done to improve existing railways or roads. It could probably fill every damn pothole?

I shudder to think what sort of penalty/cancellation clauses are written into it. Maybe that's the real problem.

DiscoveredJoys said...

Perhaps Boris should consider selling the HS2 construction off (complete with preparations made so far) to the highest bidder. Of course if no-one should think it worth buying then we shouldn't throw more money after bad either.

Everyone has their own alternative pet transport projects... but which ones will be cost effective?

JPM said...

Basically, "we" voted Leave.

Now "they" can sort out the mess.

jim said...

I suppose a bit of buyer's remorse might be wafting round Westminster. They won the Brexit auction only to find its full of woodworm.

The problem is not so much to shuffle round the current economic assets but to encourage some new ones. So who will come here, suffer the planning aggravation, suffer the bureaucracy, suffer the slings and arrows of a miffed EU and still make a profit?

But never mind, every cloud etc. Even though getting new business going will be very tough, Boris has a wonderful asset. He can play off The North against The South. Consider the next five years, a slow boring plodding economic stuggle to find any benefit from Brexit. Election coming up eventually. But a bit of cash spaffed up north will definitely pay electoral dividends. Possibly cement his position.

Down south he already has mostly >10,000 majorities. What do his constituents want from him? They want him to do nothing - no houses, no roads, just a bit on hospitals and state schools - as they always have. Doing the minimum will keep him safe down there and is cheap, all the more to spend garnering votes up north.

Boris has fallen down the Brexit drain and come up smelling of roses, Lancastrian and York ones, not Wisley ones. For now he's home and dry. As for economic reality, who cares if its put off for another 5 to 10 years.

Mark said...

What "mess" is that?

John Brown said...

HS2 is environmentally unfriendly to build and maintain. It is noisy and very fuel inefficient and so expensive that only the wealthy and those travelling at the expense of the taxpayer will be able to afford it. It doesn’t even go from city centre to city centre.

To not completely waste the £7bn already spent on the project it should be converted to a new broad gauge track (such as Brunel’s 7ft ¼”) to provide the cheap and high capacity transport needed.

Using the aircraft analogy, we need efficient wide bodied jets and not Concordes.

Even better still would be to scrap the 19th century technology of metal wheels on a metal track which is expensive to maintain and go to rubber wheels on a tarmac track. Cheaper and more flexible.

For all options the vehicles should be driverless.

JPM said...

Jim, not quite.

The otherwise-BNP-voters etc. who backed him mistook all the squealing from the so-called liberal elite at the prospect of a Johnson win for meaning that he was on their side.

He isn't of course, things like amnesties for clandestine immigrants have always been on the table for him.

This is quickly becoming clear, and in quite a few northern constituencies the BNP used to poll around six percent. They'd probably have go lots more of late if they'd still existed.

Mark said...

They didn't vote for Boris, they voted against grandad semtex in case you've forgotten

JPM said...

Yes, some did, no doubt Mark.

However, that involved putting a cross against "Conservative".

So whatever was in their minds, the facts are that they voted for them. Our system doesn't allow anything else.

Mark said...

They can look at the ballot paper and select the candidate of choice, or spoil said paper. Or they don't need to vote.

Nobody is forced to vote conservative or anything else.

You despise the tories which is fine. I'm not their greatest fan.

What actually is your point with all this?

JPM said...

It's you who digresses Mark.

I was just supplementing what Jim said, and inviting people to consider the various explanations for the facts of what we see.

Anonymous said...

JPM said @ 10:00

'The otherwise-BNP-voters etc. who backed him mistook all the squealing from the so-called liberal elite at the prospect of a Johnson win for meaning that he was on their side.'

Seriously something wrong with you mate, Nazis everywhere and you're here to point them out like Donald Sutherland's character in that remake of The Invaders. The BNP were - the operative word - socially right of centre but they were very much left of centre on the economy. The white ethnically English working classes have always been socially conservative and it's a cultural thing so suck it up - or fuck off somewhere more to your liking. Politics is downstream from culture and you'd be doing yourself an enormous favour in remembering it.

Steve

JPM said...

Johnson ain't socially conservative, Stevie babe.

That's partly my point.

Mark said...

What were you actually saying in your comment at 08:12?

Everything you say seems to come down to "brexit bad" those who voted for it nazi morons.

Again, fine, it keeps us amused. "Otherwise BNP voters". You can hardly call that a fact.

Mark said...

What's the rest of it?

JPM said...

Yaxley-Lennon can say that he backs Johnson and urge his followers to vote for him. Maybe they did, perhaps they didn't?

But if they did, then do you think that he will keep them happy?

I've no idea how many of them there might be, but it's no use asking you about numbers, is it?

wiggiatlarge said...

Boris does not have a good track ! record with these things, the Olympic stadium 'given' to West Ham Utd after spending more millions altering the place, was described as a "good deal for London" er yes ...

Mark said...

Tommy Robinson supports the tories (conceding the point, I neither know nor care), so what? This is classic strawman and just make Anonymous's point.

What point, argument, position do you actually have except four legs good, two legs bad?

To give you your due, you can often cloak it in entertaining prose - you're a damned site better than a lot of trolls - but trolling is all you do.

Best if you stick to trolling. You should stop trying to divert as you're pretty hopeless at it.

JPM said...

Re-read Jim's interesting post, and grasp to what I was replying.

I wasn't interested in doing anything else.

Mark said...

He didn't seem to see the need to call people "otherwise BNP voters". You did.

If that isn't trolling, then what is it?

Dave_G said...


Whether or not HS2 goes ahead will depend on all the hands in all the pockets of all the 'connected people' that hope to make their fortune from it - including Osborne.

Once again we have a system visibly 'bent' (being the operative word) to the have's against the have-nots and we can do eff all to stop them raiding the taxpayers coffers to line their pockets.

As it ever was, as it shall ever be.

Perhaps BJ should screw his tenure up and give Farage the chance to forge a People's Party to redress the balance. There is nothing else left to us.

I suppose we could demand the media take a look at the corruption but.......

Mr Ecks said...



Jim--like you Cheese--is leftist scum.

Fuck all Treasury "arse-s-ments".

Start by firing the Senior Civil Service scum and abolishing VAT.

Then make a list of all the state antics that benefit middle class Marxist scum like Cheese and can them. Eco-freak subsidies first.

Mr Ecks said...


Oh yes HSR2 scrapped.

Anonymous said...

Anonymous said @ 14:24 9 January

'Seriously something wrong with you mate, Nazis everywhere and you're here to point them out like Donald Sutherland's character in that remake of The Invaders.'

Sorry folks, should have been Invasion of the Body Snatchers:

https://www.youtube.com/watch?v=GEStsLJZhzo

Steve