Realist, not conformist analysis of the latest financial, business and political news

High GDP Growth With Low Business Investment Is A Good Thing, An Efficiency

The UK economy seems to be growing reasonably, the best for a couple of years at least. It’s also growing rather better than the eurozone, although obviously not as fast as all national components within that average. So, what’s wrong with what is going on? Leave it to The Guardian to get the point wrong:

The UK economy accelerated to its fastest quarterly growth rate in almost two years over the summer but economists warned that with Brexit uncertainties curbing spending, the performance would soon decline.

The amount of goods and services produced in Britain grew 0.6 per cent in the third quarter of the year, following 0.4 per cent in the previous three months, and considerably higher than the recent trend.

Well, that’s good, that’s nice. We’re getting richer. The peeps have more choices, more economic activity is going on so consumption possibilities are rising. That is good, that is nice.

Services, which make up three-quarters of the economy, only grew by 0.3% in the three months to September.

After a slow start to the year, construction activity grew by 2.1% in the quarter. Manufacturing also picked up after a slow second quarter, thanks to strong car manufacturing numbers for the quarter.

Household spending grew by 0.5% in the quarter, but business investment shrank by 1.2%, suggesting uncertainty among companies over the effects of Brexit.

And that’s where The Guardian’s error is going to come from:

UK GDP: growth hits near two-year high, but business investment shrinks – as it happened

It’s that “but.” We use that in English to say “Here’s the good news, but, here’s the bad news.” And the error here is to think that declining business investment is a bad thing. It isn’t, just as with things like declining public investment in infrastructure, to offer another thing the G whines about. You know, Britain spends less on bridges and roads than other countries, woe is us etc.

Investment is a cost, an input into the production process. It’s entirely true that we have observed patterns over the past where more investment means more economic growth. But it’s that growth we want, not the investment. If we could have growth without any of the cost of the investment at all we’d be absolutely delighted. For it would mean that we can consume all production and not have to save some of it to invest.

Lower public spending upon infrastructure while still gaining infrastructure is an excellent outcome. Economic growth without business investment is similarly A Good Thing.

The Guardian is actually complaining about how we’re gaining greater output while consuming fewer inputs, an increase in efficiency and productivity. Efficiency and productivity being the very things which make us richer over time. But then, you know, The Guardian and economics. They’ve not really understood the subject since they left Manchester – either the place or the school of thought.

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