More Government Spending Isn’t Always The Solution

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There are those who do insist – for entirely reasonable reasons – that more government spending is the answer to every economic woe. Their reasonable reason being that they think that they’ll be the planners deciding the spending and in accordance with Kip Esquire’s law they therefore get to be rich as Croesus. After all, wealth is the ability to decide the allocation of resources, isn’t it. So, you get to do that, even as a bureaucrat, and you’re wealthy.

The opposition to this idea is that government is a terrible manner of deciding the allocation of resources- just look at what the idiots actually do for proof – and therefore we should have less government spending. I am, as perhaps you are, in this second camp.

However, there is a third possible camp. Which is that at times government spending is just what is needed, at other times not. This is to be in the middle ground concerning macroeconomic models. And yet even this position gets perverted:

Rebooting Britain: Economists urge the Government to build its way out of recession

There are reasonable technical arguments against this idea. Given the modern world of permissions, permits and pecksniffs it is not possible to build anything within the confines of one iteration of the business cycle. If we say we’re going to build a railway today we’ll break ground in possibly a decade, spend serious money in two and use it in four. Given that we don’t use armies of navvies with teaspoons any more it’s simply not a useful form of economic stimulus.

There’s more of course:

The Chancellor’s pre-pandemic promises to invest in an “infrastructure revolution” and “level up left-behind regions” have taken on added urgency in wake of the coronavirus crisis, according to the UK’s leading independent fiscal referee.

In a virtual conference call, three representatives of the Institute for Fiscal Studies (IFS) argued that the Government should use the path out of the recession to make the economy more productive – an opportunity they said was missed in the aftermath of the financial crisis.

Central to this effort, said Rachel Griffith, the think tank’s research director, would be spending on infrastructure such as broadband, schools and public transport

Schools are not investment, they’re current spending, as is much public transport – it’s operating subsidies that take the lion’s share of any cash in that latter.

But worse than this we’re back to all problems are solved by government spending. It is possible to make the case that – a la Keynesianism, Old, New or even Proto- – an increase in the budget deficit is a reasonable manner of pulling up out of a demand slump led recession. That same policy does not aid us in coming up out of a supply slump or shock one.

Which are we in now? Supply. Therefore the spend the Hell out of the Exchequer solution doesn’t work, does it? The only argument in favour is that government should be doing more anyway. You know, more of that incompetence that we’ve been seeing recently.

It’s not exactly a compelling argument, is it?

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Bloke on M4ObligatoQuentin VolejghChester Draws Recent comment authors
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Chester Draws
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Chester Draws

They have a solution.

It really doesn’target what the problem is.

Bloke on M4
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Bloke on M4

“Schools are not investment, they’re current spending, as is much public transport – it’s operating subsidies that take the lion’s share of any cash in that latter.” Does anyone think we’re going to be using trains to the same level after this? Over 50% of rail travel is commuting. Even before Covid-19 peak demand had been falling (and there’s plenty of capacity for off-peak, which is growing) and broadband? Which are you going to pick? Apart from 5G competing with fibre, there’s really cheap 4G unlimited sims competing with ADSL. Then do you do you dig up fields to get… Read more »

jgh
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jgh

Agreed, though none of it can be done without a decade of planning and enquiries – several decades for nuclear power.
I’d love the 6-mile missing link in my local railway line to be re-instated. The plans have in place since before 2010 and costed in 2010. When do you think it will get done?

Quentin Vole
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Quentin Vole

Britain’s problem isn’t a lack of water, it’s just in the wrong places – Cumbria, Scotland and Wales, rather than SE England where it’s needed. Some sort of national water grid might be considered. (Could we adapt existing canals to do this?)

Bloke on M4
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Bloke on M4

that might be a good idea, but it’s also about reservoirs. The East of England has plenty of them. Northampton never had standpipes in 1976. Thames are trying to build one in Oxfordshire and buying up houses when they go on sale to depopulate a village (so there won’t be any local disagreement!)

Obligato
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Obligato

FFS if you have to spend just build a shit load of social housing again. You have all the necessary powers. Ditch the bloody town and country planning act, give or lend the money to councils and housing associations, spend some money retraining all those whose jobs have been lost by the lockdown as tradesmen and stand back. No other single measure would benefit Britain more!