The pure delight of Howard Reed’s economics

Howard Reed says:
April 10 2018 at 9:45 am
I think the 2017 manifesto was much better than anything Labour had put out since 1974 (I’ll ignore 1983 as that manifesto was a bit of a mess for a number of reasons)

Hmm, OK:

While I would say that commitment to a balanced budget is an obstacle in the way of a good economic policy, it’s not an insurmountable obstacle. One area where John McDonnell was relatively radical was that he committed to large-scale infrastructure spending funded, effectively, by money creation – i.e. the capital budget wasn’t included in the balanced budget rule, it applied to current spending only. I would argue that a very major component of govt spending is actually investment – including not just infrastructure but public sector workers’ salaries, and indeed a large portion of benefit expenditure (it delivers huge returns to the economy in terms of improving children’s life chances, reducing homelessness and ill health, etc). So one option would be a sleight of hand – reclassify most of public spending as capital instead of current and then you could still have a balanced budget rule, it just wouldn’t matter that much as the majority of spending would be outside it and not subject to it.

Spending upon benefits for scrotes is investment. Although what in, other than votes, isn’t entirely apparent.

He also seems to have missed that this was already Gordon Brown’s definition of investment.

20 comments on “The pure delight of Howard Reed’s economics

  1. “Spending upon benefits for scrotes is investment. Although what in, other than votes, isn’t entirely apparent.”

    In jobs for all the children of his useless fellow travellers, no doubt.

  2. His theory is possibly justifiable.

    If welfare payments to “scrotes” makes them financially more productive in the long run.

    Paying higher benefits to a defiantly unemployed family may improve the diet of the children, saving the NHS a bill for treating beriberi.

    Paying a crackhead enough to obviate their need to burgle could save a fortune in police time and court fees.

    The effects of extra welfare spending are hard to identify, and thus calculate, but even extreme cases of government expenditure, such as funding crackheads, could arguably produce a net positive cash result.

    Onus is on Mr Reed to prove his “investment” cases, though, including a comprehensive Opportunity Cost analysis.

  3. Charles,
    The principal objection is that if you subsidise unproductive scrotes, you get more unproductive scrotes.

    After all, if you paid me enough to support a crack habit, I’d quit the 9-5 in a flash.

  4. Brown did nothing but invest in his time as Chancellor, as its well over 10 years since he stopped investing perhaps we should do an audit on the returns before rushing in to even more investment?

  5. @Charles
    “Paying a crackhead enough to obviate their need to burgle could save a fortune in police time and court fees. ”
    I doubt that it would make stop them from doing crime.
    Also history shows us that you never stop paying danegeld.

  6. PS A few years ago I heard about a scheme to pay heroin addicts to stop taking heroin – a friend told me
    “I am a heroin addict, but I stopped, how do I get my money?”

  7. BiND, I always wondered when the NAO and Select Committee would get around to auditing Brown’s investments. When Dodgy Hodgy was in charge, it was obviously never going to happen. But surely there should be some more review of all those PFI contracts now

  8. Isn’t there a more fundamental problem with the “run a balanced budget apart from Capex” meme anyway?

    Where I work, we pay out a reasonable amount of money on things that could be classified as Capex every year. A new forklift truck. Fitting a powered roller shutter door to the workshop. Concreting in part of the yard. A couple of new state of the art welding sets, a new computer to run more powerful 3D Cad modeling etc etc.

    Now, if we ignored all this Capex in the accounts, then just made the books balance, we would be out of business as soon as our backers got tried of throwing money down a big black hole; to maintain a business at a certain level, you have to keep replacing capital items (e.g. we bought a new forklift because the old knacker we were using had terminally blown up). Thus accountants normally depreciate the money invested in tools, buildings, vehicles etc (even some IP), to reflect the rate at which the initial investment falls in value. This depreciation is then considered a cost on the balance sheet, when looking to see if we are making a profit or loss.

    I’ve not yet heard any of the “balance the books, then borrow to invest” types suggest that the book balancing include a depreciation charge for all the investment made to date (to reflect that, roads, schools and hospitals only have finite lifetimes, whilst money handed out in wages is effectively 100% annual depreciation). If they did, maybe they would have more credibility!

  9. (I’m presuming that the “investment” proposed is effectively Capex – as it would be if my employer say bought large premises/new machinery to expand the business)

  10. ‘and indeed a large portion of benefit expenditure (it delivers huge returns to the economy in terms of improving children’s life chances, reducing homelessness and ill health, etc).’

    The U.S. has spent $21,000,000,000,000 on such, and we have double ought nothing to show for it. Except for 11,000,000 invaders who want some. And 40,000,000 citizens with chips on their shoulders who want more.

    Government doesn’t invest: it spends.

  11. I remember Kinnock talking about “investing in old-age pensioners”. He never explained what the financial return was….

  12. theProle,

    Indeed.

    The other thing that never seems to get included is Opex. Whenever I’ve done businesses cases if we didn’t follow a Capex spend with some form of Opex for the expected life (not just depreciation period) we’d soon have investors down on us. In the absence of any concrete costs they’d expect to see at least 10% of Capex pa.

    When was the last time you saw Spud or other Keynsians demanding infrastructure projects even thinking about associated running and maintenance costs?

  13. SE – about £500 a week, more if you need higher amounts of the drug / purer drug to get the same effect. Which tends to happen over time.

  14. Seem to recall that the welsh assembly offered to match funding for a children’s hospital providing campaigners raised a certain amount of the construction costs through private donations etc.
    Once the target was met they started complaining about not being able to afford to staff it etc.
    In the same area they also increased the number of ICU beds, but there was no budget for additional nurses to staff them

  15. BniC – its a problem a number of charities have found. Money to buy equipment, money to build a building – easy to do. Money to pay for staff to run the thing, not so much.

    Have been involved in projects where government promised something. Then you find government change the figures or put restrictions in place that were not initially agreed to.

  16. @ Martin
    I have a fair bit of certain income (pensions) which my wife and I use to live on. I get unreliable bits of earned income, much of which I give to charities, especially those that can use it better than I.
    Regular donations? To my parish church and one of the missionaries who was at college with my little sister (the other retired a few years ago) and a couple of trivial ones that weren’t so trivial when I was young – but I’m not making any new commitments as my income has halved, relative to inflation, since I was middle-aged so I cannot maintain the previous level of giving or guarantee that I can maintain the current level.
    Of course people make one-off donations rather than commit themselves to a regular amount that they are not able to guarantee.
    Talk to the charities – suggest that they appeal for a three-year commitment rather than an indefinite one and see how many donors will roll-over for a seond, even third three-year term.

  17. @ Martin
    Second of your points.
    For the last# three or four years that I lived in the City, my wife and I volunteered once a week at St Botolph’s Centre (not being good with people I just handed out mini-soaps and single-use razors to the guys who came to use the showers to get clean rather than for a hand-out – I think that was most of them because there was always a queue until closing time). Later a local council promised funding to massively expand its ability to help the poor and contributed chunk of the funds to build an extension to the crypt then after a few years cancelled leaving the charity with overhead costs far in excess of its income (or even the total income of the few dozen residents in the parish) so it folded leaving the neighbourhood much worse off that it had been before.

    # Didn’t know about St Bot’s when I started, belatedly briefed by a volunteer (retired Brigadier) whose role was comparable to mine

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