You what?

It is frequently asserted that there is no money to finance investment. But the government can now borrow long-term funds at less than 2.5%, and returns on investing in affordable housing would be treble that. Similarly, the OECD has identified increased investment in higher education as a way to reduce the deficit, given the much higher tax returns from a highly skilled workforce. Investment in rail also yields very large returns.

I don\’t know where they get that number for affordable housing from but the other two are nonsense.

The earnings premium for a degree still exists, yes. But it\’s falling rapidly. Something which is an indication (although not proof) that the earnings premium to the marginal degree is negative. This is already true on average for male arts degrees (that is, degrees in arts done by males, not in the male arts) so the marginal experience, as we send yet another 18 year old off to study third rate novels at a fourth rate institution must certainly be negative.

And investment in rail: well, it might, if any project ever came in on time or budget. Which they don\’t which is of course why Network Rail continually makes horrendous losses (yes, I know they declare a profit, £400 million odd last time, but that\’s after the £3.7 billion subsidy).

This is one of the reasons I\’m soadamantly against \”Keynesian\” economics, the political version at least. I\’m willing to believe the bit about animal spirits and the like, but whenever we get to talk about what the money is actually spent upon the proponents seem insistent on simply pissing it away and lying while they do so.

Just not a good basis for public policy that.

6 thoughts on “You what?”

  1. If getting a degree means higher earnings, then surely the educationalists would be in the primaries and secondaries preaching this so that people see tertiary education as an investment for themselves and so not be put off with three years of fees in exchange for 4 decades of higher income.

  2. Even if it does provide a return on the investment, the problem with education is it takes years to realise it. And of course qualifications only act as a means of sorting candidates, beyond a certian degree of education. Hence the fallacy Tim’s pointed out.

    The general problem is that these people think you can raise the average income. This is impossible- at least, without printing money. The velocity of the liquid money supply is pretty much static, so all you’ve ever got is M divided by the working/profiting/rentiering population, and your tax take is some percentage of that, however you levy it. People like the writer of the article think you can generate a general increase in wages and thus a general increase in taxation of incomes, and that just isn’t true.

  3. “as we send yet another 18 year old off to study third rate novels at a fourth rate institution must certainly be negative….”: well, send them all to Cambridge to read Engineering. Easy, innit?

  4. Hey, if you can get 7.5% return by investing in affordable housing, or ‘very large’ returns by investing in new railways, where do I sign up?

    Silly me, I forgot, this is a Leftist ‘investment’, so the ‘returns’ are strictly non-cash.

  5. A slightly weird question that’s related to this entire concept of “borrow to increase GDP”:
    The GDP figures include the borrowed spending – or am I way off?
    (Government spending is a direct component; the transfer payments will crop up in “private consumption”, so reduction in public spending will give a reduction in the value of this figure. If Government is borrowing 10% of GDP, 10% of the GDP is in fact a “borrowed” figure; halving borrowing would give a -5% impulse to GDP – ceterus paribus – because that’s exactly what it’s measuring).

    Now, a component of the borrowing is domestic, but any component of the borrowing from overseas surely shouldn’t be viewed as our GDP? Or does this get put as an explicit import?

    In short – if government spending from overseas borrowing were to drop by £x billion in a year, would that equate to an undeserved drop of £x billion in UK GDP? As the previous value for GDP would include a borrowed component that’s no longer there?

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