Way to bolster that economic credibility there

Labour has a “fight on its hands” to win back economic credibility , shadow chancellor John McDonnell has admitted.

In a speech to the London School of Economics on Tuesday evening, McDonnell said Labour needed to move “away from the image of a party which thinks only about how much it can spend, to a party that is focused on how we earn”.

“We need to begin by underlining our commitment to bringing the government’s day-to-day spending into balance. We know the importance of borrowing for investment, which lays the foundations for future economic prosperity,” he said.

“Few things are more urgent than delivering the infrastructure our economy is crying out for, infrastructure which pays for itself by expanding economic activity and raising tax revenues.

Invoking Ritchie’s magic money tree doesn’t really reek of economic credibility.

42 thoughts on “Way to bolster that economic credibility there”

  1. infrastructure which pays for itself by expanding economic activity and raising tax revenues.

    I can think of one: a single lane highway which runs straight off a cliff on which ministerial and other government vehicles travel at full pelt.

  2. Plenty of infrastructure pays for itself. The M6 Toll (£5.50 each way), the M4 Severn crossing (£6.60 westbound only), even the Skye bridge (£11.40 return until political pressure led to the tolls being scrapped).

    Indeed, the fact that thousands of Welsh travel to England every day for work (where presumably they can earn higher wages and thus pay more taxes) suggests that not only can infrastructure pay for itself, it can also pay for other nice things.

    On the other hand, when politicians claim to “invest” in the NHS, that’s just Westminster-speak for “spend”.

  3. well he’s overstating it, and of course there’s well chosen and badly chosen infrastructure, but he’s not barking mad. This is a result from low income countries (but interesting because of credible causal identification) “The
    analysis finds evidence of “crowding in”: an extra dollar
    of government investment raises private investment
    by roughly two dollars, and output by 1.5 dollars”
    http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2014/02/18/000158349_20140218101819/Rendered/PDF/WPS6781.pdf
    so short of paying for itself, but getting there. You might be tempted to argue returns higher in capital scarce low income countries, but remember so will efficiency and quality of investment.

    anyway, the alternative is a conservative government that let public investment fall during a recession when any fool knows that’s the time to ramp it up (and cut recurrent expenditures if you need to balance books) so on the credibility front I’d rather lean Labour on this point

  4. So Much For Subtlety

    Luis Enrique – “This is a result from low income countries (but interesting because of credible causal identification)”

    The first railway line from Edinburgh to London probably made money. The second one might have too. The thirteenth probably would not.

    Low income countries are poor comparisons. They have no infrastructure. Britain has all the roads and airports it could need. What do you think could be built that has not been built? We are closing railways rather than opening them.

    Even the airports – look at the impossibility of building anything in the UK. How many years have they wasted desperately avoiding an unpopular decision on Heathrow?

  5. Some railways are still being built, for example the Borders railway.

    Whether it should have been built, or whether a private company would have built it, are of course different questions….

  6. the M4 Severn crossing (£6.60 westbound only)

    See, people are willing to pay to enter Wales. They simply couldn’t get people to pay to enter England.

    (At least, this is what we all said back when SS2 was built.)

  7. Actually, the SS2 seems to have been a half-decent infrastructure project: it solved a genuine problem, it works better than the original one, it was built well and on schedule after a proper consultation, and it doesn’t look bad at all. It appears to have been built and financed privately, too.

  8. Exactly, TN. The government should build infrastructure because it solves a problem/it is needed.

    Building infrastructure because “it will make money” is sophistry.

    ‘the infrastructure our economy is crying out for’

    Stoopidest metaphor evah?

  9. “an extra dollar of government investment raises private investment by roughly two dollars, and output by 1.5 dollars”

    Last time I checked, the extra dollar of government investment is money taxed out of private hands.

    I would think that the state doing the things it should be doing ie rule of law/property rights, to create the conditions making an investment possible is all that is needed.

  10. “an extra dollar of government investment raises private investment by roughly two dollars, and output by 1.5 dollars”

    But doesn’t the tax to pay for it – at the marginal levels we’re at – reduce output by between 1.5 and 3 dollars for each dollar? So a government infrastructure project has to be very profitable to give a net benefit.

  11. See, people are willing to pay to enter Wales. They simply couldn’t get people to pay to enter England.

    Or on the other hand, just think how much extra they could have charged if they’d put the tolls on the way out!

  12. “Few things are more urgent than delivering the infrastructure our economy is crying out for, infrastructure which pays for itself by expanding economic activity and raising tax revenues.”

    The shadow chancellor said that… in public.

    OK, wogs, it’s quiz time: Explain to me again just how stoopid we Yanks are for ending up with Donald Trump being involved in politics…

  13. How can anyone find fault with a politician publicly stating that “But still we need to look deeper at the fundamentals of our economy, how assets are owned and shared, how wealth is created and by whom.”? Considering whether a specific project is actually a good move economically is something I’d like to see in far more politicians.

    “OK, wogs, it’s quiz time: Explain to me again just how stoopid we Yanks are for ending up with Donald Trump being involved in politics…”

    That is easy. Trump is a megalomaniac so his choice to enter makes perfect sense. We have a fairly open system in which anyone can choose to run so nothing stops him. Legally there is nothing to stop the Trumps of the world from entering politics.

    His popularity is a completely different story. Currently we have two parties. One has acted like a group of toddlers that just learned the word no for the passed eight years. The other doesn’t know what it wants to do as a collective but feels they should be in charge. Both Trump and Sanders have clear visions to do something which, after the mess of the last eight years, is more important than what we do.

  14. ‘One has acted like a group of toddlers that just learned the word no for the passed eight years.’

    They have not said “No” nearly loud enough. Many “HELL NOs!” were in order.

  15. Hmm. The government spends money building a motorway network, that makes long-distance transport more economic, generating larger profits for anything related to transport, those larger profits generate more tax (even at the same percent) that pays for that infrastructure investment. How is this any different to building a factory so I can then make money by making things in that factory?

  16. Luis

    This:

    “anyway, the alternative is a conservative government that let public investment fall during a recession when any fool knows that’s the time to ramp it up (and cut recurrent expenditures if you need to balance books)”

    is very interesting. I always feel though that “cut (always unnamed) recurrent expenditures” is very easily said. So, would you care to elaborate?

  17. John McDonnell said: “We know the importance of borrowing for investment”. He is a better Shadow Chancellor than most for urging this, but the emphasis of the claim is as much on the method of paying as the investment itself. Other funding methods are available, tax rises, or spending cuts elsewhere ( my personal favourite ), and others. And it’s for emphasising that borrowing is the way to do his investment thing to get roads fixed that marks him down as 50% of a lunatic.

  18. As always, I have to ask the obvious question, just what infrastructure spend is not being incurred – Crossrail, massive works on the M1, houses being built to the extent that resources are constrained, plus the redevelopment of large chunks of London (Marylebone, the City, University Hospital). Just what are these infrastructure projects that are not being started? HS2? Heathrow runway? Reluctant as I am to agree with SMFS, there don’t seem to be plans to build any more roads or airports.

  19. You don’t have to be a complete economic idiot to be a labour supporter.

    Merely being a complete idiot is sufficient.

  20. Most idiotic thing I saw today on Farcebook, which is in the runnings for the most idiotic thing I’ve ever seen:

    “You don’t hate Mondays. You hate capitalism”.

    Srsly, wtf? This is from someone of the now dominant tendancy within the Labour party.

  21. “What do you think could be built that has not been built?”

    The Heathrow-to-Reading-and- thus-the-rest-of-the-UK-outside-London rail link. All it needs is a junction to let trains run west on the Bristol-Paddington line instead of going east to Paddington.

  22. Alex and dearieme, I agree, but are they on an agenda? It makes sense to link Heathrow, Gatwick, Stansted on a loop that connects with main lines. That is not on the agenda. Do you know why? How much would it cost to link Heathrow to Reading with a high speed line? However it probably goes straight through Wokingham, perhaps the most disturbing urban environment I ever saw. I am glad I did not get the job. In retrospect. It was classic pay high and encounter zombies in the car park.

  23. ‘How is this any different to building a factory so I can then make money by making things in that factory?’

    Motorways already exist. There is no incremental increase in tax revenue from a new road.

  24. Diogenes,

    > “there don’t seem to be plans to build any more roads”

    That there are no plans to build more roads is proof that we have enough? Do you really think we’re living in Goldilocks land, where the number of roads is neither too many nor too few, but just right? With such flawless logic, perhaps you should sign up for the Labour Party.

    Sticking to roads that I vaguely know, the M4 around Newport needs widening; the M4/M5/M32 around Bristol needs unblocking; the A-roads to Devon & Cornwall need upgrading; the A14 needs upgrading; the A1 needs widening; and so on. I’m told Edinburgh needs another Forth Bridge; that Reading needs another bridge; that east London needs anothe bridge or tunnel. London itself could do with a real South Circular road. Beyond that you’re getting into diminishing returns; but there are lots of potential projects with positive cost-benefit ratios.

    Perhaps you’d argue that they aren’t strictly “needed”? You’re right: the greater economic opportunities afforded by improved infrastructure are pretty high up on Maslow’s pyramid. But the point remains: infrastructure can easily fund itself through economic growth. It’s perfectly valid to fund it via borrowing. Since nobody likes sitting in a traffic jam, it should be an easy vote-winner too.

  25. So Much For Subtlety

    Andrew M – “Do you really think we’re living in Goldilocks land, where the number of roads is neither too many nor too few, but just right?”

    There will always be a few marginal projects that would make life better for someone. For instance I could do with an underground station just around the corner. And a link to the EuroStar at my local railway station. It ain’t going to happen. We probably aren’t at a Pareto Optimum, but I would not be surprised if we are close. That is, building anything new would hurt as many people as it would help. Sure we could remove all the barriers to new building, but those barriers are there because a lot of people know they will suffer if something new is built. Which is why H2S is never going anywhere.

    “Sticking to roads that I vaguely know, the M4 around Newport needs widening; the M4/M5/M32 around Bristol needs unblocking; the A-roads to Devon & Cornwall need upgrading; the A14 needs upgrading; the A1 needs widening; and so on.”

    So basically upkeep and maintenance. Not a new road. There is no part of Britain that is not connected to some other part of Britain by quite decent roads. We can fiddle at the edges. No more. So the economic case for new roads is not strong. If Nigeria built a good road from north to south it would have a huge impact – as the railway did when the British built it. But another north south road in the UK would have marginal benefits at best

    “But the point remains: infrastructure can easily fund itself through economic growth. It’s perfectly valid to fund it via borrowing. Since nobody likes sitting in a traffic jam, it should be an easy vote-winner too.”

    If you think it can fund itself through economic growth I would like to see a reason why you think so. It is not a vote winner because no one votes for it. Or at least the benefit is national and diffused, while the costs are very local and concentrated. You know, where politicians are elected. So a bigger Heathrow might benefit all of Britain, but it would not benefit the MPs elected from under the flight path.

  26. dearieme
    “A decent road from Norwich to London would be welcome.”

    No, no – we want to cut off all communication between Norfolk and the rest of the world, not improve it.

    Well, Downham Market is the target, but I’m afraid the rest of Norfolk will have to suffer in a good cause.

  27. “Motorways already exist. There is no incremental increase in tax revenue from a new road.”

    Gamecock I see your basic statement and raise you an example of an area that desperately needs transportation improvements.

    The Mon Valley section of Allegheny county is an economic shit hole. Currently in many municipalities $10,000 will buy you a house in decent condition. Much of this area is within 20 miles of downtown yet anyone living in the area needs to plan for at least 50 minutes of travel time in non-peak hours.

    Currently the only motorways in this area are the Hayes Bypass*(1.4 miles including the Glenwood bridge with no connections other than surface streets), the Triboro Expressway(5 miles long at most with no connections other than to surface streets), and the northern terminus of the Mon-Fayette Expressway(which doesn’t connect anything really useful). Adding approximately 30 miles of new highway to connect the currently useless existing highways to the network which serves downtown would open the entire area to economic redevelopment. Additionally plans call for a Squirrel Hill Tunnel** bypass which avoids the largest bottleneck in Pittsburgh’s highway network.

    I can cite other transportation projects in the Pittsburgh area that significantly improve the local economy. South Carolina almost definitely has different needs so it is possible that there just are not projects that make sense there.

    *I once got out of a speeding ticket on the Hayes Bypass. There are no speed limit signs on the Bypass. Under Virginia law when I learned to drive any unmarked divided highway had a 55mph speed limit. The officer that pulled me over assumed that the speed limit was still the same 25mph as the local street at the end. When I quoted the Virginia law and asked what the Pennsylvania law was the officer admitted that it was an unmarked divided highway and he had no clue what the law was. In retrospect I got lucky but being a well dressed white guy still has some advantages.

    **On one occasion I wasted over 2 hours trying to go less than 2 miles(about 3km). Rush hour delays commonly approach an hour thanks to Yinzer’s irrational fear of the tunnel monster.

  28. SMFS,

    Rebuilding junction 6 of the M42 will cost between £250m and £500m. Widening the M1 is costing over £20m per mile. These aren’t just upkeep & maintenance – this is serious capital investment, aimed at expanding capacity and getting more people and goods to their destinations faster.

    How does it fund itself? When the second Severn crossing was built, thousands more people from south Wales gained access to the Bristol job market and were suddenly able to earn higher wages. At the same time, companies in south Wales were able to deliver goods further and more cheaply, thus making them more profitable.

    Higher wages and more profitable companies means more tax raised. That pays back the public money borrowed to build the infrastructure. (Or, in the case of the M6 Toll, the user fees repay the private borrowing.) Individual projects will vary in terms of their ROI, but the principle remains the same.

  29. abacab,

    What does that even mean?

    I think I know and it’s dumb delusion that under socialism we will be richer and only work 20 hours a week.

    No one on the left understands the principle of scarcity.

  30. There is definitely an urgent need for some decent roads in the UK. Anywhere else there would be a case for public investment. But this is the UK. 10 years in the planning stage. 10 years to build. When they are built, they’ll be totally inadequate & mostly closed for roadworks.
    It’s very hard to connect the concept of “investment” with this but, as yet, the english language has been unable to come up with a more suitable word.

  31. It’s very hard to connect the concept of “investment” with this but, as yet, the english language has been unable to come up with a more suitable word.

    “fraud” would come close, outside the public sector.

  32. John McDonnell is probably referring to the self-financing effect of Land Value Tax: you build a transport link, land values go up all around it, you tax these rises and this pays for building the link.Even right-wingers were proposing that this should have been done with the Victoria Line.
    McDonnell is a member of the Labour Land Campaign, president Dave Wetzel ,formerly of Transport for London , who hoped with Fares Fair to make property tax revenue ,ideally from LVT pay for very cheap transport.
    Tim Worstall would, no doubt, approve as his LVT allegiances derive from Adam Smith.

  33. I’m told Edinburgh needs another Forth Bridge

    Being built and is due to be open by the end of the year.

    The site entrance has the banner “This is what Civil Engineering looks like.”

    DBC – McDonnell is a marxist. Given that, who cares what other fringe groups of nutters he belongs to?

  34. So Much For Subtlety

    Andrew M – “Rebuilding junction 6 of the M42 will cost between £250m and £500m. Widening the M1 is costing over £20m per mile. These aren’t just upkeep & maintenance”

    Yes it is. Expensive upkeep but they are not building anything new. Roads need to be repaired. And we don’t do it well or cheaply.

    “Higher wages and more profitable companies means more tax raised. That pays back the public money borrowed to build the infrastructure.”

    That is the theory. What is the practice? Anyone can get the second most junior engineer to cook the figures until a favourable ROI appears. But it doesn’t mean it is true.

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