Nope, Ritchie still hasn’t got it

Second, they can seek to boost their revenues. The only sure way to achieve this is by growth and on this issue there is a massive difference of opinion between Labour and the Conservatives that should be highlighted as the core of what Labour is saying if it wants to create electoral space for itself. The Conservatives think that cutting government spending boost the economy, even in a recession. Labour thinks that in a recession government spending boosts growth. Put technically, the Conservatives think the multiplier on government spending is less than one and Labour thinks it is more than one, as (now) do the IMF and OECD. That’s all this debate is about: this is the difference in philosophy explained.

But that that means is that Labour can say training pays back in tax yield.

And investment to increase housing, business, transport, broadband and energy all pay back in tax paid.

And so these activities do not drain the Exchequer, they return money to it because they deliver growth of more than the sum that the government spends and so they boost government income and so they actually are the way to balance the books. Not maybe today, but quite emphatically over time.

Nope, there really isn’t a magic money tree.

Efficient investment works this way, inefficient investment does not. There is in fact no “government investment or spending multiplier”. There is indeed a “let’s build a really useful railway line between Bristol and London” multiplier and there’s also a “let’s build a railway from one end of Ritchie’s garden to the other” one. What we call that government multiplier is the average of all of the things that government does. My own suspicion, one I’d not like to have to prove, is that there’s no government specificity to such spending. If something’s a good idea then if the private sector does it then it’s profitable and that’s precisely and exactly akin to the multiplier we talk about if government does it. And if it’s a bad idea then it’s unprofitable or the multiplier is less than 1 or, given some of the things the Murphaloon talks about, negative.

What Murphy has forgotten, if indeed he ever knew, is that the multiplier is conditional on the project being a good idea in the first place. It’s not true that gaily spending more money grows the economy. What on matters.

12 thoughts on “Nope, Ritchie still hasn’t got it”

  1. “My own suspicion, one I’d not like to have to prove, is that there’s no government specificity to such spending”

    Perhaps in the way it’s financed? Tax has its own negative multiplier, because it’s (mostly) raised by taxing employment, profitable businesses or transactions. That’s probably more of a damper than any crowding out of other projects by a private sector project borrowing in normal financial markets.

    So I’d guess a government project has to generate more of a profit than a private sector one. But that’s only a guess.

  2. And oddly, allowing government departments to balloon with Diversity Outreach Coordinators doesn’t appear to generate much of a return. Yet demented Lefties would call this “investment”.

  3. But that that means is that Labour can say training pays back in tax yield.

    Proper, effective training in in-demand subjects will pay back in tax yield. Guess what government supplied or funded training rarely is?

  4. There are plenty of things with enough positive externalities where they would make a profit (in the sense of increasing the overall size of the economy and thus the tax base) for government but not for a private company because they can’t collect on the value.

    The railway line is actually a good example; transportation infrastructure has strong positive externalities.

    The early Victorian railways, before the bubble flooded the market, made profits because the overall BCR was so high that even the fraction they could collect through fares was still enough to make money.

  5. And oddly, allowing government departments to balloon with Diversity Outreach Coordinators doesn’t appear to generate much of a return. Yet demented Lefties would call this “investment”.

    It is: it is providing demented Lefties with jobs.

  6. It is: it is providing demented Lefties with jobs.

    Indeed, it’s welfare, simple as that. I’m of the opinion that if we are going to have make-work programmes, at least aim them at the young, strong but dim males and get them to produce something which is both good and can be used (even if it’s not economical compared to importing), i.e. bricks, steel, etc.

  7. Even if you think there is s multiplier >1, there’s no way that means that the government gets back in tax more than the amount of expenditure, as Murphy seems to claim. That would require a multiplier well over 2, which would indeed be a magic money tree if it existed. But it does not.

  8. S&P concluded that fixing roads would have a multiplier >2 for the UK, but part of that conclusion was because our roads are particularly bad and congested.
    The inefficient way we pay for winter fuel allowance clearly has a multiplier less than 1. So would implementing a financial transaction tax.
    It depends on what, and when.
    Which is what Tim said.

  9. Bloke not in Cymru

    I notice that he mentions but skirts around the timing issue. Gov’t investment may well be better option in some cases as private companies don’t want to invest in generational or greater returns. Investing now to balance the books in 30 to 50 years time is a tough sell to politicians of today.

  10. I – and as y’all know, I are not an economist – thought that the term was “return on investment”, which as our gracious host points out can vary depending on how well-placed the investment was.

    A good thingy can show a good RoI, and hopefully the Helpful State will get some useful but preferably minor slice of the goodies. A bad thingy often results in total loss of the investment..

    Incidentally, and only somewhat off-topic, has anyone else noticed the thing that I have? In all the companies I have been employed (I am an humble salaryman, not a mighty independent remaking the world) , spending money is always referred to as ‘investment’. Never ‘expenditure’, which it most often is. Is this ‘legal’, or just ‘pretentious’?

  11. Tim Newman (and others)

    That’s the third pillar of the Corbynite support – Public Sectior workers, immigrants and the un (or under) employed – looking at their first by- election victory though I think they may use stuffed ballot boxes and massive postal vote fraud to get results – I don’t think Corbyn should be underestimated – he is supported by some of the most dangerous and ruthless people in Britain, and as you point out, what does a diversity co- ordinator have to do other than foment trouble?

  12. Surreptitious Evil

    Never ‘expenditure’, which it most often is. Is this ‘legal’, or just ‘pretentious’?

    It’s certainly ignorant. Some revenue expenditure may be ‘investment’ and some capital expenditure may not be – I can think of examples of both.

    But a new factory is investment (wise or otherwise) and more stationary is simple costs of doing business. And your Corporation Tax return requires you to differentiate between purchase of assets, costs of delivering goods or services and the costs of running the business.

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