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.