Last week Simon Jenkins wrote a article in which he derided the call for a third runway at Heathrow as "big-willy" politics and called for more consumption rather than investment to stimulate the economy. Whilst agreeing with Jenkins's view on the third runway (and I should include HS2 as well, not to mention the renewal of Trident) I believe, having taught the Keynesian multiplier effect ad nausium throughout most of my teaching career, that his preference for consumption over investment is mistaken. Hence:
Letters to the Editor,
sympathise with Simon Jenkins's hint (Big willy politics is the most
dangerous politics of all, 29th August) that "An economic stimulus that
puts money directly into the pockets of consumers through higher
benefits and/or lower taxes," rather than being "possibly immoral,"
might be a good idea, I cannot agree with his assertion that
"consumption,not investment, is today's absolute priority."
every A-level student of economics knows, investment induces a Keynesian
multiplier effect because it creates incomes without, initially,
placing goods or services on the consumer market. Hence employment is
created which generates extra income which creates demand for the
products of other producers, which creates additional employment which
generates extra income which creates extra demand ...not exactly ad infinitum but for quite a while, depending on the amount which leaks out of the economy
Government "give away" achieved by putting money directly into the
bank accounts of consumers, the so-called "helicopter money", is likely
to leak out pretty quickly through expenditure on imported products and
foreign holidays, neither of which will do much to stimulate our own
There is no shortage of worthwhile "pump priming"
projects which will enhance our economic and social well-being in the
future. As your letters page on 28th August demonstrates, there is
ample opportunity for, and few constraints on, desperately needed
investment in housing, and, if Mr Jenkins were to travel on our Northern
Rail network he would soon appreciate the need for an upgrade. To give
just one example, the Trans-Pennine Service provided by FirstGroup is
often grossly overcrowded even at off- peak times.