Investment or Consumption?

 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,
The Guardian.

Dear Sir,

While I 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." 

As 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

A 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 economy.

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.

Peter Wrigley