Tuesday, 25 June 2013
Hurrah! Keynesian stimulus at last (but not yet)
St Augustine is said to have prayed for the gift of chastity - but not yet. There seems a similar lack in immediacy in the revelation that the coalition is to announce a "multi-billion, six year programme of infrastructure investment," but it is not to start until 2015. Details are to be announced by Danny Alexander on Thursday, 27th June, in what appears to be a "perception management" attempt to mitigate the effects of the unfavourable press which George Osborne's spending review, published tomorrow, is likely to generate.
Saintly comparisons and news management apart, whilst welcoming this conversion, we Keynesian can ask why it has taken three years for the lesson of the 1930s to be learned, and why we must wait another two years for it to be implemented.
The next step is to look closely at the projects to be funded and examine whether they are the ones most likely to have the maximum early effect on demand, employment and growth. It is predicted that the infrastructure programme will involve spending on road, rail and high-speed internet, including the upgrading of the A14, a new Mersey Gateway bridge, and the first tranche of work on the HS2 high-speed railway.
It is well known that improvements to and the upgrading of existing facilities (eg the Northern Rail Network) are more effective in providing employment and stimulating the local economy than new projects, where most of the early expenditure is eaten up by land purchases and lawyers' and planners' fees. So we must hope that the bulk of the expenditure is to be on upgrading rather than on expensive, and arguably unnecessary, prestige projects such as HS2.