Wednesday, 28 July 2010

Investment: the moron’s answer to the recession.

Escaping a recession involves giving a boost to spending in some shape or form: extra private sector spending will do as well as extra public sector spending. There is also a choice between extra current spending and extra capital spending.

Extra capital spending is daft because it takes anything between roughly a year and three years to get capital investment projects going, by which time we may be in the middle of the next boom!

Moreover, in a recession (certainly in the early stages thereof) there is a SURPLUS of capital equipment lying idle. Just to expand on that for the benefit of morons, when a car plant closes for lack of orders, the relevant building and machinery don’t disappear into thin air!

In addition, when current spending goes up, the businesses affected are not run by morons: that is, they can work out for themselves if demand for various products has risen by enough to warrant additional capital expenditure.

Unfortunately though, every time we have a recession, a range of cranks come out of the woodwork each advocating their own bizarre selection of preferred investments. Many of these investments may well be worthwhile, but they have nothing to do with escaping recessions.

It is thus a pity to see the pro-deficit Robert Skidelsky advocating investment in the Financial Times this morning.

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