Saturday, 29 August 2015
Stop press: the latest on PQE from the Murphmeister.
Richard Murphy is the brains behind peoples’ QE, though it’s debatable as to how appropriate the word “brains” is. (Incidentally peoples’ QE is the idea that the state should print money and spend it on infrastructure.)
Anyway, the latest pronouncement from the high priest of PQE is that PQE is appropriate for Britain because the Murphmeister (as Tim Worstall calls Murphy) has decided the Britain needs more investment, whereas PQE is not appropriate for China because China has an excess amount of investment. I smell confusion of issues.
He says that printing money and spending it on a general increase in demand is not appropriate because: “…if we were to do it almost all the benefit would flow to China via a short term spending spree with no long term benefit to the UK at all.”
Well you wouldn’t think it, but Murphy is an accountant. And as every clued up accountant knows, when there’s an increase in demand for anything, that induces a proportion of relevant producers to invest more! Put another way, when applying to a bank for a loan to make an investment, there’s nothing that induces the bank to make the loan like the sight of hoards of customers coming thru the front door.
Thus the suggestion that a general increase in demand does not lead to more investment is plain nonsense.
That “more demand leads to more investment” point certainly applies to the PRIVATE sector. But it should also apply automatically to the PUBLIC sector, assuming those who do investment appraisal in the public sector know what they’re doing.
Moreover, while obtaining the funds for investment from printed money rather than money obtained by borrowing (or tax) may have some effect on the amount invested by the PUBLIC sector, the decision to implement one option or the other probably has NO EFFECT AT ALL on investment in the PRIVATE sector.
Do we need more public sector investment?
And where is the overwhelming clear evidence that we need loads more public sector investment? There’s a huge amount of debate over whether the proposed £30bn HS2 rail project in the UK is worthwhile. As to roads, the traffic flows pretty freely on 90% of roads 90% of the time in the UK. Of course that’s not the case in rush hours. But then if you build so much road that traffic flows freely in rush hours, then there’s over-capacity at other times.
As for the channel tunnel, the original investors have lost nearly all their money.
One of the biggest investment items in any country is housing. In the UK there’s certainly a shortage of housing, but the reasons for that shortage are complex and much disputed. One of the favorite explanations is local government refusal to allow building on agricultural land brought about by pressure put on local governments by people living in agricultural areas who don’t want loads of new houses in their area.
Thus it’s not clear that funding state owned houses by “print and spend” rather than “borrow and spend” or via tax would make any difference.