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Monday, December 15, 2008

Andrew Rawnsley, investment, and Keynes

If we're going to spend, then let's invest in Britain's future

Rather than encourage people to squitter money on imports, the government should build us an infrastructure fit for this century.

Andrew Rawnsley
The Observer, Sunday 14 December 2008
Andrew Rawnsley: If we're going to spend, then let's invest in Britain's future | Comment is free | The Observer

This article by Andrew Rawnsley in the Observer today argues for classic Keynesian investment spending, on the grounds that it will benefit the economy in the long term as well as the short term.

A popular way to look at this Keynesian solution is to see an investment gap in a downturn where the private sector is not investing. Government, it is argued, should step in and fill the gap. One issue this raises is what happens in the next period? The investment has raised the productive capacity of the economy - which could mean there is a larger gap! But dedicated Keynesians would probably argue this is in fact not actually a very dynamic way of interpreting the General Theory.

I believe there should be a focus on investment spend - as long as it helps keep unemployment down. The key focus for policy should be employment.

1 comment:

Labour Matters said...

The problem with the notion that we should invest in infrastructure is that (a) we have been doing that already - just look at all the new hospital and school projects; and, (b) that it takes a long time for new capital investment to feed through to the real economy.

But take a look at today's FT and you'll see that those who service the public sector are having a much better time of it than those who do not:

This is revenue being used, rather than capital (although capital spending continues apace), but it's having immediate effects.

With the short term threat of deflation, rather than inflation, this is the right approach.