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Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

If the project itself would add value then it should be built, recession or no. And if it doesn’t add value then it shouldn’t be built, recession or no. There is no room left for the argument that it should be built because recession.

Tim Worstall, on the ASI blog writing “Keynesian infrastructure spending might not be the answer you know

9 comments to Samizdata quote of the day

  • Mr Ed

    The very word ‘recession’ has in it a clue to the origin of a recession, the receding effect of a tide of fiat money. A recession results in the underlying economic reality revealing itself slowly, as the distortions of fiat money fade. The nostalgia for the ‘boom’ with all its absurd, feel-good, implausible effects and illusion of prosperity is the terrible danger, as politicians and inflationists urge us to repeat the previous mistakes. Sadly, the message that markets can clear absent interventions is all but unheard. Hardly any politician would admit to not being able to ‘fix’ things, to ‘manage’ the economy. The 1960s Wilsonian fantasy of levers to be pulled and an economy directed is the dangerous spectre, it brings with it minimum wages, price controls, caps or collars, tax incentives or penalties and ultimately rationing.

  • Lee Moore

    Up to a point Lord Copper.

    1. In recessions, both the costs of the project (including finance costs) and the expected returns from the project are likely to have changed from the calculation before the recession began. On average, expected returns will have fallen faster than costs…..which is why there’s a recession in the first place – people don’t want to invest because they don’t foresee profits from doing so. But for some projects, recessions may be a very good time to invest, if eg if costs have fallen faster than expected returns.

    2. Investors who shrewdly calculate which projects have become particularly good value as a result of the recession – eg because they have correctly perceived that the market is now too pessimistic about expected returns – tend to get rich.

    3. It would be unwise to assume that those rare good recession investors are to be found manning the government bureaucracy in times of recession (or at any other time.)

    4.So the answer is – avoid government investment in infrastructure at all times, and leave it to private investors.

    5. However, seeing as that’ll never happen, we should note that as far as government project costing is concerned, there is a sunk cost – the welfare paid to people who could be employed on public works. This is an ounce or two to be thrown on the opposite side of the scale to the heavy weights we are all familiar with when it comes to public works – sloth, inefficiency, muppetry in negotiating contracts, graft, unions, stupidity, lack of competition, poor planning, countless changes in plan, politics, and did I mention graft ?

  • Regional

    I want to thank you Europeans.
    In Astraya you can buy European cars at zero percent interest which means you can dump your surplus production putting local plants out of business.
    But here’s the rub. The interest free loan covers the whole purchase price where as the car is say 50% and the other 50% covers stamp duties and distribution costs. In reality the Europeans are receiving half the money back and you reckon the Greeks are effwits.

  • Laird

    Therein lies the central fallacy of Keynesian pseudo-economics: that money can be properly managed by a handful of mandarins at a central bank. But the truth is that central management of monetary policy by the governments of (putatively) free nations can be no more effective than is central management of industrial policy by communist ones. The latter delusion brought down the Soviet Union; the former one will bring down the west.

  • Paul Marks

    Mainly good comments – and a good post.

    Government spending (financed by the threat of violence – or by creating money from nothing) is nothing to do with “investment” (any more than printing money is “savings”).

    J.M. Keynes was not a real economist – he was a pusher of nonsense.

  • Surellin

    I suspect that “stimulus” was a much more possible thing back in Keynes’ day. There was plenty of road-paving and electric-wiring to be done, and it could be done quickly. Nowadays “shovel ready” projects aren’t truly ready until they have been submitted to the neighbors, had an archaeological and environmental survey, etc. By the time some actual infrastructure stimulus could occur, we’ve moved on into the next recovery. At least.

  • Surellin,

    And what would you build today that counts as useful infrastructure? I can’t think of much. We’ve got plenty of modern schools, hospitals, good roads, fast enough rail networks, electricity, water and telecoms. I can think of a few roads that should be dual-carriageways, but Nuclear power is about the only thing that we need some more of.

    The thing we’re short of is staff, not buildings.

  • Bod

    I dunno, a more robust electricity distribution network, somewhat upgraded water distribution, and some work on a rather under-capacity road network; but of course, there’s no real need to pick peoples’ pockets to have this happen; private industry could be left to figure it out.

    It’s not like building that kind of thing couldn’t yield better results, for less investment, than a government make-work program.

  • Rational Plan

    There is also the inherent problem that large infrastructure projects take years of planning, engineering and contract bidding before a spade is used. So in the end their not much use for Kenyesian spending. The best you can do is to prevent them being cancelled during a recession during the inevitable budget crunch.

    It’s easier to cut infrastructure spending rather than town hall Health & Safety or diversity officers or ‘heavens’ council executive remuneration.

    On the other hand considering the crumbling state our roads. Small scale road re tarmacing , new gutters and drains are all small scale and quick projects. I don’t think I know of any current government who is properly funding this sort of spending to prevent asset deterioration.

    But their are only so many skilled people and machines on hand, there is a limit to how quickly capacity for such work can be expanded.