Tuesday, February 01, 2011

A short lesson for (mostly) Labour politicians

I don' think it is too cynical to say that many, if not most, politicians sometimes misrepresent themselves. They try to deny things which they know may be true and they try to make their ideas or policies sound like more than they are.

Spin and hype are the stock-in-trade of the political huckster. So far, so unsurprising.

Recently, however, it has become clear that many politicians are not merely twisting the facts, they are actually totally ignorant of the facts. Over the past few weeks I have heard politicians suggest that the deficit and the the national debt are the same thing- the suggestion was that a fall in the deficit also leads to a fall in debt is a pretty fundamental error (of course a fall in the deficit only reduces the speed at which the debt is still rising). I have heard politicians saying that the deficit was 150 million (err... that should be roughly 150 billion) and that this represented 6% of GDP. Since the GDP of the UK is roughly a trillion that is untrue for either number. I have heard right wing politicians suggesting that the Euro has never been weaker (this comes after the Pound has fallen over the past two years from roughly €1.40 to roughly €1.17) and that British finances are dramatically stronger than the Eurozone- in fact they are dramatically weaker.

This false accounting though is something slightly more worrying than political misrepresentation: it is actual ignorance, and when their mistakes are pointed out, they have been embarrassed- they were actually unaware that what they was saying was simple nonsense.

On the other hand, there has also been the more usual kind of twaddle - this time from Labour. Labour appears to be suggesting that they will not now go ahead with the development of high speed rail in the UK, should they be re-elected in 2015. Leaving aside the vexed question as to why there might not be enough money in the pot- though, just for the record, it is because Labour borrowed way more than was sustainable during the course of the last economic cycle and spent it on cash benefits and public sector salaries, then, when the banking crisis hit, the cupboard was bare. The fact is that- as usual- Labour politicians can not tell the difference between current expenditure and investment.

Paying public sector wages is not an "investment" - it is not even an "investment in people", it is almost always a cost. An investment is something that increases asset value or output. Increasing public sector wage costs does not automatically lead to an increase in output. Only if productivity improves can such expenditure be regarded as investment. However the impact of the policies of Labour actually degraded productivity- so in fact costs increased and productivity fell- so there was less output for a higher cost: the exact opposite of what investment is supposed to do. Investment in infrastructure usually is investment, because it increases the value of a physical asset (unless it simply off-sets depreciation, in which case it is usually termed "maintenance"). The asset may reduce costs by relieving congestion or- as is the case with high speed rail- by increasing speed or safety it therefore increases efficiency.

You do invest in infrastructure, but -mostly, if not entirely- public sector salaries are a straight cost.

Yet the efficiency of the UK capital stock has been degrading for some time- and this too increases costs- less output is possible for the same capital. The failure to maintain infrastructure has led to Heathrow Airport turning into something close to an international disgrace. Meanwhile Aberdeen can not be linked directly by air to other major oil centres, such as Houston or Dubai, because the runway at Dyce is too short for intercontinental flights. Neither does Aberdeen have a road by-pass, so traffic in the city- a major source of British wealth- is extremely congested. Greens may suggest that the failure to invest prevents further environmental damage, but the increasing inefficiency of poor quality transport links also increases pollution.

At a time when countries like China are making huge changes to their infrastructure, the UK is undermining its own competitiveness by failing to modernise sufficiently. The squalor of much or Britain's cities is the direct result of a failure to provide efficient public transport links. And the failure to invest is the direct result of the fact that too many politicians do not know what the most basic economic terms actually mean.

1 comment:

Newmania said...

All of that is good although I am not sure i want this country to be more like China even if the Trains don`t run on time sometimes.
On the weakness of the Euro I think that may be a confusion caused by the disaster memebership of the Euro has been for Ireland and others and universally admitted truth that staying out was a godsend.

I called that one dead right.How about you ?