Boondoggle, Whitehall or devolution? How investment appraisal might make a Yorkshire Assembly the right choice.

In one of its first significant acts, the new Conservative government has signalled its intention to reform the rules governing infrastructure investment:

...under the new plans, reported on Friday, investment decisions would be made with a focus on reducing inequality between northern and southern England, rather than promoting overall economic growth across the country.

Writing here in the North this is welcome news but represents just a start - the rules are still Whitehall's rules and the investment decisions are still Whitehall's investment decisions. There will still be enormous pressures from London and the South East for new investment - in more London rail infrastructure, in a new bridge or two and in relieving the pressure on the M25 - and let's remember that nearly all the people writing and lobbying for these investments live in those places.

I recall sitting in a meeting somewhere in Leeds with Lord Adonis who was then the Chairman of the National Infrastructure Commission. Two things came away from that meeting: firstly that the method for appraising transport investment favoured London for simple economic reasons; and secondly that London had spent the time and money preparing proposals that, if not 'shovel-ready' were advanced and actionable. The reality back then (and it hasn't changed much since) is that the North has plenty of (often slightly pie-in-sky - or do I mean tunnel-under-the-pennines) ideas but precious little detailed work. And, to make matters worse there are a host of competing schemes - go East of York and they'll tell you to dual the A64, head to Cumbria and they'll mither about how near impossible it is to get in and out of West Cumbria.

This is just the transport investment, we've not got to ideas about freeports, suggestions for improving town centres or a myriad of thoughts about business parks and "creative quarters". Hacking through this forest to get to things that might take us a step towards rebalancing the UK's economy will be a Herculean task, one made worse by a constant chatter and chunter from those 'leaders' about the investment.

It seems from here at least that there are three possible routes to take through the forest of ideas:

1. Boondoggle
2. Whitehall
3. Devolution

Given the political imperative of the programme, the boondoggle seems the likeliest route. With the new system for appraising proposals being something of a fudge but still under ministerial control, preference for investment will go to places with the right political vibe - Teeside with a majority of Conservative MPs and a Conservative mayor, Stoke-on-Trent with much the same, and the Black Country newly prominent in Tory thinking. The thing with boondoggles is that they can't be too blatant, there has to be a veneer of authenticity - typically a project appraisal or business case - prepared under the aegis of the relevant government department. And this is where the clash with Whitehall comes in.

A Whitehall-led system will try not to diverge far from the current utilitarian appraisal system (albeit one that has been painted green in a nod to climate change and to please the rail lobby) meaning that the process will favour cities over suburbia and small town. You'll spot how this clashes with boondoggles because those newly minted Conservative MPs represent suburbs and small towns not the larger cities. If you're the new MP for Leigh, having a high speed rail link from Manchester to Liverpool doesn't count as a win and if you've just got elected for the Don Valley, a decision to move some government department to Leeds simply doesn't deliver the promise. If the government is shouting about investing in the North but all the money goes to Liverpool, Manchester, Sheffield, Leeds and Newcastle, the promise to people living in that "Red Wall" won't be met.

This is where the government needs to be cautious about the third way to deliver - devolution. Right now there's an existing model based on the (outdated and widely discredited) idea of 'functional economic geography' as the basis for local governance. We've got local mayors for the West Midlands, Teeside, Manchester, Liverpool and South Yorkshire each with a bully pulpit and the favoured attention of Whitehall but, with one or two exceptions, these geographies act as much to divide as to unite. David Cameron may have joked about how Yorkshire couldn't agree on anything but the reality is that the manner in which that 'functional economic geography' works in practice makes for all the wrong sorts of governance structures - without history, local buy-in or real cohesion.

The core issue with 'fuctional economic geography' lies in its reliance on central place theories, on the idea that hub-and-spoke explanations adequate describe how people move around. This is where the idea of high speed rail fits - we link together the big city centres because they are the key drivers of economic growth. The problem is that those 'left behind' places are still left behind under this model and we have, in a city mayor model of governance a system that acts to compound the preference for the big city centre over more disbursed development models. Worse the mayoral model (as currently designed) fails to provide anything other than an elite voice for those towns and suburbs - councils leaders and chief executives do not, in my experience at least, provide the accountability needed to make the model work.

In other devolved systems this is avoided, either by not having an elected mayor (Scotland, Wales) or by there being a strong, elected assembly holding an elected mayor to account (London, Spanish regional government). The system introduced in England outside London fails in respect of accountability but the legislation has therefore limited the scope of devolution to the point where the mayor is little more than someone with a platform to lobby Whitehall plus the money to run some buses. It's better than nothing but, if the North is serious about taking more control of its own destiny, its constituent parts need to start arguing for either a better form of devolution (more akin to London or Wales) or else the return of powers to local government - plus maybe creating unitary councils were the system is still two-tier.

My own view is that my region should be arguing for a Yorkshire Assembly (with or without a directly elected mayor) with similar levels of devolved authority to Wales. I understand that some folk hesitate at this from fear of it leading to the 'Balkanisation' of England - an English Parliament would be better, they say - but I don't think that would deliver on the promise to left behind places in the North and Midlands in the way that a substantive regional devolution would. Nor do I think reasonably cohesive places like Yorkshire should wait for other regions before calling for substantial devolution.

To return to how this might work for infrastructure investment consider that a Yorkshire Assembly would judge investment on the basis of what is best for Yorkshire's economy and that this would be done in the context of having accountable representatives with a say in that division from every part of the county. This seems to me a better approach than one where Whitehall plus opaque lobbying dominates investment choice.

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In which some architects discover some reasons people object to housing development

 At a time of housing crisis, at least in some parts of the UK, it is amazing that groups of planners and architects can still find time to argue against building houses, or in this case building them too fast:

Eurocell says although homes are being built quickly in response to the housing crisis, there is 'almost no consideration' for the infrastructure needed to support them.

 The basis for this claim is a survey:

 ...it found two thirds of people felt there was too much focus on construction of 'homes rather than communities', and seven in 10 thought there was not enough provision of educational, health and sports facilities

 Colour me surprised. People always argue against new housing on the basis of pressure on or lack of social infrastructure: "the school's full", "there's no playground in the park", "you can't get a doctors appointment". The system we have largely mitigates these effects - in the past through s106 payments and now via Community Infrastructure Levy. Moreover, the impact on existing social infrastructure is almost always over stated even with very large developments.

The right response to the argument here isn't to slow down development but rather to direct land release and development towards existing communities with established social and transport infrastructure. Indeed, increasing housing numbers in smaller communities could make the differences between these places losing or keeping their post office, chemist, pub or local shop. The dominant obsession with 'new towns' and 'garden villages' should be challenged for the obvious reason that it is easier, cheaper and more efficient to develop existing infrastructure than it is to build new infrastructure. This is the core benefit of suburbia - it is iterative allowing for communities to absorb development rather than trying to create community spirit in an entirely new place.

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It's time to stop obsessing about trains - they aren't the infrastructure solution we need

Let's imagine for a minute that I'm going to give you several billion pounds for the purpose of making the North of England's infrastructure "fit for the 21st century". Let's also forget that, in the real world, this looks unlikely because when you put infrastructure schemes through the Department of Transport's models they tell you that investing in the North - compared to yet another rail scheme for London - is a financial no-no.

Now, because you're an assiduous consumer of commentary and consider yourself bang up to the minute on transport issues, you come straight back and say something like:

High Speed Rail from York to Liverpool - maybe extending HS2 to Newcastle as well

Electrification of assorted railway lines (Calder Valley, Harrogate-York, etc.)

Rail links to Yorkshire's airports and ports

Light rail for Leeds (that may or may not connect to Bradford, Huddersfield and Wakefield

New stations, new rolling stock, fancy ticket machines and ticket systems

More trains, bigger trains, faster trains...

I know this is the response most folk will give because, even in the North where 95% of people don't use trains (on anything but a very occasional basis), the reporting on transport issues is utterly dominated by problems with trains - too old, too crowded, strikes, break downs, timetable problems:: you name it the BBC, Yorkshire Post and local media will be all over it.

Tell me, when did the newspapers or television news last cover the fact that your bus is old, slow and subject to delays and cancellations? When was there a shock horror report complete with vox pops from exasperated commuters saying how the endless summer of road works has caused congestion everywhere? One of the main routes into Bradford, the B6144 along Toller Lane and White Abbey Road, has been closed for eight weeks while Yorkshire Water try to find some of the wet stuff - have there been any reports on the sheer annoying inconvenience and cost of this work? You missed it?

Yet the single most important means by which people in the North get to work is by car and, however much you might want to parade your green credentials, all that vast investment in railways won't make anything but the tiniest of dents in this traffic. And, as you all know of course, the problems on the railways result from the decision (something to do with privatisation) to incentivise increasing passenger numbers - there isn't enough capacity on the rail system. Modal shift (every councillor I've ever met who has served on a transport committee can intone this - it goes with 'get more freight on rails' as a mantra) if it is a success simply results in the rail system seizing up.

So here's an alternative list for your infrastructure investment - one better linked to reality and less to the fact that too many transport planners still have a model railway in the attic:

Bus priority schemes, new buses and better bus stations

Superfast broadband - targeting where the commuter traffic is coming from not where it's going to

Car share apps and schemes - with financial rewards for users

Properly funded road maintenance and improvement - dealing with the thousands of stalled small schemes

Deregulation of taxi and minibus - getting something like the US Dollar bus schemes

Support for employer run bus schemes

Incentives for home working and local shared work spaces

Better cycling infrastructure (including, for larger places, cycle rent schemes)

Railways - for all that they have a place - are still 19th century technology. The EU auditors recently reported that the only high speed line on the whole continent (including HS1 and the Channel Tunnel) that is profitable is the Paris-Lyon line. The money spemt on railways represents a huge subsidy to wealthy urban commuters and we're paying the price of this with potholed roads, outdated diesel buses, over-regulated taxis and the almost complete absence of any national (let alone regional) strategy for roads. It is time to line the transport planners up and ask: "do you like trains?" If the answer is "yes" then get rid of them.

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Why nationalising the water industry is a bad idea....

It will surprise people to learn that most the the USA's water infrastructure is publicly-owned and managed. And it's not just high profile disasters (poisonings if you prefer) that are the issue, it's that keeping consumers - who vote - happy leads to under-investment in that infrastructure:

Yet there clearly are major infrastructure repair needs in America. We have not been properly maintaining the assets we have built. Levee failures notoriously caused much of the flooding in New Orleans after Hurricane Katrina, but America has yet to address the neglect of its dam and levee systems. For example, the recent possibility of an overflow or collapse at the Oroville Dam in California forced 180,000 people to be evacuated. Many dams, levees, and locks on our inland waterway system are in need of repair, often at significant cost. Examples include Locks 52 and 53 on the Ohio River. Built in 1929, their replacement cost is $2.9 billion. As the New York Times reported, this replacement has been botched, and it was originally supposed to cost only $775 million—still a lot of money.

As is reported recently, the UK is not without these water management challenges but they are largely in parts of the system outside the control of the industry. All this means we pay more for our water than the average American but it also means we have a water supply and sewage system that works.

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Why existing infrastructure is more important than new infrastructure

I like John Sanphillippo's perambulations around suburban USA. We spend too much time looking at big cities with their skyscrapers, trams or tube systems and air pollution. Suburbia is really important and undervalued by planners - it's true to say we probably need more of it.

Anyway Sanphillippo makes this telling observation about US land use:

After several years of traveling around the country in the presence of city planners, economic development officials, elected representatives, engineers, production home builders, professional consultants, and groups of concerned citizens I’ve come to my own personal unified theory of America’s land use future. The short version is that we’ve got the built environment that we have and the overwhelming majority of it isn’t ever going to change much. If you want to know what things will look like in thirty or forty years… look around. That’s pretty much it.

Sanphillippo then goes on to observe that, for much of America, the big challenge will be looking after this infrastructure - roads, sewers, water supply - as much as it will be about new infrastructure. For Europe, with largely privatised utility suppliers there's less of a problem (if you want to see the case for a privatised water supply system look at the tragedy of Flint, Michigan) but we can see glimpses of the issue with the underinvestment in our road system. Indeed the contrast between the investment in maintaining rail systems and road systems is striking especially given the dominance of roads in transportation and their poor safety record compared to rail.

The public policy mistake is to focus on the excitement of new infrastructure like HS2 rather than on looking after the existing networks. Sanphillippo's point tells us this is the wrong approach and that we should be seeking to make more efficient use of exisitng systems for the very straightforward reason that those existing systems will make up 95% or more of any future system.

A final observation is that the coming transportation revolution - digital, driverless, drones and so forth - has to fit into the existing network as there isn't the time, capacity or cash to make the changes to public infrastructure. This is a challenge for those developing these new transport technologies and also a reason why places with less of those legacy systems such as Africa start the revolution with an advantage.

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'Growth for The North' - taking local ownership of the Northern Powerhouse

At a recent LGA meeting we heard from Lord Adonis, chairman of the National Infrastructure Commission and former transport minister. It was interesting, not just from the insight he gave into the work published on Crossrail Two, Northern transport connectivity and energy connections but for the context he have for decision-making. It is that context that is relevent to any discussion about the 'Northern Powerhouse'.

Much of the debate around the Northern Powerhouse is characterised by either negativity (witty statements like 'Northern Poorhouse' or 'Northern Powersham', for example) or else by an emphasis on devolution to 'metro-mayors' in the 'core cities'. It seems to me that this misses the point and worse reinforces two unwanted images of The North - as supplicants arriving cap in hand at national government's doors asking for more, and as a bunch of rivalrous, squabbling places unable to get their act together on priorities for economic growth. I would add that the capture of the agenda in some of those cities - Manchester especially - by the idea of 'inclusive growth' drags The North still further away from the place it needs to be to deliver on a Northern Powerhouse.

Lord Adonis made the observation that Crossrail Two got the green light for two reasons - the planning, costing and economic impact work was undertaken and sound, and Transport for London (TfL) as well as the London Mayor were committed to provide 50% of the scheme's funding. The result is that a £16 billion scheme will actually cost central government less than half that amount releasing the economic benefits (that show up in GDP figures and growth) to the whole nation. This is the sort of deal any national government wants to see - regardless of politics.

Right now there is not only no agreement or consensus in The North about infrastructure investment priorities but there is no mechanism for business in The North to do what's happening in London and fund 50% of that investment. There are any number of schemes and projects - ranging from the lunatic (a trans-Pennine tunnel under the High Peak) through to the sensible (reducing rail travel times east to west). And although Transport for the North has made a start with sifting these options and alternatives, it has made only a little progress and it isn't clear how its governance or administration functions. Crucially there is no means for The North to capture business contribution (for example via a business rates supplement) as national government is reserving this supplement for those places who take George Osborne's shilling off the drum and accept a 'metro-mayor'.

If, to use an eminently sensible idea, Transport for the North were to propose a new motorway linking the M56 to the A1(M) North of Bradford and Leeds, the expectation is that central government - through its agencies - would stump up all the cash. And the same would go for HS3, widening the A64, a rail link to Leed-Bradford International Airport and an upgraded Pennine crossing from Newcastle to the M6. We have to find a mechanism for local contribution and pooling that potential business rate supplement should be the best approach - assuming national government can set aside its obsession with Heseltine's rewarmed core city focus and the idea of 'metro-mayors'.

The essential requirement if we are to deliver the infrastructure elements of a Northern Powerhouse is cooperation between Merseyside, Manchester, Leeds-Bradford, Teeside and Tyneside (and the rest of The North) rather than the creation of competing entities based on travel-to-work geography in regional cities. This isn't to reject city devolution or even the idea of mayors but rather is to say that a Northern Powerhouse is best served by a bigger vision encompassing the whole of The North rather than a set of visions focused on the challenges of city government.

We're talking here about infrastructure - indeed specifically transport infrastructure - but there are other areas where The North needs to collaborate rather than compete - our education system underperforms compared to London and the South East, our urban mass transit (where it exists at all) is limited and not focused on economic growth, our cultural sectors lack bite, arts funding is London-centred, and we still experience a steady trickle of the bright and best to elsewhere in the world.

The problem, however, is compounded by the approach of city leaders and Northern Labour politicians to the problem - the Northern Powerhouse may not be a reality as yet but it's only going to become one if you get behind the idea and make it work. Simply shouting a lot about The North's problems and blaming all of this on central government isn't especially conducive to getting any commitment - let alone momentum - behind the idea of working together with that government to improve The North's economic performance. If the only approach is to stick a begging bowl under the treasury's nose and say 'fill it up please' then we will never have the growing, self-reliant and powerful North of England that surely everyone up here wants.

It is possible for leaders in The North to make this work but we won't get there if all our time is spent waiting for someone else to jump, fussing about how too much of it is about Manchester (or Leeds, or Newcastle), or making sad noises about how badly done to we all are. The work of Transport for the North, albeit quite tentative, suggests that wider collaboration on a similar basis around the whole economy not just transport is far more important than the geography of a 'combined authority' in Yorkshire or the list of 'asks' in a city devolution scheme. We need to take the idea of Transport for the North - cooperation, collaboration - and create something like 'Growth for the North' that's prepared to fund the feasibility and prepare the ground for more central government investment in The North alongside similar investment in growth from The North's businesses and residents.

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Larry Summers embraces the New Fascism

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“All within the state, nothing outside the state, nothing against the state.” Benito Mussolini

There's been a deal of comment about a little spat between Larry Summers (who is I discover a top American lefty economist chap) and George Osborne, Britain's Chancellor of the Exchequer. The debate between the two can be summed up as "hey you, yah boo, I'm right and you're wrong." Except it wasn't as witty or intelligent as that. It came across as a rather pompous version of an exchange on Question Time (and just as edifying).

However, I was curious about Mr Summers opinions and what he supposes we should be doing differently. Essentially the gist is here:

"It’s tragic that we are bequeathing to our children a deficit in the form of massive deferred maintenance on our infrastructure. If at a moment when we can borrow money for 30 years in the 3pc range, in a currency we print ourselves and the construction unemployment rate is in double digits, if that is not the moment to fix Kennedy airport, when will that moment ever come?"

Rather than have a money deficit, we have instead an 'infrastructure deficit'. Which supposes two things - we actually need that infrastructure and, more importantly, government borrowing is the only way to provide it. At the heart of this argument is a belief (which has nothing at all to do with macroeconomics but is absolutely an ideological position) that, in Isabella Kaminska's words:

...the only productive use of capital is increasingly through government spending.

This ideological position - the conviction that the only good investment is through government - is a core tenet of what I call the 'New Fascism'. This is a philosophy that adopts the same assumptions about society as Mussolini and his colleagues did in designing the Fascist state - for draining the Pontine Marshes read floating airports, high speed railways and freeways rammed through previously attractive small towns.

If (and this is a big question) it is right to raise government borrowing, why does Summers surmise that spending it without return on expensive and unproductive infrastructure programmes is better than cutting taxes on businesses and consumers? If businesses have more money will they not invest that money? And will that investment not generate a return - a real one - unlike those grand projects Larry likes?

And if we cut taxes for consumers won't they spend that money buying the things that the businesses are making? Perhaps on houses, maybe on cars? Isn't that a rather more efficient approach to stimulus that tying loads of borrowed cash up in incompetent government procurement programmes?

The truth is that Larry Summers is a New Fascist - wanting a planned, directed, controlled, state-led system rather than an untidy, exciting and people-led system.

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Do you believe in Santa Claus? More on the case for HS2

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In the remake of Miracle on 34th Street (the slightly schmaltzier version of the classic movie) a wave of people across New York - including a couple of baddies - sport "I believe" badges as part of the campaign to liberate Kris Kringle from the asylum.

This statement of faith - an assertion of a truth without evidence or hope of evidence - is the essence of the film. "If the government of the United States can place its trust in God without evidence," proclaims the judge, "then the State of New York can say it believes in Father Christmas."

So it is with HS2. As each economic, social and fiscal argument in its favour falls down we end up with pure faith:

The HS2 rail project would help "rebalance" the UK, former deputy prime minister Lord Heseltine has said.

The senior Tory called the high-speed line a "really imaginative project" to spread the prosperity of London and south-east England around the UK.

We are to ignore the "men with slide rules" (better described as "the evidence") and charge into the future regardless:

"All over the world governments are making decisions about a future which they cannot predict but in which they believe."

Hallelujah! Shake that tambourine! I believe!

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Writing elsewhere...on the waste of cash that is HS2

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Over at the Culture Vultures you can read me ripping into High Speed Two:

Let’s put is more simply still – if the government put £30 billion on the table for The North to develop its transport network, do you think we’d even think of building a railway to London?

Go read - and comment!

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Going anti-clockwise round Coventry - a paen to England's roads

Today, for reasons that are unimportant to you, dear reader, we drove from the fine old town of Bath back to a very nearly drowned Cullingworth. The journey took in a new experience since, rather than the usual sclerotic motorways we opted for a pleasant drive – I would say meander but the one thing the Fosse Way doesn’t do is wander about – passed Malmesbury, Cirencester, Stow-in-the-Wold and Stratford. I say passed since – with the exception of Moreton-in-Marsh – all the places en route are safely by-passed by a well maintained and appropriately sized highway.

At the end of this little trip the navigation (Kathryn) announced that we were now going “anti-clockwise round Coventry”. This tickled me a little but got me to thinking about how we moan and whinge about transport, traffic and roads. Yet, over the years the assorted county councils (in the main) have, along with the Highways agency, smoothed the passage of traffic while allowing the various little market towns, spas and villages to breathe again.

So since we didn’t go through any town centres – a favourite topic on mine – I will comment on roads. Starting with the little windy country lanes that don’t seem to go anywhere but which are lovingly patched up and repaired by a combination of council workers, assorted contractors and the local farmer. The recent bad weather has bashed away at these roads washing away lumps of them, filling dips and hollows with water and strewing the surface with the debris from fields and lanes – a veritable flotsam and jetsam of farm life. And they – those farmers, the men from the water board and the council – were already out mending and making do. Allowing us to pass (actual thigh deep floods aside) from one place to another with the minimum of hindrance.

And then to the better roads – thousands of miles of them that we take for granted. Filled –sometimes to overflowing – with traffic, all going busily about its daily business. These are the arteries of England’s economy. Forget about those trains and planes, ignore the fancy urban tramways and underground systems – it is these A-roads and B-roads along with the wealth of England flows each day. Ten thousand and more vans, pick-ups, low-loaders, trucks, container wagons, car transporters and delivery lorries. Each one with its precious cargo – goods and expertise flowing from one small place to another. Each little trip making it possible for us to have bread on the table, heat in the house and a happy smile on the faces of healthy children.

So to those who look disdainfully at the car, who curse the van and the truck. For all you who hold forth about how all the freight can go on railways or even into barges. All of you are wrong. The future success of our economy depends rather more on those roads, on allowing the easy movement of plumbers and locksmiths, supermarket delivery drivers and truckers, computer salesmen and cheesemakers – all the producers that make us rich. And that means roads.

So if there is to be infrastructure investment let’s spend it on by-passes, new road links, road widening and road improvements. Let’s give councils the money to do the backlog of repairs. Let’s spend the money we get from road users – all £30 billion and more of it – on making life a little easier for those road users. And let’s tell all the tree-huggers and planet-savers that, right now, getting the economy moving is more important than their eco-scaremongerings.

Getting the economy moving means getting people moving. And that needs roads. Including the one going anti-clockwise round Coventry.

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Ah, that high speed rail thing again...

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...and how it's impact will not be what we're told:

If building great roads and trains were the route to lasting prosperity, Greece and Spain would be booming. The past 30 years have seen a huge splurge in infrastructure spending, often funded by the EU. The Athens metro is excellent. The AVE fast-trains in Spain are a marvel. But this kind of spending has done very little to change the fundamental problems that now plague both Greece and Spain – in particular, youth unemployment.

Worse, in some ways, EU funding for infrastructure has created problems. In Greece, milking the EU for subsidies became an industry in itself: and political connections were a surer route to wealth than entrepreneurial flair.

Doesn't look that promising, eh?

The only way to achieve this would be to scrap it...

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...surely?

The Government attempted to quell concern that the Community Infrastructure Levy (CIL) could effectively become a ‘development tax’ this week, during a Lords debate on the Localism Bill.

Since it is a government impost on development, it is surely a tax? After all, if the developer thought that "community infrastructure" necessary it would build it and cost it within the proposed development?

The only way to stop it being a development tax would be to scrap it or make it voluntary.

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...or you could just cut taxes? A comment on 'green quantitative easing'.

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A kind soul (well my sister actually) sent me a copy of Richard Murphy and Colin Hines masterpiece entitled “Green Quantitative Easing”. I am troubled by it since it makes very little sense.

First let me be clear that I’m not an economist – anymore than Richard and Colin are economists – and shan’t be talking about what is or isn’t quantitative easing. Or indeed whether or not such easing actually does any good. In general terms, I take the view that printing extra money without it actually being derived from the creation of value in the real world is inflationary. And I do not believe that the UK economy was ever really at risk of deflation.

But, for what follows I am accepting Richard and Colin’s view that:

“The need to reflate the UK economy has not gone away...”

My problem is with their proposals – or rather the proposals they’ve borrowed from the New Economics Foundation’s “Green New Deal”:

1.  Direct government investment in infrastructure
2. A National Investment Bank
3. Local authority bonds for the “green economy”

Underneath these arguments sits NEF’s (and our authors) unquestioning belief in the effectiveness of the Keynesian multiplier – in this case as a means of raising tax revenues. Sadly, the authors don’t even seem to know what the Keynsian multiplier is:

The multiplier is a central concept in economics and especially regional studies where it is widely used to assess the long term impact on employment and output from different forms of investment. As such it represents a significant part of the Keynesian aggregate demand model of the economy and can be described as the impact of the marginal propensity to consume (mpc) on a given investment or expenditure where the higher the level of mpc the bigger the multiplier (Heertje & Robinson, 1979).

The problem is that our authors’ assumption – that creating jobs through infrastructure will resolve the government’s revenue problem is rather misplaced. For two reasons – 

1.  It is misleading to take the view that public spending decisions are optimal – we cannot assume that our spending isn’t at the expense of private investment simply because it has multiplier effects
2. Taxation – the thing at the heart of Murphy & Hines’ proposals – has an opportunity cost. If you take something in tax, even deferred taxation in the form of public borrowing, that comes at the expense of private activity and private spending

Even if we accept the multiplier effect as true, the model proposed here assumes that building infrastructure drives growth when there is little evidence that this is the case. And, worse, the proposals for a ‘national investment bank’ represent a return to that old socialist obsession with picking winners.

However, it is good that our authors provide a worked through (well sort of) example demonstrating just why this sort of spending doesn’t work – they propose repurchasing £56 billion in public finance initiative (PFI) debt with the “green quantitative easing”.

Now it may be a good idea to buy out this debt – although the contract holders might see it a little differently if Murphy & Hines’ figures are correct – but it won’t help the economy one iota. And – I find this quite remarkable – our authors are proposing to print over fifty billion in crisp fivers so as to hand it to the banks and financial institutions. Who do they think holds all that PFI debt?

There won’t be any multiplier effect from this “investment” (and if they really think they’ll get a deal at £56 billion Richard and Colin really are stupid) since no extra money will go into the real economy, no stimulus will have taken place. Those schools and hospitals will be employing the same number of people on the same wages as they were before the ‘green quantitative easing’ – it will be just like the QE our authors criticise, we won’t know where the money has gone or whether it has done anything to help the economy.

 

Our authors seem wholly wedded to the idea that only government can direct investment and stimulate growth. Perhaps if they hesitated in their obsession with setting ever higher taxes and borrowing ever larger sums to build this mythical “green economy” they might see a clearer, simpler alternative strategy. One that would provide an immediate boost to the economy, which would create jobs and would be popular.

That £56 billion could be used to cut taxes – either by raising thresholds further and taking less well off people out of tax or by a 10% cut in the basic rate of income tax. Rather than the great and good deciding how that vast mound of cash should be spent, ordinary people would decide on the basis of what they want. But then I suspect Richard and Colin would never countenance actually cutting taxes!

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