I have noted in a mail from The Telegraph this morning thay they say:
Britain must save more money to boost the economy through a sustained rise in investment, top analysts have warned.
Economic transformations through history rely on high investment, lifting growth and productivity, according to a new study from economists Roger Bootle and James Vitali, published by Policy Exchange.
But “the UK has a problem with an endemically low rate of personal savings, combined with a low rate of investment,” the report said.
If Britain wants to boost investment over a sustained period without even more borrowing from abroad, that means saving more at home.
“The UK must make room for this investment by constraining public expenditure and/or private consumption,” the report said.
I gather that the article is here, but I would not bother reading it because the above summary reveals just how wrong Policy Exchange is and these authors are.
First, savings do not fund investment. The UK has £8,100 billion of financial wealth according to the Office for National Statistics: vastly more cash is available from savings than might ever be needed to fund investment and that investment is not happening because that is not the use now made of savings. They are almost all used for speculative purposes, those saved with the government excepted.
Second, investment is actually almost invariably funded by credit, and that is created out of thin air by banks. Policy Exchange reveals that it does not know how the economy works.
Third, if these authors think that savings or reduced public spending are required to create the economic capacity to invest then they assume that we are at gainful full employment. With growth stagnant, millions out of work due to ill-health and the evidence of low productivity available to anyone who wants to notice it, that is obviously absurd.
Fourth, these authors do not in case believe this because they only want to substitute domestic saving for foreign saving, although neither funds investment.
Fifth, since there is no reason for business to invest in the UK given that markets are dead, and business is apparently (and thankfully) unable to generate any more wants for the wealthy to spend on however much it spends on advertising, more saving will not result in more investment; it will just add to the downward spiral in the UK economy.
Sixth, the only way to break that outcome is for the government to invest more - which it has the capacity to do. And if that results in inflation, more tax is needed.
Absolutely everything Policy Exchange has to say is, in that case, wrong.
How do they get funding for this nonsense, the only obvious purpose of which is to demand that the size of the state be shrunk?
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I keep hoping that this misunderstanding on government investment is due to ignorance.
I think that the economy that we see today, suggests that it is deliberate, and since it harms so many people, falls under the category of abusive extremism.
Source:
Mortality rates among men and women: impact of austerity, Friday, 06 January, 2023, House of Lords library, “A recent study argued there have been over 300,000 excess deaths during this period, when comparing trends in life expectancy with those from before 2011” https://lordslibrary.parliament.uk/mortality-rates-among-men-and-women-impact-of-austerity/
Why invest in Britain when one third of the world’s manufacturing (and growing) takes place in China because the Chinese Communist Party makes sure that China’s currency doesn’t float and therefore isn’t influenced much by global demand.
“Why invest in Britain”?
Because it makes sense to build Britain’s infrastructure, and offer public services in Britain, rather from elsewhere.
The answer to the leading question is, “Extremely wrong, most of the time”.
This is not too much of a surprise, because they aren’t there to get things right. They are there to do their masters’ bidding, as are all those employed in Tufton Street.
If they had the ability, or perhaps the inclination to be right, they wouldn’t be working there…
Your final question ‘How do they get funding for this nonsense ‘ should be easy to anwser. But hang on, despite being a registered charity Policy Exchange refuses to disclose the sources of its funding – which runs at about £4 million per year. They could be funded by anyone. Some may even be considered extremists….
Just saw this brilliant thread which although not specifically relevant is relevant to the overall blog.
https://x.com/malcolm_reavell/status/1685589853214220288?s=46&t=2hbEElxDZN0U3NNYjb9trg
Bootle founded Capital Economics and won some kind of economics prize.
You would have thought that their model has already been tested to destruction over the last 14 years – so how they can argue for more of the same ?
But as we all know – PE are a lobby group with opaque funding which the BBC – against their own editorial guidelnes ‘not to mislead’ – still calls a ‘think tank’.
Newsnight whistled up another of these ‘think tanks’ the ‘Counter Extremism Group’s (hadnt heard of it ) Tom Simpson, just parroting – ‘jews afraid to go into central London’ – more propaganda for ‘they are taking over our streets narrative ‘ – thus making more people wary of going into central london.
Not only do the economics of this not make any sense but there is a confusion and misdirection over the term ‘investment’ these guys are either unaware of or willingly exploit.
Transfers of money to investment/savings is made in expectation of financial returns to compensate for risk and the sacrifice of the ability to spend today. But what is usually avoided is the classification of the purpose that this money is applied for.
I would say there are 3 secondary purposes:
1 – asset appreciation for financial benefit only ie speculation. Pensions ‘savings’ / real estate ‘investment’
2 – corporate productive capacity ie buying equity or direct lending to businesses with the goal of the investor to help grow that business capacity
3 – increasing the nation’s productive capacity eg national infrastructure investment/climate transitions
Folks like PE are talking about #1 when they talk about ‘investment’ typically by wealthy, overseas individuals with little commitment to the UK lived experience. Given that classification #2 represents only c.10% of private credit and #1 being c.90% this is the real level of detail that is missing in most headline debates.
Happy to hear of other classifications
It seems that they are going down the rabbit hole of savings=investment. In this world investment would include unwanted goods left on shop selves. Which any good shop owner will tell you is never a good sign about future economic prospects.
They are wilfully ignoring the paradox of thrift. They are wilfully assuming a 0 sum economy. And if I had to guess their response, they would probably deny that they were making such assumptions. It seems they are making a similar claim as George Osbourne that virtue of sound finance will be magically rewarded by unknown market spirits. We have re-entered the mystical merry-go-round of contrationary expantionary.
Good Law Project has a petition here re charitable status of political think tanks
https://goodlawproject.org/petition/help-us-use-the-law-to-tackle-dark-money-in-politics/stop-dark-money-think-tanks-breaching-charity-law/
I have signed it
Thanks Helen, I have signed it.
Signed… and shared!
Hi Helen,
Thank you for drawing this to my/our attention.
I have signed.
Best,
Lawrence
Is that these organisations are essentially ‘free market’ organisations who will use any excuse to cut government spending and also avoid recognising the fact that governments can create money?
Yes
Policy Exchange need to exchange their policy!