{"id":15539,"date":"2012-05-15T09:10:24","date_gmt":"2012-05-15T08:10:24","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=15539"},"modified":"2012-05-15T09:10:24","modified_gmt":"2012-05-15T08:10:24","slug":"we-wont-get-out-of-our-economic-mess-until-we-realise-that-capital-spending-is-not-the-same-as-a-budget-deficit","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2012\/05\/15\/we-wont-get-out-of-our-economic-mess-until-we-realise-that-capital-spending-is-not-the-same-as-a-budget-deficit\/","title":{"rendered":"We won’t get out of our economic mess until we realise that capital spending is not the same as a budget deficit"},"content":{"rendered":"

I note that Philippe Aghion, who is an adviser to new French President Francoise Hollande is arguing in the FT this morning<\/a> that:<\/p>\n

France\u2019s future depends on delivering all three of growth, social inclusiveness and\u00a0budgetary discipline. No one element can be achieved without the other two. Without a belief among the French that burdens are shared, it is hard to elicit the necessary sacrifices to achieve budgetary discipline. In turn, fiscal discipline should allow the government to conduct more expansive fiscal policies to boost growth if demand is depressed. Fiscal reform and spending cuts will also allow France to fund investments that support growth.<\/p><\/blockquote>\n

I am not sure that I agree. The difficulty with economists like Aghion is that they really don't get accounting - and for all its deficiencies accounting also has some important insights to offer.<\/p>\n

I've argued before <\/a>that in macro-economics there are just four drives of growth. They are increases in consumer spending, exports, business investment and\u00a0government\u00a0spending. Hollande cannot expect any increase in the first three right now so growth has to come from the\u00a0government. Let's not beat around the bush: this is the only way out of the recessionary environment we're in now.<\/p>\n

But, and I make the point very\u00a0strongly, to treat all\u00a0government\u00a0spending as\u00a0equal\u00a0would be a big mistake. It is not. There is a very big difference between the revenue and capital cycles and it is vital that people beging to talk about it.<\/p>\n

There is not a shadow of doubt we need new\u00a0investment\u00a0in our economy. We need social housing, new generation capacity, a water grid, flood protection, improved railways, innovation in low carbon impact road vehicles and more. No one but the\u00a0government\u00a0is going to\u00a0lead\u00a0those processes. and there is money to do it. There is \u00a32.2 trillion in pension funds in total. There are about \u00a380 billion of pension\u00a0contributions\u00a0a year.\u00a0Requiring\u00a0just one quarter of all new pension\u00a0contributions\u00a0go into new\u00a0infrastructure\u00a0investment\u00a0- in\u00a0exchange\u00a0for a guaranteed and proper return, maybe with an upside if something went\u00a0especially\u00a0well, is a wholly reasonable condition of giving pension tax\u00a0relief. And green\u00a0quantitative easing could provide the \u00a320 billion capital for a national investment bank needed in the UK - which is being denied to it at present.<\/p>\n

So long as these funds were invested witha \u00a0view to returns then they're not part of the revenue cycle and should not be considered part of the\u00a0deficit\u00a0or\u00a0government\u00a0borrowing. It is\u00a0ludicrous\u00a0that such stupid accounting\u00a0definition are\u00a0destroying\u00a0real\u00a0lives\u00a0and constraining rela growth - precisely\u00a0because\u00a0the\u00a0government\u00a0is slashing\u00a0investment\u00a0now to try to balance books to meet these accounting rules, and is destroying lives in the process. No business is\u00a0constrained\u00a0by such\u00a0stupidity. When they invest the profit and loss account is not punished - the asset is put on the balance sheet and the\u00a0behaviour\u00a0is\u00a0applauded.\u00a0\u00a0That should be true for\u00a0government\u00a0too.<\/p>\n

Until we realise this we won't get out of our current mess - whatever happens to the Euro.<\/p>\n","protected":false},"excerpt":{"rendered":"

I note that Philippe Aghion, who is an adviser to new French President Francoise Hollande is arguing in the FT this morning that: France\u2019s future
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26,35,1],"tags":[],"class_list":["post-15539","post","type-post","status-publish","format-standard","hentry","category-accounting","category-economics","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/15539","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=15539"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/15539\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=15539"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=15539"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=15539"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}