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October 07, 2016

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Edward Harkins

Considerable risks here in a possible trend towards using additional infrastructure investment as some sort of short-to-medium term instrument. There is a deal of self-serving interests (from the CBI to trade unions) all chanting the mantra of 'more infrastructure investment'. Fair enough in itself, but not if it is actually a lobbying for additional infrastructure (public) *spend*. That would be spend as a supposed tool for short to medium term economic recovery. There is no proven case in all economic history where additional infrastructure spend has led such recovery. The undoubted significant benefits of infrastructure investment lie in the farther future; in the form of raised productivity. But that is only *if* the domestic economy can exploit the new assets to the optimum level.

brendan darcy

are we sure that productivity trends n the past will continue? what about robotics? check out this robot laying bricks to build a house:
http://www.businessinsider.com.au/video-a-one-armed-australian-robot-can-build-a-house-four-times-quicker-than-a-brickie-2016-7

David

@Brendan
and...... no steel or cement required... apparently...
Certainly economical in the short term!
David.

Phil Stokoe

Oh Chris, you've not just done this have you? Drawn some conclusions from a long run time series of U.K. Public sector investment?

This time series is hugely impacted by privatization - in 1980 the U.K. Public sector included British Airways, British Steel, British Telecom, British Gas, electricity generation and distribution, water and sewage companies, widespread council housing and a host of other state owned entities all of which would be sold off.

It massively distorts the log run public sector investment numbers (and all public sector aggregates like public sector employment or total revenue.

When I worked for ONS I had to tick off a younger colleague for this error (too young to really remember privatization, I expect better from you. Put up a general government investment graph, and we can talk again!

RC

What happened in 2005 to make business and govt investment start being the inverse of each other?

Kaleberg

If you are measuring the productivity of building a road or installing cable without including the efficiency gains of the users, you are missing the whole point of investment. R&D is notoriously inefficient with entire armies of highly educated, well paid people basically sitting around thinking, but it can have a big payoff.

Building a bridge over a river might be an inefficient process, but any realistic accounting would have to take into account the value of time saved by the crossing, the increased value of real estate as a result of the crossing, the value of new businesses enabled by the crossing and so on.

We have gotten ourselves into our current slow growth state by thinking of building infrastructure as low productivity.

The private sector glosses over this, but Moore's Law actually works against them. As soon as any system is installed its value starts falling as its replacement cost drops. Worse, the big costs aren't the hardware, they are the software, and building software is not all that different from paving a road with bricks by hand. Granted, companies can argue for software by including future benefits, something that the government is no longer allowed to do.

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