There’s one thing David Cameron said in this speech yesterday that is very misleading, and possibly outright wrong. It’s:
Our business investment is the lowest since records began.
If this means anything at all, it means as a share of GDP.
If we measure investment in current prices, he has a point. Investment accounted for 9.46% of GDP at market prices in Q2. Granted, it was lower in Q1, 2004Q4, 2005Q2 and 2003Q3. So he’s not strictly accurate*. But he's right insofar as investment has been lower recently than at any time since records began in 1965.
However, if we measure investment in constant prices, things are very different. Investment is now 10.2% of GDP. That’s well above the post-1966 average of 8.1%, and higher than we had seen before 1998. On this measure, business investment has been higher under New Labour than ever before.
Why the difference? Simple. Investment goods prices have been falling, because computer prices have fallen. This means the value of investment is low, but the volume high.
This is surely something to celebrate, not condemn. In giving the impression that there is a serious problem with capital spending, Cameron was therefore being very misleading.
Of course, one could argue that businesses aren’t investing enough – that they’re being shackled by regulation or are being too pessimistic about the future. But that’s a different story.
* My figures come from here. I’m using code NPEK for business investment at current prices, NPEK for investment at constant 2002 prices, YBHA for GDP at market prices, and ABMI for GDP at 2002 prices.
Another thing: Cameron has begun to start his speeches with jokes. Yesterday’s speech began:
Six hundred and ninety Wednesdays ago…
This is a bathetic reference to Lincoln's Gettysburg address and Martin Luther King’s “I have a dream” speech. This follows his speech on Monday, which began with a perfect oxymoron:
It is a great pleasure to be here in Leeds.
Oh Leeds is a nice place. I was there last week. More importantly it was 691 Wednesday's ago. Did Lincoln make the same mistake?
Posted by: Matthew | December 15, 2005 at 04:46 PM