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May 25, 2011


Luis Enrique

I wonder what all these companies will do with their cash piles - there was an article on this, in the FT the other day:


(why don't you enable html in your comments?!)

if they either a) embark on acquisitions or b) start raising dividends or do share buy-backs, that's going to put cash into the hands of shareholders, on way or another. Then what are they going to do with it? Buy property?

[why doesn't somebody invest massively in solar power desalination plants combined with drip feed irrigation in Australia and elsewhere - those wheat prices are supposed to be sending signals]

Tim Worstall

"an inability to profit from what technical progress there is;"

I have a feeling in my water (no more, no proof or anything) that that's the one.

It also explains much of Tyler Cowen's argument about technological change. It's just not turning up in GDP etc.

But we can see technological change happening around us. Rapidly, so where's it all going?

Maybe....and it is entirely a maybe.....that change simply isn't being monetized in any manner. Say, this internet thing: we're getting ever more and cheaper music but we're eviscertaing the extant music industry at the same time and almost certainly GDP is delcining not increasing as a result. E books, Skype.....all minor in and of themselves but if technology is making things free (or hugely cheaper) then it could be accompanied by declining GDP (or at least rises not as fast as we might expet) plus an unwillingness of companies to invest.

GDP because we're measuring transactions in £ and investment because....well, some of these things just don't require much investment. Skype for example. 100 million users (say, imagine)....how much investment would a conventional telecoms comapny have to make to get that subscsriber network.

Probably the entire historical cost of the UK landline network?


Hey, looks like I agree with Bernanke and Worstall.
I'm afraid I can't add more than that, as a non-economist, but I thought it was obvious that developed countries like the UK lack the obvious and investment opportunities of India, China and so on.


"Osborne’s fiscal squeeze"

What fiscal squeeze is that then? The one that has increased public expenditure by about 4% from 2009/10 to 2010/11? Or the one that has just registered a jump in public spending of 5% in April 2011 vs April 2010?


@Jim Sources please.


Public spending 2009/10: £669.26Bn (source: http://www.guardian.co.uk/news/datablog/2010/oct/18/government-spending-department-2009-10)

Public spending 2010/11: £694.4Bn (source: http://www.ukpublicspending.co.uk/uk_year2010_0.html)

Actually a 3.7% increase.

Recent figures for spending and borrowing in April 2011: http://www.bbc.co.uk/news/mobile/business-13519792

Fiscal squeeze?


OK, so if the government is spending more, why is it cutting money left, right and centre to all sorts of worthy causes, from universities to councils?


The figs refer to 2010/11 spend. The cuts really bite from the 2011/12 financial year onwards (this was all in the emergency budget statement, PBR report and most recent budget). Yet they have front loaded most of the redundancy and transition costs to the exchequer to to 2010/11.

In other words - From April 1st 2011 - that's when the budgets get slashed.

Luis Enrique


something relevant from Tyler Cowen on whether the benefits of the internest are 'in' GDP



"one reason why firms don’t invest is that they don’t anticipate much future demand growth."

Firms' anticipating the demand reduction that is the consequence of an energy crunch? Peak oil etc?

Circularity here though is that with enough investment, an alternative energy infrastructure could be put in place that may support existing (or greater) levels of demand. However investment towards this may not be incentive compatible for an individual firm. Hence need for government action...


"Maybe....and it is entirely a maybe.....that change simply isn't being monetized in any manner."

Wow. Don't tell me the penny has finally dropped...


Really interesting perspective. Thanks!


Investment will not improve significantly until there are better economi cconditions.

Laban Tall

"Secondly, there is still - as Ben Bernanke said back in 2005 - a "death of domestic investment opportunities" in western economies. Quite why this should be so is not clear."

This has been the case for thirty-odd years. Where have all the City bonuses gone? Into houses and land, not start-ups.

"Why this should be is not clear"? Let's just say Chris was really into widgets, and decided to invest this year's £10m bonus into a small widget manufacturing plant. Where's he likely to build it - here or overseas?


Investment will have its ups and downs in the coming years as long as the financial and economic situation is not good enough to make business confident in taking risks.

Jane Simpson

How about this. Consumers and governments in the West are soaked in debt - actually encouraged by the out-of-control financial services sector and poor government regulation. This is a system created by Wall St and The City that makes a few people very rich by selling debt - so called assets - to the masses. Wages for most people have been kept down for years and there is no respite. Inflation is too high and increasing, meaning that consumers have less money to spend and service debt. Growth is in emerging markets, not the developed West; this imbalance is sucking resources away from the west. It is increasing inflation at a time when western consumers can't afford it. No growth = firms won't invest in capital goods or employ (unless they are migrant low wage workers). Don't need an over-paid economist to work that out!


Investment will not hit a steady and constant upward tendency as long as there are no incentives and economy is not going any better.

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