Joe Studwell's blog

Infrastructure to-do list No.1

The UK has, for now, avoided a third recession. According to data released today, the economy grew 0.3% in Q1. However, as the Labour Party was quick to point out, cumulative growth since George Osborne’s epochal 2010 Spending Review has been 1.1%, when he promised it would amount to 6% over the period. And the construction sector shrank 2.5% in Q1, offset only by strong growth in services (related, one wonders, to booming stock markets and The City?). In reality, the British economy remains weak.

When aggregate demand in an economy falls because private sector investment has collapsed, government is the only spender that can step in to make up the difference until confidence returns.

When governments decide whether to spend money in these circumstances, the critical issue is whether they can find capital expenditures which will contribute to long-run productivity gains. In other words, can you spend to create demand today by buying something that will have ongoing value in the future. The most obvious target investments are in infrastructure, because construction creates lots of jobs and has big economic ‘multipliers’ by creating demand for all sorts of goods and service inputs into construction.

So let’s start making a list.

On Monday I have to go from Cambridge, the fastest-growing urban centre in the UK, to Warwick University, near Coventry, to give a talk. The distance is just 80 miles. But if I go by train, I have to go via London and it will take over 2.5 hours to get to Coventry, and nearly 3 hours to get back.

Write that down on a piece of paper, George.

 

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