Friday, 8 July 2016

Corbyn Needs To Learn The Contrast Between Two Very Different Words

On PMQs this Wednesday just gone Jeremy Corbyn asserted, as he has repeatedly before, that it's about time this government 'Invests in places across the UK outside of London'. Countless individuals up and down the country support this idea, and why wouldn't they? After all, investment is a good thing right?

Not quite. Corbyn's confusion lies in not identifying that what he's describing are not 'investments' they are 'costs'. Whatever projects he wants the government to invest in are actually costs of employing people to do things, and costs of natural resources (metal, wood, plastic, fuel) to do them. When Corbyn uses the term 'investment' he is making it sound as though he's describing the benefit of doing something, when he's actually describing the cost of doing something.

And projects that cost money and material resources only ought to be undertaken if they bring value to the country. The reason should be obvious; any labour or materials used for one thing are labour and materials that cannot be used for other things. The opportunity cost of doing x is not doing y and z.

Most of our politicians speak of creating jobs with taxpayers' money as a good thing. Using their logic, then, the more jobs they create with taxpayers' money the better it is for the country. But to see how foolish this assertion is, suppose for the sake of argument that the government is about to spend £50 million on wages for a UK Local Government building project, but then found out that they could hire a more competitive firm to do the job at the same standard for £30 million. 

According to Corbyn's rationale, the government should hire the £50 million workers not the £30 million workers, because spending an extra £20 million on the project increases the benefits of the project, and is better for the economy. It’s terribly obvious that the £20 million saved is a benefit to the taxpayer, because it can be spent on other public goods and services, as could all the labour gained be expended on other projects.

Equally importantly, whether a project adds value to our society is not a question that is best left to politicians, because in business private investors are much more likely to be prudent with their cost-benefit analyses, as it is their own money at risk.

If a project looks like a good investment, then investors can acquire the money from a bank, because a bank will usually lend if the borrower's ultimate gain from spending the money enables him or her to pay back the loan with interest. A government won't have anything like the same kind of risk signals, nor the same incentive for prudence because taxpayers pick up the costs of any imprudence.

When politicians proclaim costs as benefits, it leaves me wondering whether they are muddled economists or disingenuous hoodwinkers. Let investors invest with their own money - it is the best guarantee of value in the shape or consumer and producer surpluses, not politicians with other people's money.

This does not, of course, apply to financial donations given to the charity sector - but that is not what Corbyn means when he talks about investing in places in the UK - he means taking taxpayers' money to effectively subsidise British industries at uncompetitive rates to shut out foreign competition, and appeal to the insularities of so many regions of the UK.

Be very wary when politicians declare that they want to 'Invest in places across the UK' - the last thing you should ever do is encourage them, for they usually make us worse off in net terms, as well as making foreigners worse off too, as they lose out in the ability to trade in our economy.