Great Western Coffee Shop

"Is every food parcel a nail in HS2's coffin?" asks Patrick Burns of the BBC (https://www.bbc.co.uk/news/uk-england-52151351).

It may very well turn out that way, but such an approach will just provide me with more evidence that our current administration is not worthy of my vote. Permitting a transient, albeit serious, difficulty to derail ( ;D) a major part of the government's infrastructure programme would, in my view, be a major abrogation of political responsibility.

That's a pretty extreme comment from Patrick Burns about blaming the economic damage on the Government's "unprecedented intervention".  In my view, it's plain wrong too.  The Government needed to step in otherwise the damage would be much, much worse.

As for HS2, I don't see any change.  It's a long term project, to be paid for over the long term, and has already been included in the Government's budget calculations.  It provides a lot of work for individuals and companies.  Opponents can hope but I'm confident those hopes will be dashed.

We seem to have two topics discussing HS2.  The latest news (03 April 2020) is here: http://www.firstgreatwestern.info/coffeeshop/index.php?topic=5138.msg285406#msg285406

For "transient, albeit serious" read "biggest challenge the Nation has faced since 1940" - any responsible administration will by necessity have to re-examine all big ticket expenditure projects in the aftermath taking into account the new economic landscape, and £100 billion + is big ticket by any definition.

If you find such an approach unworthy of your vote, you may struggle to find a party to vote for.

Events, dear boy, Events.

Well that is certainly one way of looking at it.

The major difference between HS2 and the current economic situation is that it is not being funded by a pot of government money that is just sitting in their bank accounts (not that cirrent levels of expenditure is, either, but don't jump down my throat just ye!), but by long term loans that will  eventually see some return on capital investment by way of fares. This is not necessarily the case at the moment with the crisis, because much of the money that the overnment is spending is unlikely to be seen again.

My first thought when I saw the article that started this threa off was "beware the bandwagon-jumpers." A couple of weeks ago our local BBC news programme interviewed somebody who was saying that work on Hinkley C Power Station should stop because of covid-19. The only thing was, he was part of the "Stop Hinkley C" campaign.

Well well well, who'd a thunk it?

No point at all speculating on whether the current crisis will change the recent government decision to proceed, as we have absolutely no idea how long comprehensive travel restrictions will be in places and how travel patterns will settle down after it's 'over'. 

I agree with TG that many things will have to be re-examined, but an initial fall off doesn't necessarily make it sensible to cancel in the longer term, especially when you consider the boost to engineering, construction and supply companies that it gives.  After all, it didn't take too long for the airline industry numbers to recover from the September 2001 attacks, see the first graph here: https://data.worldbank.org/indicator/is.air.psgr?end=2018&start=1970&view=chart (https://data.worldbank.org/indicator/is.air.psgr?end=2018&start=1970&view=chart) - though, depending how long it lasts the effects of the virus are quite possibly going to be far more profound.

It's unlikely but I'm hoping the recovery might see more responsible corporate governance. No more 8 figure bonuses for Executives whilst they complain about paying people a living wage.

Some companies have responded by cutting exec salaries but others like the banks have had to be forced into it so I'm not hopeful.

The last financial crash didn't seem to make much different to the excesses of corporate culture.

It will depend on political decisions and as mentioned on post-covid travel patterns, which are likely to develop in the long term. Governments spending money now doesn't mean they can't spend it later; quantitative easing / magic money tree / new deal policies / whatever you want to call it, is the choice around the world right now.

It used to be called Keynesian Economics after John Maynard Keynes (https://en.wikipedia.org/wiki/John_Maynard_Keynes) a Cambridge Professor who founded the subject of macroeconomics in the 1930's. Keynesian economics was as Bmblbzzz points out the basis for Roosevelt's New Deal and later the Marshall Plan to rebuilt Europe after WW2. It was considered orthodoxy until the monetarists came along in the 1980's.  The failure of austerity was already making it more popular again and I think Covid-19 is likely to seal this.   

The basis of the theory is that if every time someone buys something most of the money is passed on to someone else in wages and they then spend that so that other people get wages.  For this to work we need the money to go to people who will spend it (typically not the rich who will tend to save it) and on things where the proportion of the cost used to pay wages is highest. Also spending it where the wages will be paid in this country. 

So what is the thing governments can spend money on that best meets these criteria?  The answer now as it was in the 1930's is construction.  In the 1930's government built roads  and lent money to the railways to do massive investment in rail improvements.  If the war had not stopped it this would have included the Dawlish cutt-off.

Oh yes, J.M. Keynes. Most people think of him in connection with Milton Keynes, "the only town in the known universe named after two economists". I think of him every time I can't remember how to spell Keyn(e)sham.

Given that it's taken a huge uplift in public spending to lift the UK's growth forecast to 1% this year (prior to Corona virus), and given the colossal cost of the Corona virus to the Government and overall economy, how, and by how much would you say Government spending would have to increase to reach a similar growth figure to that which existed in the period you allude to in the 1930s? (circa 4%), particularly since Business investment is predicted to fall thanks to Brexit etc.

A very good question. The simple answer is it depends what they spend it on. Look for investment in new hospital buildings, roads, rail, and possibly also housing. 

However I suspect the development of and industrial policy will be much more of complex affair post Corona Virus.  The fact that we were reliant on imports from a very few suppliers for some key goods may drive a industrial policy away from the ultra free-marketeers.  More so if the US carries on its reported policy of hijacking of goods destined for other countries in various parts of the world especially where they are made by US companies.  Increasing UK manufacture of essential goods will go down well in the Tory northern wall seats. 

Even before the Corona Virus there have been shortages of some drugs because of quality issues at a single manufacture, because drug companies had consolidated manufacture in one place.   

Correct answer!  :)

I guess everyone is a Keynesian in a foxhole  ;)

Source: BBC

Very true. From the early news that dentists' face masks are made in China (I wonder how little that saves), to the admission that we don't have a testing manufacturing capability in the same way the Germany has, presumably because the free market has led us to allow our own bio-science capability to be take over and then closed down.

And re the highlighted bit, I gather that the face masks in question can only be made with Canadian sourced paper, yet Trump has banned their export to Canada.  It would be a wonderful example of Karma if the obvious action was taken by them, although making a point to Trump would potentially risk many lives, so I am sure that the Canadians will be bigger than to take such action. And rightly so.

Edit to make the quoting clear ... Hope I got it right - Grahame

I'm surprised at Patrick Burns for letting Bill Cash perpetuate the myth that there is a big pile of money somewhere marked "HS2 only" that could be used for  other things. A senior politician will know that most of the work that isn't privately funded will be paid for by borrowing money as it is needed from the markets, at the special low interest rate available to governments. Repayments will come from income ultimately through the fare box, and the general bounce in the wealth of the nation from the increased connectivity. It's a shame we lost our Standard and Poors AAA credit rating when the economy went sub-Standard and p*ss-Poor, but it still isn't a bad interest rate.

It is really not much different from anyone getting a mortgage or a business loan, although with a lot more zeros on the end of the numbers. If you go to the banks and ask to borrow a lot of money for any asset, they will look at your paperwork and decide whether you are good for the money and whether it is financially worthwhile. So asking for cash for a bridge, a road, railway or something similar will involve showing where the shortfall will come from if it doesn't pay for itself. That model will work well when you are building something that will generate income, like a railway, but not when the declared intention of borrowing the money is to use it to give away food parcels, or to squander on hospital equipment that will (hopefully) soon be piled up unused in store-rooms. That is definitely one for general taxation to fund.

So, you could conceivably divert health spending to infrastructure if you had the gall, but it would not be so easy to do it the other way around. I wondered why Sir Bill was so ignorant of the way these things work, until I saw that HS2 goes through his constituency without stopping. His financial acumen is not in doubt, as the saga of his renting of his daughter's flat at a cost to the taxpayer of £15,000 per year, despite owning a flat closer to the House of Commons, shows.

An astonishing amount, I suspect. I remember a dentist explaining to me how he could get something like 20 sets of dental instruments from China for the cost of sourcing them more locally.

It is where ideology trumps his intelligence.  He sees the world in micro-economics (e.g. renting his daughter's flat) not macro-economics.  They are very different beasts.  The likes of Sir Bill do not see this difference, they see only Mr Micawber for their economic theorist. 


This does not quite work as governments are generally seen as better risks than private companies.  That is part of the reason PPP is such a bad idea.  I have heard it said that when asked what effect becoming part of the public sector had, NR were able to say their interest rate dropped overnight.

Pretty much what I meant but didn't say so well. I'm not an economist, but I never thought of PPP (or PFI for that matter) as being sensible for public projects without revenue streams, and that we were only doing it because as a country we didn't have enough money to pay for it. Government has to try to lump the risk onto a private company or consortium, but has to give a sufficient return to make it worthwhile. HS2 is different - it is proceeding on the basis that it will be entirely publicly funded, but that some private funding may become available. The money will be borrowed and repaid over a term of years. If HS2 doesn't go ahead, it won't be borrowed, at least not until some future government decides to start again with a route slightly to one side of the current chosen one, and borrows a lot more.

Starting the report outside a soon-to-be-demolished pub where Ed Sheeran once sank a couple is a bit naff. He lives in Suffolk now, having moved from Yorkshire as a child, so was only visiting Birmingham. If you slapped a preservation order on every pub in Birmingham that Black Sabbath had boozed in, nothing would ever get demolished. It set the tone for what seemed to me a rather one-sided piece, which I didn't think the BBC did these days. Does Patrick Burns live in a grand country pile ten metres outside the compulsory purchase boundary for HS2 or something?

Sometimes the economics of such things don't seem to make sense. I once bought a knock-off accessory for my Garmin on ebay. It cost £1.10 including p&p compared to £14 for the genuine article. It was coming from China, I presumed it would be shipped out in bulk and then each individual order forwarded from a UK warehouse. But no, it arrived in an envelope with Chinese postage stamps. Out of curiousity, I checked the Chinese postal rates for the UK; it was more than £1.10.

One of the key criteria for PPP or PFI was that risk had to be transferred to the private sector.  As you say where there are revenue streams this can be done quite easily. A premium is paid by the private sector to take that risk and so it becomes more expensive than if it were publicly funded by borrowing.  However in some cases artificial risk had to be created to be transferred. Shadow road toll were an example - it cost the government nothing if the road was not used as much as had been anticipated so it was not a financial risk to them. Yet it had become a very real risk to the private funder and so understandably they wanted paying for it. But if government had not transferred it this risk would not have existed - madness!

I bought a USB cable to connect a memory stick to my tablet, which cost £1.02, and arrived direct from China by post. It had been damaged in transit. I emailed them and got another, by post, two days later, which works still, years later. I assumed that the company were taking advantage of the convention whereby the receiving country delivers mail from abroad to the destination without charge to turn a profit.
I saw a documentary about the vast free-trade port that sprang up out of nothing in southern China. It is surrounded by factories, all as mechanised as possible, with a huge container depot. The loading and unloading of ships was automated, and controlled by only two people on site. Delivering a TV set from there to Southampton costs an estimated £6. Probably another £20 to get it to the shop from there.