Falling public investment in the United Kingdom
Paul Krugman draws our attention to the following chart (via Portes):
Maybe that really is worrisome. Still, if I look at the longer run chart — which is on p.14 from this pdf — sorry it will not reproduce — I start thinking that the matter is more complex. After all, in the early 1970s the figure for public investment was well over thirty billion pounds, and it is mostly falling sharply except for the late 1980s and very early 1990s. In the year 2000 it ends up at around five billion pounds, about one sixth the initial level. Yet the 1970s were pretty awful times for Great Britain, with pretty awful economic policies.
Why is public sector investment falling so much over the longer term? Mostly it is the decline in the number of public corporations, a healthy development if you ask me. Check out Figure 2 on p.15 of the same paper, noting the difference between net and gross investment. You also will see that changes in local government have been more important than changes at the national level.
If you read this paper, which runs to 2000 or so, you will see that public investment in health services has been plummeting for a long time, well before Cameron or “austerity,” defense spending seems to be included in these figures, and a lot of transport is not included in these numbers at all. I am happy to take corrections if things are done differently now.
Now what is the recent decline in public investment due to? I do not know, and in part I am asking for your help. I really am willing to believe that the United Kingdom is not investing enough in its future, including in science and education, but we haven’t yet gotten to the bottom of this matter. How much of that decline in the first graph is simply due to defense spending cuts and a shifting composition of expenditure for the national health care service, as higher service bills crowd out investment? How much is driven by changes in the housing market? (Here is a good historical source on changes in public housing policy over the longer term.) How do the recent declines in public investment compare to the longer term trend? How much is driven by a change in the gross rather than the net?
By the way, to cite a separate but related debate, to the extent immediate health care expenditures are pushing out health care investment, should that really count as “austerity”? I don’t think so, however mistaken such a policy may be, and thus I don’t see why “net public investment” is the proper metric for the short-run stance of fiscal policy (for that matter the “gross” figure may be more appropriate for short-run macro).
Inquiring minds wish to know. I hope that inquiring British minds wish to know too, or better yet already do know. I will gladly reproduce the best of what we learn from the comments.
Addendum: Here is a published data series. I am not sure I understand the notation, but my initial reading seems to suggest that current data are not out of line with the longer-term trend, including under Labour.