Re: Ostensibly it's all private money
You make many fair points, but omit key details.
Banking is about confidence, as is the economy in general. If you start-stop projects like HS2 (for instance), or Sizewell, or whatever it might be, then industry lacks confidence to invest in plant, staff or apprentices. The government is in a unique position to give confidence and stability to industry, given their ability to borrow over 10/20/50+ year time horizons - yet opts not to. They like to "make the private sector take the risks", but this simply results in the private sector charging more to cover their risk. Several billion of the "overspend" on Hinckley Point is "cost of capital" because the Tories insisted that the funding be private - meaning EDF were borrowing commercially at much higher interest rates than the government could have financed at. The difference being borne by you and me in increased energy bills.
In the case of the 2008 crash, it is not entirely fair to say no real money entered the economy, given that quite some billions definitely entered the hands of private shareholders of banks like RBS, and have remained there (RBS currently trades at ~150p, it was bailed out at 499p/share. The difference - more than £10Bn - is in private hands).
To conflate the 2022/23 inflation spike (10%) with Covid spending is quite misleading. Direct spending into the economy (via furlough, etc) certainly drove some inflation. However, we also saw energy prices rising in 2021 (with the likes of RHE going bust) due to global supply chain issues, which was down to external factors outside the control of UKGov or the BoE (with even north sea gas being traded in $USD). Mr Putin then invaded Ukraine in 2022 sending energy prices skyrocketing. Energy pricing underpins the entire economy (from keeping the lights on, to cost of manufacture, cost of haulage, etc), so these external factors were bound to drive at least 5% inflation on their own. You can't increase the price of diesel by 20% and not see inflation.
One might argue that the government should have taken action - but energy demand is relatively inelastic. The only person building a new heated swimming pool was Mr Sunak. If energy prices spike, inflation spikes. Fact of life (although it would have spiked less if Cameron hadn't "cut all the green crap" and we were less reliant on gas). But at least half - if not more - of our 10% inflation was down to energy pricing. We also saw some inflation due to busted supply chains (and a certain tanker in the Suez), which was to be expected. But this leads me onto the next point...
That is the economic constraint. You can't print money to spend on schools and hospitals without using up real goods, services and labour from the real economy.
This is true, but presumes that goods/services/labour exist at a fixed quantity of supply. In the first instance, we have unemployment, and significant underemployment, with a lot of disguised unemployment to boot. So we can definitely find some labour without triggering NAIRU. Moreover, the resource limit of the economy is movable. For instance, quarries have reopened mothballed railheads to ship aggregate for HS2 and Hinckley Point/Sizewell. This increases the supply of goods and the "resource limit" in the economy. A load of stone that would have required 70 trucks and drivers is now moved by a single locomotive/driver, and imposes no additional traffic on local (often rural roads), nor contributes to potholes. Where a quarry's output might once have been bottlenecked by the daily HGV movements they could accommodate (or the amount of driver labour that was available), they can now scale production to meet demand in a non-inflationary manner. I have been sat in Buxton having lunch and witnessed more than 30 aggregate trucks come past the cafe in an hour. In some cases, single loads are useful (delivering to roadside dumps for resurfacing works), but in many cases are a woefully inefficient way of getting material from a quarry to a batching plant or similar. We have allowed this to happen through decades of underinvestment in non-road transport infrastructure, but could shift a lot more material a lot cheaper for a relatively small capital investment.
This is a key takeaway - that sustained and reliable investment (even if it comes from deficit spending) can improve the infrastructure in a way which increases production and/or reduces unit cost. Particularly when delivered through a rolling programme which allows skills to be developed and retained, leading to lower unit costs, rather than start-stop individual projects. These economies are what we saw during the great growth of the 1960s, with massive rail freight, but also investment in motorways and dual carriageways reducing delivery times, allowing road hauliers to use larger HGVs to navigate the UK's road network and making more efficient use of driver hours. The builders of those motorways were contracted almost on a rolling basis - there was always a next-job to move onto. They weren't asked to do a 20mile section, then idled for 18months whilst government hmm'd and haw'd over whether it made sense to do the next bit.
Put simply, we certainly could deficit-spend on schools or hospitals if we improved our infrastructure to provide the resources required.
To stick with the transit angle (since this is the area the UK and US have signficiantly underinvested for past decades, and has high latent demand), if we improved buses/trams/trains to the point that we encourage modal-shift from car usage for journeys like urban commuting, this would see a reduction in both fuel usage (insulates the economy against oil prices/OPEC) and also car sales (predominantly of imported marques, whether from Germany, France, Slovakia or Japan). Clearly, deficit spending on buses from Dennis, Plaxton, Wrightbus or Mellor is better for our balance of trade than importing lots of cars on credit (but private credit, so the govt don't care!) from VAG and BMW. We improve urban mobility because buses carry a lot more people than cars per sqm of road space and are accessible to non-drivers.
Well regulated/publicly owned transit in turn reduces individual expenditure on travel (see BeeNetwork) - instead of a couple needing a car each, they can manage with one, and feel secure in relying more on public transit for many journeys. This leaves them greater disposable income, which will generally be spent in the local community - dining, entertainment, home improvements, etc.
So whilst the Chancellor cannot simply "make it rain". They could certainly be much bolder in their strategic investments and infrastructure plans. Committing to HS2 (and stepping back and letting the engineers get on with it) for instance would allow industry to train and retain apprentices/skills. By releasing capacity from the legacy network, it allows an increase in local rails and rail freight, which then drives modal shift. This sees travel spend migrate to a more domestic cycle, directly supporting local jobs and workers - instead of being siphoned off into the bank accounts of foreign multinationals.
Biting the hand that feeds IT
