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Spending, spending, spending

Wednesday, 5th September 2007

Tim Worstall has another example of the spread of the use of the word 'investment' when what is meant is tax spending:

Damn, the change in the meaning of the word "investment" has reached even the Telegraph now:

In 2006, £49.4 billion was invested in education, compared with £27 billion in 1996.

It's been a deliberate attempt to obfuscate since the 80s. Everyone is in favour of "investment" because we understand that if you invest now you get better returns in the future. But the word was recast to mean that any government spending was "investment". Thus an increase in government spending could be sold as an increase in investment.

As is made clear here, 75% of this spending is in fact on salaries: that isn't investment, that's current spending. As is also made clear here we've not received a return on that "investment".

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Tiberius

September 5th, 2007 12:30pm

New Labour would take advantage of others' ignorance to perpetuate its myths. Very few of the public will appreciate the difference between expenditure and investment as it is treated for accounting purposes. Remember Brown fiddling his figures by capitalizing road repair costs? Doesn't he also treat tax credits as negative taxation rather than benefit payments? Oh if only people knew! (or were bothered).

Richard

September 5th, 2007 12:38pm

I first noticed this via the Burning Our Money blog, who questioned state spending on athletes as 'investment'. Because, er, how do we have any chance of making that money back (which one would think is the definition of 'investment')?

jimmy

September 5th, 2007 9:24pm

Hmmm. Education is the least good example to choose when making this point. By spending big on education (and of course spending wisely it must be added), one invests in the children of today, such that they become better enabled to live their lives in the future, and to continue contributing to the economy. So with education it can be thought of as investment. / Likewise any example where spending more today gets you a longer-lasting facility for the future (eg. building higher quality roads that don't need constantly to be mended) can indeed be said to be an investment of sorts. / Of course the basic point is right. Politicians have used "investment" as a euphemism for tax and spend.

Lee Jakeman

September 6th, 2007 12:30am

To illustrate the difference between spending and investment, compare Public Insurance schemes with Private Insurance schemes. It is a little known fact that all private insurance companies make an underwriting loss - that means that what they pay out in claims always exceeds what they collect in premiums. How can they afford to do this? Well, it's very simple. Insurance companies, like banks, INVEST our money in the stock market. And it's this INVESTMENT income that offsets the underwriting loss and enables the insurance companies to pay out all their claims yet still make a profit overall. A Public Insurance scheme, by contrast, would have to pay out all claims from premium income alone, as it wouldn't have any corresponding investment income. So a Public Insurance scheme would actually cost Joe Public MORE than a Private Insurance schemes would. But that hasn't stopped the Left from making the bogus claim that a Public Insurance scheme would be cheaper on the grounds that "no-one's making a profit out of it".