Many of the proponents of HS2 justify it as a key principle of Keynsian economics, but what they miss is that Keynes’s most important lesson was to let go of inherited ideas and was attributed as saying; “When my information changes, I alter my conclusions. What do you do, sir?”, and a lot has changed since the 1930s.
The article below was first published by South Heath Against HS2.
The problem with applying Keynsian economics to modern day Britain is that it simply isn’t the same place as it was in his day. When Keynes wrote his work The General Theory of Employment, Interest and Money in 1936, Britain had suffered years of hardship in what became known as The Great Slump between 1929 and 1934.
During the early 30′s heavy industry and mining in the North of England, Scotland, Northern Ireland and Wales had taken the brunt of the economic decline. At the peak of the depression more than 3 million people were out of work, a figure representing almost 23% of the potential working population.
Unlike today when Britain’s industrial output forms a much smaller percentage of our overall GDP, the Keynsian model sought to revitalise the economy by introducing large capital spending projects.This he saw as a way of putting people back to work, giving them money to spend on goods and thus re-energising the economy.
Today the nation’s GDP is made up of agriculture: 0.7%, industry: 21.5%, services: 77.8% and although it is difficult to compare this to the 1930′s because of a lack of reliable data, it is clear that industrial output would have been a much larger proportion of the whole and services a much lesser influence during that time.
From 1925 to 1929 there had been a 40.4 percent decline in residential construction, the largest decline from housing peak to economic cycle peak, in any economic downturn in UK history. A typical recession begins with a downturn in expenditures on residential construction, leading to lower retail spending, so this must be factored in as a huge influence during this period. Additionally, when home-owners’ equity is wiped out by house price declines, losses are transmitted to lenders, which subsequently damages the balance sheets of the financial sector.
So where does that place the construction of HS2 in such terms? In short,as Nigel Farage of UKIP recently declared, “HS2 is the wrong project, in the wrong place at the wrong time”. The project may well do more for Europe and the rest of the world than it will do for Britain. HS2 will require huge quantities of foreign imports, will undoubtedly employ huge numbers of foreign workers, will benefit only a few train travellers and yet the cost will be met by every British taxpayer. Disturbingly no private organisation is risking large quantities of their capital on HS2, a fact that speaks volumes.
Suggestions that it will encourage more employment in the north, are little more than guesswork, since when the French TGV rail system was built, similar claims were made that it would revitalise industry in the south of France, yet evidence shows that if anything it had the opposite effect.
In Victorian times, such projects could also largely just ‘run roughshod’ over public opinion, the only opinions that mattered were those of the wealthy and influential. Today there is much more consultation over a wider range of considerations, such as environmental impact and compensation packages. The additional costs of these factors can be considerable and highly unpredictable, escalating actual expenditure alarmingly over original projections.
Already we are seeing a huge cost to the public to pay a wide range of researchers, special advisors and planners, yet it will be years before the first sleeper will be laid. Many politicians are becoming very worried about the political fallout of HS2 and they have a right to be worried, because the public are hardening against the project by the day.
Many people believe that the solution to the nation’s problems is far more likely to be a reduction in public spending, rather than a public spending project that will cost so much over such a long period?