Global Economic Update

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Politicians love InvestPart of the reason is visual appeal: hard hats and construction projects are a good metaphor to illustrate how they will rebuild the country; a new science campus shows the possibilities of the future; Bridge and train Show them how to reconnect a disconnected person. But the reverence for investment is a trap that many of us fall into: treating it as a good consumption, and consumption, the larger but less popular brother, is unsustainable and inefficient. This view with a Puritan atmosphere is wrong.A potential Consumer-driven recovery It has nothing to do with the pandemic.

Economists roughly divide expenditure into two categories: investment and consumption. In this case, investing does not mean buying financial assets, but producing real assets-everything from building office buildings and oil rigs to designing new user interfaces for mobile applications. These are all goods and services for production, so our idea is that having more will eventually make a country richer. Consumption is everything, from food to furniture. Its purpose, beyond necessities, is to make our life here and now better.

The worrying thing is that, although it provides all the enjoyment, excessive consumption means that society is “eating corn seeds”, as the saying goes, failing to set aside resources to maintain the future standard of living. Infrastructure spending or tax breaks designed to promote investment are easier to sell as a way out of recession than stimulus checks, which can be used for trivial things.

However, these two types of expenditures are mixed up. Investing in a redesigned company headquarters can indulge yourself like enjoying a Michelin-starred tasting menu. Royal Yacht It is unlikely to increase production capacity. On the other hand, consumption includes health and education as well as entertainment. Vaccines may be “consumed” when they are pierced into a weapon, but they are still the down payment in the future.

The focus of China’s recovery from the coronavirus pandemic is to promote investment and industrial production, setting aside long-term discussions about consumption “rebalancing.”This Investment-driven growth model So far, it has served China very well, just as it did for many countries that have experienced the industrial revolution. For many poorer countries, as the capital stock increases, productivity and wages are gradually increased, and higher investment will lead to a higher standard of living.

But capital expenditures will soon fall into a situation of diminishing returns, because a country needs a limited number of steel furnaces and housing projects. At this point, economic growth is more about increasing productivity. Investment is still essential-to keep up with technology or to replace equipment-but investment alone cannot bring about a stronger economy. It is no longer to increase the stock of seed corn, but to come up with higher-yielding varieties or better farming techniques.

Although there are some specific problems that can be solved through targeted investment – poor quality and expensive housing in the UK, lack of fiber-optic broadband in Germany, bridges in the United States, and reduction of ubiquitous carbon emissions – the post-industrial developed countries are now Having more capital per worker will not promote growth as it used to. In the G7 groups of large advanced economies, there is almost no obvious correlation between the two. Overall investment And economic results: relatively slow growth Japan At the top of the list, it spends 25% of its national income on capital, while the United Kingdom, which also lags behind in growth, is at the bottom with a ratio of 17%.

The British capital-light economic model reflects the high share of the service industry in the economy and has advantages. According to Eurostat, Although Finland’s per capita national income is 6.7% higher, the average consumption of the British in 2019 is about the same as the average of the Finns. Spending less on factory equipment means that the average British spend more on entertainment and entertainment. Higher consumer demand can increase productivity.As Government Research Institute Report Point out that restaurants in London may be “more productive” than restaurants in other parts of the country because they have more customers than better managers.

As Adam Smith in Wealth of Nations, The only reason we produce anything is consumption. If it provides material conditions for a better life, it is a sign of economic success: the point of putting corn seeds aside is that you can finally eat what you grow.

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