I have in the past wondered just how large the majority among academic economists would be for additional public investment right now. The economic case for investing when the cost of borrowing is so cheap (particularly when the government can issue 30 year fixed interest debt) is overwhelming. I had guessed the majority would be pretty large just by personal observation. Economists who are not known for their anti-austerity views, like Ken Rogoff, tend to support additional public investment.
Thanks to a piece by Mark Thoma I now have some evidence. His article is actually about ideological bias in economics, and is well worth reading on that account, but it uses results from the ChicagoBooth survey of leading US economists. I have used this survey’s results on the impact of fiscal policy before, but they have asked a similar question about public investment. It is
“Because the US has underspent on new projects, maintenance, or both, the federal government has an opportunity to increase average incomes by spending more on roads, railways, bridges and airports.”
Not one of the nearly 50 economists surveyed disagreed with this statement. What was interesting was that the economists were under no illusions that the political process in the US would be such that some bad projects would be undertaken as a result (see the follow-up question). Despite this, they still thought increasing investment would raise incomes.
The case for additional public investment is as strong in the UK (and Germany)  as it is in the US. Yet since 2010 it appeared the government thought otherwise. Public net investment, which was 3.2% of GDP in financial year 2009/10, has fallen to an expected 1.5% of GDP in 2015/6. We are about to have a spending review where non-exempted departments have been asked to look at cuts of at least 25%. One of those departments is the department of transport, which is responsible for almost a quarter of public investment.
However since the election George Osborne seems to have had a change of heart. First he has implemented Labour’s proposal of a national infrastructure commission, which was in turn one of the ideas of the LSE’s growth commission. If it works it should reduce the number of political white elephants that US economists worry about. Second, he has talked about spending £100bn on these projects before 2020. That is a huge sum: the total for annual gross public investment is currently around £70 billion.
So how do you square £100bn extra public investment with the government’s goal of achieving surplus by 2019/20? Is the £100bn a smoke and mirrors number? We will find out when the Autumn Statement is published. Ignore any numbers quoted by the Chancellor. Instead have a look at the OBR’s figures for net public investment as a percentage of GDP (you can find a time series in their databank here). In the June budget public investment was expected over the next 5 years to stay at or below the 1.5% of GDP figure. If the numbers in the Autumn Statement forecast are significantly above that, we will know that the Chancellor really has started listening to economists.