Policy Research in Macroeconomics

Crowded out?

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Today’s chart from the Office for National Statistics on UK construction investment tells it all – falling public investment does not “free up” the private sector.  On the contrary…

New Work (constant prices, seasonally adjusted); Public and Infrastructure and Private

New Work (constant prices, seasonally adjusted); Public and Infrastructure and Private

New Work (constant prices, seasonally adjusted); Public and Private Infrastructure

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3 Responses

  1. Just a correlation. No causal effect. And no control variables. Anyone who reads anything more than a red and a black line, should go back to Introductory Econometrics.

    1. Thanks Benjamin – but you miss the point of this post. Of course we are not arguing that a decline in public investment of itself ’causes’ a parallel decline in private investment. But the dominant politico-economic ideology and discourse is that the public sector is ‘crowding out’ the private sector, and thus government spending should be cut to ‘release’ private sector initiative. Which in the context of recession / depression is simply and demonstrably wrong. Your criticism would better fit, we suggest, the proponents of the ‘crowding out’ ideology.

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