Tuesday, November 25, 2008

UK investment collapses

Oh lordy, this means trouble. In the 3rd quarter of 2008, UK investment fell by almost 6 percent. Those early BoE rate cuts had absolutely no effect on capital formation.

Monetary policy is broken, my friends. The MPC have lost control.


  1. Alice, I always read your blog, but you lost me here. What is capital formation? Is this something everybody knows but me?

  2. anon,

    capital formation is investment; machines, roads, computers, ships, trains, planes, etc.

    Any society can either consume or save. By saving we mean using resources we create today, to increase our productive capacity tomorrow.


  3. oh, I see. What we aren't doing. Thanks.

  4. Rees Mogg puts the central issue well, in The Times.
    "The creditworthiness that must be protected at all costs is the creditworthiness of the government. Any government's credit is bound to depend on its own financial strength. .... . If confidence in the Government's credit is damaged that will also reduce confidence in British banks."

  5. Anon,

    Go here and get "Economics For Real People".


    Essentially capital is an incomplete consumer good. You'll need to read the book for why that is the theoretically precise meaning. In practical terms, Alice's definition works just fine too.

    The UK doesn't need more investment because we already have rampant overcapcity in retail, housing and banking. What we need is a restructuring of investment away from these and into other classes.