Investment is an expense - no, really, we insist this is so
‘Tis a pity when headline writers for a major newspaper don’t manage to grasp the most basic issues:
Starmer’s cuts are a huge mistake – foreign aid is an investment, not an expense
Investment is an expense.
The article itself is the head of Oxfam GB insisting that the government should not stop sending taxpayers’ money through Oxfam GB. Which has a certain air of “Gosh, that’s surprising then” doesn’t it?
But back to the basic misunderstanding in that headline.
As with our continual insistence that jobs are a cost, not a benefit. Jobs are the work that must be done to gain a benefit. A job is the cost of gaining that benefit. Thus when some fool marches around insisting that they’re going to create jobs they’re - inevitably - insisting that they’re going to increase costs. It may well be - well, rarely among those who insist they’re wondrous for creating jobs, but - that the benefit to be gained is worth it. That pointing some portion of our scarce human labour at that effort is worth it - that the costs of the jobs are worth the benefits of the outcome. But it’s still true that the jobs are the cost.
The same is true of investment. It’s a cost, it’s an expense. We cannot consume these real economic resources now because we’re going to invest them in creating something else to be consumed in the future. It may well be that that future benefit is worth the curtailment of current consumption. It might not be too. But the investment is the cost, the expense associated with, the possibility of gaining that future benefit.
Investment is an expense.
We’re going to be able to understand our world a great deal better if we get these basics right. Jobs are a cost, investment is an expense. They might both be worth it but we can only do the sums if we’ve got the right plus or minus signs in front of our numbers. The resources we’ve got to expend to gain something are a negative, the benefit itself is the positive. We all become richer when we do the things where + is more than -. Which means we’ve got to get those signs right in the first place, no?
Tim Worstall