More on Boyes reflection on the impact on incentive to invest by government intervention.
Mario Rizzo does a wonderful job of explicating a part of what I was attempting to describe yesterday.
The clear message is, that while the ultimate impact on investment from government intervention may be unclear, what is clear is that intervention by the state will generate malinvestment.
Rizzo writes:
Two sectors that clearly expanded in a non-sustainable way were the financial sector and the construction (housing) sector. What is perhaps not fully understood is that amid the expansion of “aggregate economic activity” the expanding sectors pulled resources away from other sectors, even in absolute terms.
Boyes, correctly, focused on the second element described above - the malinvestment acted to "pull resources way from other sectors" thus reducing investment in those areas.
Boyes also implies in his analysis the long term impact of the "bust" that must inevitably follow the government generated "boom".
As we are seeing today, reduced investment may well be an unintended consequence of the government stimulated boom, not only in finance and construction, but in other sectors "favored" by the government . . . agriculture comes to mind, but perhaps the continuing government support in this area continues to prop up investment.
Saturday, July 23, 2011
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