Friday, 7 December 2012

Life With the Osbornes

Shadow Chancellor, Ed Balls has accused the Chancellor, George Osborne, of trying to argue that black is white. Mr Osborne replied that this was not the case, but if black indeed turned out to be white, then it was a situation he inherited from the last Labour government.

Can't help thinking that ploughing money into public services ain't going to help the recession as much as everyone thinks - when was the last time you bought something from a public service and handed over dosh (except through your tax)? The point of public services is that they're free to the public at the point of delivery. We buy shiny things from the private sector and it's only the flow of capital into the private sector from the public's pockets that will gets the economy systemically moving again and generate sustainable jobs in the longer term.

The corollary of the above is that reducing the tax of someone who is on a low wage (and therefore pays very little or no tax in the first place) ain't going to put much surplus in their pocket to generate demand and aid that flow (it's more likely to go on the food bill, fuel bill, travel bill or to pay off the overdraft); however, reducing the tax of someone who pays 40% tax will generate a considerable surplus with which to buy more shiny things.

Sadly, the latter option is unpalatable to those on low wages/tax or without a job (and hence to politicians too), despite it benefiting jobs, the economy and public services in the long run.

As an aside, reducing corporate taxation will do little or nothing to stimulate job creation. It can only stimulate increased profits or over-production in the face of continued lack of demand for the shiny things (unless that demand is coming from outside the UK, which is unlikely). Demand can only be driven by customers having an increased surplus, so long as it isn't spent on shiny things from abroad.

Who'd be a Chancellor, eh?


  1. Replies
    1. Nah - I'd have to do something incredibly unpopular, which would mean election death.

      There are times when a limited dictatorship is the best alternative.

  2. It is not quite as simple as you suggest (or as complicated as you suggest). The IMF has now said that its' suggested value of the fiscal multiplier is wrong and therefore tax cuts and cuts in public spending are even less effective in terms of stimulating growth than they had originally suggested.

    1. Economists seem to change their minds every time there's a new report.

      I suspect it is much simpler than the gurus portray it. The problem is that the public sector cannot rescue us from a recession as it doesn't involve exchange. Only the private sector does that.

      Seems to me we either put money into the public sector to keep it afloat, but do nothing for the recession, or do something more positive by facilitating movement of goods and cash in the private sector, but with associated cuts in the public sector to pay for it.

      It's only a thriving private sector that can keep the public sector funded.

      The tragedy is that over consumption is what got us in this mess in the first place - and the public has no appetite for it just now, as they might have learned their lesson that debt is bad.

      Giving dosh to the banks is a waste of time, as they need to hoard it to get their books back into shape - government has instructed them to do this, while simultaneously asking them to lend more.