George Osborne has reconsidered his proposal to slash tax credits; so far, so good, many will think. But does "austerity" harm the economy, and would its opposite help?
When those who have most get more, it seems they invest it, so that doesn't stimulate consumer demand (though it seems to inflate asset prices).
Conversely, if the poorer sort receive more, presumably they will spend it - but on what?
Almost everything extra they may buy will have been imported, so although there would be a boost to GDP and to some extent domestic middlemen would have a bit more profit, the trade balance would worsen. The total debt then increases and is recycled as loans to UK plc, or purchases of UK assets.
What can be done, in a money-shuffling way? Not much.
Tax? Business entities swell through M&A and have the resources to pay superaccountants to find ways to avoid paying UK tax. Individuals taxed too highly begin to value more personal time over potential extra earnings (unless they have massive City incomes).
Interest rates? Significant raises in interest rates would rapidly cripple the public finances and depress demand in an already stagnant economy.
Flogging the family silver? We are running out of things to sell (Birmingham has lost Rover, HP, Cadbury's and both major breweries, just to offer a touchstone of how things are developing).
Is there a way out of this trap?
Maybe the government could transfer its attention from money to real things - the making and selling of them. A review of trade agreements - fighting our corner - would be good.
Hmm.
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1 comment:
A purely personal evaluation from a rural Shropshire abode.
Quantative Easing for the people. Well, I cannot speak for anyone other than myself, but as a family we have been receiving tax credits both working and child since their inception (almost). We are what is classified by council as a "pensioner couple". I receive state pension only, and my wife - 13yrs my junior - works for a minimum wage 26hrs per week. We are tenants on a private estate, and qualify for; local housing allowance; council tax support; and until recently - tax credits. Without the aforementioned "benefits", we would not be able to pay our rent, food, fuel, and other necessary expenses. Our financial situation is a delicate balance, and any cuts in any of the benefits (and we have been cut back severely since September of this year with no additional income or change in circumstances, and an appeal has been lodged) puts us in a position of considerable concern. Extra money is not required we just need what has been paid to continue, though it would enable me instead of ordering a half ton of coal, I could order a ton which attracts a 5% discount. I see no quantitative easing, I see impending hardships. As we have nothing of value to liquidate (which is but a temporary measure only - a fish to eat and no ability to catch more), we would appear to be at the mercy of fools.
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