Think through the logic of this. You run a small company. If you are not going to make a profit this year, and I order you to pay staff a fixed pay increase, where does the money come from? How do you enforce this? Worse still, to make your suggestion work presumably you must ban redundancies (otherwise I’ll just let 5% of the workforce go simply to pay the others). How do you tell a multinational company they can’t sack anyone for 2 years and, indeed, will have to pay them more each year regardless of whether you make any profits? Goodbye pretty much every foreign owned employer who will rapidly put their uk operations into liquidation in favour of a country that does not have this policy.

The way out of this (or at least to lessen the coming strom) is, as JR has consistently said, for the government to tax and spend less. One day (I am not holding my breath) we may actually see a government that understands this. The other element is for the UK to start making things that other countiries want to buy. JR excepted, the party of which he is member certainly doesn’t “get it”, having committed up to last week’s U-turn to spend more (borrowed) money over the next two years than GB’s unprecedent spluge in this financial year.

Gordon needs to be inventive about improving things, a child could throw money at it. What ideas has this great chancellor come up with? None.
His only one, a ban on short selling, had no effect.

He is being tested and found wanting, despite the upcoming pre budget, where ideas are promised, it has been over a year now with no effective action.

This would:

(a) Ensure that wage inflation and therefore overall inflation does not return.

(b) Introduce fairness and a sense that we’re all in the same boat

(c) Give the ‘biggest’ relative rises to the least well off who either NEED them most or are, we’re told, likely to spend it to support the economy.

(d) Mean the ‘fatter the cat’ the slimmer the relative pay rise and a temporary halt at least to obscene bonuses.

If the average UK full time pay packet is approx £24,000 pa and 2% would give a tough but acceptable level of wage inflation whilst there’s near-zero price inflation, the pay rise for all who work 35 hours per week or more will be £40 per month.
For those who work fewer hours/part time the rise is pro-rata at say 30p per hour. (That’s approx 6% for those on minimum wage)

Ok, the idea came up in the pub today after our weekly political meeting but is it SO crazy?

Any money the Government spends is taken from the economy via taxation. All the Government is actually doing by spending is *redistribution* – and it’s not cost free, for firstly, Government taking tax and deciding where to spend it costs money and secondly, Government will spend that money *badly*.

The only way to actually have more money in the economy is to remove less in the first place – to tax less – and by this I do not mean taxing less by borrowing, because this simply defers removing the money from the economy and you have to remove more, because you’re paying interest.

The problem is Government does not – cannot – reduce spending. Even in a crisis. This is the reason they are looking at borrowing and indeed looking towards Government spending as the “solution” to the problem. It is only a reflection of their financial alcoholism.

On a historical note, the French Revolution was instigated because the French State had borrowed and spent to the extent that 49.5% of tax revenue was expended *just on paying interest*. The crisis was reached, the State met with Estates-General (representatives of the rest of France, well, the bits which weren’t poor , nothing was actually achieved – *even in the face of catastrophe* – and shortly afterwards the Revolution occurred.

My point basically is that Governments *cannot* control spending money – they just can’t, it’s like cat can’t not pounce on a mouse – which means taxes don’t go down and that ultimately screws the economy.

The amount of capital in the economy directly dictates the amount of employment. Basic rule, known since 1776. The more you tax, the fewer jobs there are. The problem with Government is that it taxes and spends that money in ways which don’t cause employment – it doesn’t invest, it just *spends*. We are taxed to the hilt – to the point where the economy is just barely able to keep growing. If we were taxed less, things would be much better.

Ask yourself – what would you life be like, if there was no VAT? and everything you bought was 17.5% cheaper. What about no petrol tax? I don’t drive, so it doesn’t affect me, but I think you’d be paying 80p or so a litre less, isn’t it? how much would that be worth each month? what would you do with that money? what if your employer didn’t have to pay a couple of hundred pounds each month in national insurance to hire you? how many more staff would they have?

Last night, I completed the junction of the railway between Dodoma in the South and Juba in the North. How did I work this miracle? I made sure the railway ran efficiently and without any wastage at all.

Please will someone explain why running the economy of GB ltd is any different?

They are all liars and frauds. The only genuine socialist is Tony Benn.

His prediction that Osborne would damage the pound? Yet another failed prediction from Crash Gordon.

I’ve been getting inceasiingly annoyed by Labour’s borrow to throw cash around approach which is simply deferred taxation a year or two hence.

I was shocked reading HANSARD for Monday and the puerile way our Prime Minister conducts this debate.

I always come to your website to get robust but courteous opinions on what’s going on.

Conversely, a tax cut “funded” or paid for by reducing government spending may still be reflationary to some extent. Again it depends on who receives the tax cut, what they do with the extra money, and where the public spending saving comes from. Let us take a desirable but unlikely example. Let us assume that the government decided that every public employee earning more than say £63,000 a year (an MP’s salary) was to take a pay cut to help sort out the crisis. Let us suppose this was spent on giving income tax cuts to the lower paid. A substantial chunk of income would pass from people who are saving a considerable proportion of their good incomes, to people who would spend more of it as their budgets are badly squeezed. It would probably also help the balance of payments, as people on high pay tend to spend much more on foreign travel and other foreign luxuries. This would have some reflationary benefits. A more realistic example might be some reduction in government payments to very expensive consultants, who save or spend abroad substantial amounts of their income, to allow a tax cut to lower paid people who will spend more of it.

Clearly, if the public is a better spending of their money, then cutting public spending and replacing it with taxes results in an improvement of spending. It’s spent wiser.

However, its inflationary as you say, if people spend and don’t save.

That’s a bit short term, isn’t it? You’re just delaying the pain until we have to start paying off that huge pensions liability that all parties have a problem talking about

I’ll admit I suspect Arthur Laffer is slightly optimistic & that there would still be some medium term cost but that since this would greatly improve the economy as whole it would be well worth doing.

http://www.adamsmith.org/blog/misc/and-another-thing…-200811182452/