It would be an understatement to say that I'm underwhelmed by Alastair Darling's latest tinkering; for reasons I've discussed many times, I don't think that the solutions on offer are going to save the world's financial institutions, merely ensure that Britain owes them an inconceivable amount of money.
What would I have liked to have seen? To the extent that money being put into the economy may at least cushion the worse of the recession, I would have liked to have seen the return of the 10p tax rate, and extending further upwards than before. Since those with low earnings are the most likely to spend their money it would tend to boost trade too. But doing that would of course require the Government to admit that they had been wrong to abolish it in the first place.
As far as possible, I'd have funded the tax cut by getting rid of most of the allowances and other mechanisms that enable the wealthy and big businesses to avoid paying taxes. An end to offshore subsidiaries selling 'services' to their UK parents for starters. An end to trust funds whose primary objective is to transfer property down succeeding generations of a family without the inconvenience of having to pay death duties. A firm clampdown on tax havens.
I suspect those two measures alone would fund the tax reductions, and have a far greater effect in reducing inequality in our society.
While we're about it, bin the ludicrously expensive, pointless and unwanted Identity Card scheme. If the Government were prepared to admit they'd got it wrong on that one they'd be able to save a few bob, that's for sure.
Trident. Do we need to renew it? No of course we don't.
VAT? Forget it; bringing it down to 15% is little more than pissing in the wind. Laughable. Some things are best left alone.
If our economy picks up, it will be because other rather better run economies have improved rather than the result of any efforts on the part of our Chancellor. He'd have served us far better if he'd looked for a way forward that called time on our credit culture once and for all. Even allowing for the unpopular nature of such a route, I'm not sure Mr Darling has even grasped the need to consider it.
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Wednesday, 26 November 2008
Tuesday, 22 April 2008
Parkinson's Law
One of C Northcote Parkinson's less well known laws runs something like this, that the larger the sum of money involved in any decision, the less time a committee will devote to it. The £50 billion project goes through on the nod because most committee members can barely comprehend the amount involved, lack sufficient understanding to really question it, and are keen not to risk displaying ignorance by speaking up anyway. Conversely a small sum (such as a 10p increase in the cost of the committee refreshments) will have them at it hammer and tongs; all the committee understand the economic principles involved, most feel guilty that they didn't really pull their weight when it came to that earlier £50 billion commitment, and the likely outcome this time round is a deferred decision pending the report of a sub-committee set up to consider the matter further.
Thus it is with our government. Their indefensible abolition of the 10p tax band for the low paid has occupied our Chancellors (present and previous) and our representatives in parliament for some time now. Contrast that with the decision to use tax income to prop up a wildly inflated property market to the tune of £50 billion by bailing out reckless financial institutions; scarcely a murmur. The gulf between those two decisions is ironic beyond belief.
It goes almost without saying that both decisions are wrong. Wrong, wrong, wrong. Immoral too, but then morality hasn't entered into 'New Labour' deliberations over many years now.
Thus it is with our government. Their indefensible abolition of the 10p tax band for the low paid has occupied our Chancellors (present and previous) and our representatives in parliament for some time now. Contrast that with the decision to use tax income to prop up a wildly inflated property market to the tune of £50 billion by bailing out reckless financial institutions; scarcely a murmur. The gulf between those two decisions is ironic beyond belief.
It goes almost without saying that both decisions are wrong. Wrong, wrong, wrong. Immoral too, but then morality hasn't entered into 'New Labour' deliberations over many years now.
Wednesday, 19 March 2008
The first Darling Budget
What budget? Economy in meltdown and he takes a couple of pence here, a couple of pence there, all on the old staples like tobacco and alcohol. What's new?
It's ironic because the roots of our problems actually go back to Maggie rather than Tony and Gordon. I posted recently on this when I discussed Northern Rock, but in the light of the Bear Stearns collapse and now the news that HBOS could be in trouble there's a far bigger picture to consider.
The broad chronology goes like this:
The Thatcher government abandon controls on the selling of mortgages, saying that market forces should be the sole determinant of whether or not people get mortgages.
The building societies compete with each other, and with other providers, to lend large sums of money.
People obtain very large loans in order to buy property, regardless of ability to pay.
Because people are able to access these large sums of money, the price of property rises way beyond wage levels fuelling increases in the cost of living.
With property prices rising so fast, people who are financially stretched simply take out further loans, secured against the increased value of their homes.
Public housing is sold off on the cheap, which increases the demand for private rented property, so rent levels rise.
The returns are now so high that people start buying property 'to let'.
Governments start to live in fear of stopping property prices rising; not only do they risk upsetting 'home-owning' voters but they are aware that as soon as property prices stall the whole house of cards start falling down, as people with mortgages find themselves unable to meet their repayments. Many 'banks' (often de-mutualised building societies) are hopelessly overcommitted with high-risk mortgages, but market forces play no role at all by now as once banks start failing, they take the economy with them.
In all of this, it was the UK that led the way; the US, dazzled by our economic 'miracle', soon followed suit. And now we're both in the same boat, with property prices stalled or falling and mortgage defaults rising. Because of the general effect on the economy, the government can't conceivably allow banks to fail, so they find themselves pumping public money in and trying to bring interest rates down so that homeowners are under less financial pressure.
But we're going nowhere. We need an economy that supports higher interest rates and lower property prices. You can't continue to expand your economy on the basis of ever-increasing debt; it's the economics of the madhouse and Robert Mugabe; it can't be done.
Why do we need higher interest rates? Because it encourages investment, it encourages people to save, it provides the funding for our pensions (and god, don't we need that) and because it discourages financial institutions from reckless lending.
Why do we need lower property prices? Because it discourages speculation, it means businesses pay less rent so they don't have to charge such high prices, because it supports a thriving rural economy, because it makes it realistic for people to take a first step on the property ladder without being saddled with unrealistic debt.
Sooner or later, what goes up comes down, and property prices are no exception. Eventually it will happen, and at the moment it looks as though it will be sooner rather than later. Rather than hoping the problem will disappear, or better still that the collapse will come after the opposition have gained power, an effective chancellor would manage that process so that the worst pain is avoided, at the same time reducing the vast debt that is rife throughout our society.
We have, and have had, no economic miracle in this country. We do have a long period of apparent economic growth, financed not by hard work but by credit. We're past the point now where the government needs to call 'Time'. Not put a few pence on the price of a pint.
It's ironic because the roots of our problems actually go back to Maggie rather than Tony and Gordon. I posted recently on this when I discussed Northern Rock, but in the light of the Bear Stearns collapse and now the news that HBOS could be in trouble there's a far bigger picture to consider.
The broad chronology goes like this:
The Thatcher government abandon controls on the selling of mortgages, saying that market forces should be the sole determinant of whether or not people get mortgages.
The building societies compete with each other, and with other providers, to lend large sums of money.
People obtain very large loans in order to buy property, regardless of ability to pay.
Because people are able to access these large sums of money, the price of property rises way beyond wage levels fuelling increases in the cost of living.
With property prices rising so fast, people who are financially stretched simply take out further loans, secured against the increased value of their homes.
Public housing is sold off on the cheap, which increases the demand for private rented property, so rent levels rise.
The returns are now so high that people start buying property 'to let'.
Governments start to live in fear of stopping property prices rising; not only do they risk upsetting 'home-owning' voters but they are aware that as soon as property prices stall the whole house of cards start falling down, as people with mortgages find themselves unable to meet their repayments. Many 'banks' (often de-mutualised building societies) are hopelessly overcommitted with high-risk mortgages, but market forces play no role at all by now as once banks start failing, they take the economy with them.
In all of this, it was the UK that led the way; the US, dazzled by our economic 'miracle', soon followed suit. And now we're both in the same boat, with property prices stalled or falling and mortgage defaults rising. Because of the general effect on the economy, the government can't conceivably allow banks to fail, so they find themselves pumping public money in and trying to bring interest rates down so that homeowners are under less financial pressure.
But we're going nowhere. We need an economy that supports higher interest rates and lower property prices. You can't continue to expand your economy on the basis of ever-increasing debt; it's the economics of the madhouse and Robert Mugabe; it can't be done.
Why do we need higher interest rates? Because it encourages investment, it encourages people to save, it provides the funding for our pensions (and god, don't we need that) and because it discourages financial institutions from reckless lending.
Why do we need lower property prices? Because it discourages speculation, it means businesses pay less rent so they don't have to charge such high prices, because it supports a thriving rural economy, because it makes it realistic for people to take a first step on the property ladder without being saddled with unrealistic debt.
Sooner or later, what goes up comes down, and property prices are no exception. Eventually it will happen, and at the moment it looks as though it will be sooner rather than later. Rather than hoping the problem will disappear, or better still that the collapse will come after the opposition have gained power, an effective chancellor would manage that process so that the worst pain is avoided, at the same time reducing the vast debt that is rife throughout our society.
We have, and have had, no economic miracle in this country. We do have a long period of apparent economic growth, financed not by hard work but by credit. We're past the point now where the government needs to call 'Time'. Not put a few pence on the price of a pint.
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