This is bizarre:
Former cabinet minister Liam Fox has urged the government to freeze public spending for five years and use the savings to cut taxes and the deficit.
Stamp duty and taxes on bank account interest could be reduced to help create a "savings investment culture", the ex-defence secretary said.
Why's it bizarre? Precisely because we have far too many savings in the UK right now. This data looks reliable (from here):
One of the biggest reasons we're in recession is people are not spending enough because they are saving much more since the recession began.
And Liam Fox wants us to save more. And slash government spending at the same time, which would provide a double assault on GDP and guarantee the onset of a depression and massive unemployment.
Do these right wingers have any economic sense at all?
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The reason we are in recession is because we are not producing enough, not because we are not consuming enough. Savings and investment lead to capital investment and subsequent production.
In short, Liam Fox does have some level of economic literacy, and you don’t.
Completely wrong
It’s not we’re not producing enough
We’re not buying enough
And savings dop not create investment – credit does
You are completely and utterly wrong on all counts
If we are producing enough but not buying enough, why is our balance of trade so poor and why are we running huge deficits?
And where do you think credit comes from?
Credit is created out if thin air
Making things does not creat demand
Says Law is bunk
But, people like St Vince de Cable told us that we all had too much debt, the country, companies & people. We are still being told by economists & some people like you that we have too much debt.
Some others (including yourself) are telling us we should borrow more & spend it. But we can all see the problems of Greece, Ireland etc and don’t believe it.
Why is it so surprising that faced with this people, companies etc are ‘de-leveraging’ & saving?
Ah, but there is debt and debt
Unless the government borrows nor to nest a near enough 0% interest we cannot beat recession
I agree people may need to deleverage but do too quickly as Fox proposes and you get depression
It’s not hard to work out unless you are blinded by dogma
Demand doesn’t need to be created, human demand is infinite. Money to pay for demanded items is severely lacking. The is because we are not producing and exporting enough goods and services. We are continuing to live off of debt and imported goods and until we enact policies that will remedy that, or more accurately, eliminate policies that are preventing the market readjusting, we will remain in this prolonged state of stagnation.
The shortage of money is the result of banks not lending
Have you no idea where cash comes from?
QE helped solve that
But unless we get people to work by gov’t spending we will not get out of recession
Government spending might get you out of recession, but you’ll end up back in recession even harder in the long run.
Yes we need people back in work, that can be done by removing the minimum wage, seriously reforming benefits and easing up job regulations.
We also need to cut public spending to put downwards pressure on wages and bring them in line with what they should be so that we become a competitive and productive nation again.
The recession is the cure, it is the market readjusting to post boom realities, we must not prevent this process.
QE doesn’t help anything, just transfers wealth to asset holders and people with debt.
This is not worth debating
You promote the bankrupt economics of neoliberal Austerians
Just read Martin Wolf, Steve Keen, Robert Skidelsky et al
These problems have zero to do with the minimum wage or job protections. That you think it is so is a sign of economic illiteracy (amusing when you name yourself “a literate”).
The fundamental problem is one of economic imbalances between merchantalist nations and the non-merchantalists. The merchanalist big three are germany, japan and china. Using wage suppression polices they have increased exports while suppressing internal demand. Thus it is not that our wages are too high but that their wages are too low – and no these are not the same thing as I’ll explain.
As an example consumption in china accounts for ~35% of GDP, and investment ~50% of GDP. A healthy economy see’s consumption at 60-70% of gdp (we are at 56% and slowly falling).
The merchantalist wage supression by these nations has had a distortive effect on other economies, including ours, resulting in economic pressure to drive down our wages also as a means to compete. But to do so is madness – there is currently a massive global surplus in manufacturing capacity and a lack of economic demand. So if we were to give in to this economic pressure, this would simply increase the global goods surplus while further shrinking world-wide economic demand. And that ends up putting more pressure on the other non-merchantalists to do the same – we nor anyone else can win that race, each and everyone of us chasing an ever shrinking pool of global demand – it ends in catastrophic economic collapse for us all.
The old fashioned method of fixing this has been tariffs to force the merchantalists to correct the economic imbalances which they cause. Either they let wages rise or we make their goods cost as if they had let their wages rise. However, the neo-liberal doctrine that practically all nations have been following says that tariffs in all aspects are fundamentally evil. But without some sort of retaliation against the merchantalists they will not change their policies and continue to chase down global demand.
At some point, I expect the neo-liberal doctrine to be discarded and tariffs of some type will be implemented, perhaps as import certificates as muted by warren buffet.
http://en.wikipedia.org/wiki/Import_Certificates
AEP has also written on this a few days ago
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100023283/another-step-towards-an-east-west-trade-war/
“One of the biggest reasons we’re in recession is people are not spending enough because they are saving much more since the recession began.”
Sorry?
There is not enough demand
That’s why we are in recession
paying down debt removes money from circulation. See Paul Krugman (noble economics economist) He issued a Manifesto for Common Sense with Lord Layard (the British economist, He expands it in his book ‘End this depression now’. I make no pretense to be an expert but these are logical counter explanations to the orthodoxy expressed by Cameron and Merkel and the US Republicans.
OK, I won’t deal in cheap insults and suggest this is the sum total of your analysis. One question though: at this time of historically low interest rates, where does this credit come from? – I ask because John Redwood is saying something quite similar to you (what good company you’re keeping these days). However, he isn’t suggesting “out of thin air”.
http://www.taxresearch.org.uk/Blog/2011/06/17/all-money-is-a-confidence-trick-2/
I’m afraid this is the level of understanding of most people who believe what they read in the Tory press.
look up fractional reserve banking. We’ve had it since the birth of banking. Money is created by loans.
also Keynes’s article on the paradox of thrift. If minimum wages are abolished and all save more(and it it is not lent out), there is not enough purchasing power.
“But unless we get people to work by gov’t spending we will not get out of recession”. That’s not credit Richard; that’s more gov’t debt. It may or may not be a good thing right now – a matter of degree – but it is not credit any more than your Green QE was actually Quantitative Easing.
QE is credit
How it’s spent is part of the equation
Oh I see, by “thin air” we really are right back at Economic 101 and the principle of transferable debt. Well we all know that! The question stands: what method do you propose for conjuring your money out of thin air? Is it more QE? Is it increased gov’t borrowing on the bond markets? (Not actually a money supply solution at all) Or is it perhaps just spending loads more, issuing new debt and ordering the BoE to buy them all without going to the markets? Or are you perhaps planning on hiring a helicopter, renaming it Friedman 1 and chucking money out?
P.S. All of the above would have a greater short term impact than Liam Fox’s proposal, but then perhaps he wasn’t talking about the short term at all and we’ve all been wasting our time today.
Westlancs, your mainstream Economics 101 is just neo-liberal fantasy – read Prof. Keens’s book “Debunking Economics..” that exposes the absurdities.
Why do you expect a government to have to ‘borrow’ back the currency it has already created in the past ‘out of thin air’, instead of just ‘conjuring it out of thin air’ again? Are you going to mention Wiemar/Zimbabwe?
Don’t you know the vast majority of money in the economy is ‘conjured out of thin air’ by the commercial banks? Do you think your mortgage was paid with other people’s savings? Why doesn’t their completely uncontrolled magic money cause the rampant inflation you suppose government money will cause?
The only reason people don’t like the idea of the government doing the same thing is neo-liberal dogma. Private sector good, public sector bad – that’s the underpinning and limit of their economic thinking.
Exactly Brian. Fox, the audience he was addressing at the IEA, and the right wingers commenting on here just can’t accept the failure of neoliberal economics which is the cause of the economic mess we’re in now.
Like any religious or political fundamentalist they are in denial, unable or unwilling to acknowledge the importance of the state and public sector in creating any kind of halfway decent and effective economy; instead, they continue to insist that the deregulated, ‘free’ untrammelled market will sort out the mess, which we only got into by allowing the financial sector to be deregulated, and ‘free’ in the first place!
It is a conundrum. I can only speak as to why I am severely saving and not spending. I am saving in an inflation-indexed savings scheme. It is precisely the actions of government and the BOE (not to mention the Fed, ECB, BOJ, etc) which is driving my savings. Doubtful that all this ‘free’ money sloshing around will end positively.
It’s an interesting question. A big factor is saving at the right time of the economic cycle. http://www.economicshelp.org/blog/7102/economics/would-an-increase-in-savings-help-the-economy/
After reading the article my take was that Liam Fox is suggesting if we pay less tax on the money we have already been taxed on, then the economy will be benefit because that money will be spent by the consumer.
Case in point. I just bought a 270k house with my partner in London. When buying the house we paid £8,500 in stamp duty from money we had saved from our salary after we’d already given the tax man his 30% cut (Income tax and NI). After moving in we were skint and have spent nothing on the house.
Without stamp duty we’d have been left with £8,500 which, rest assured, my girlfriend would have spent in a variety of different ways, including hiring a decorator or builder to come in and do some renovations – work they are probably much in need of. That’s £8,500 in other people’s pockets to spend on things they need or want, all of which is taxed with VAT. Instead, the money went into the treasury bank account and was swallowed up instantly with no positive effect on anything whatsoever.
The knock on effect: Money taken from people’s pockets and two more people who despise paying taxes as it brings their, admittedly middle class, lives no real benefit beyond the occasional trip to the doctor and bin men once a week.
After this experience I couldn’t help thinking that this scenario is repeating hundreds of times everyday across the UK and wouldn’t it be nice if we were left alone to spend our own money in the ways we choose.
Were you born in an NHS hospital?
Educated by the state?
Go to university?
Is there a road outside your house?
Who defends you?
Who ensured the safety of your home?
How are your contracts enforceable?
Why do you have paid holidays?
Who will educate your children?
Shall I continue?
Or do you want m to say your comment is utterly misinformed?
Were you born in an NHS hospital? – Yes, but I haven’t been to hospital for years and my father was forced to go private to get a knee replacement last year because of the long wait time and poor treatment in his local hospital.
Educated by the state? Yes, but will my children be? Competition for places in the ‘good’ schools in my area is fierce and university fees, well that’s another matter – unaffordable according to my projections for life.
Go to university? Yes, see above.
Is there a road outside your house? Sort of, it’s more of a holey lane.
Who defends you? Against what? Two phoney wars in my adult life leave me with the distinct impression that this part of the budget is over-egged.
Who ensured the safety of your home? The police? I think, except our local police station is due to close and the officers will be forced to travel, by bus, to get to our ward.
How are your contracts enforceable? Sorry, I don’t understand this one.
Why do you have paid holidays? Because I earn them.
Who will educate your children? See above.
All of this during a period of increased taxes which are providing myself, retired parents, soon to be made redundant brother and many friends with no added benefit whatsoever.
You prove by your answers most major events in your life have been state funded
Although Stamp Duty Land Tax is a very stupid tax, you would not actually have been much better off without having to pay it, because SDLT affects the price you paid for the house in the first place.
Taxes do not only raise revenue, they have other affects: some good, some bad. The reason why house prices have risen astronomically is partly because of the credit boom. People pay what they can afford on a mortgage for one of the basic human needs. But the underlying reason is because we do not tax property sensibly. The old domestic rating system was a much more progressive tax and did help to keep down prices. But the Council Tax of £2-3K pa max has no affect on high value properties.
If we just taxed the land, not the buildings, we’d get both a secure income stream and the price of houses would tend towards the cost of the building only.
Excellent points Carol
The reason we had a housing boom was due to the inept easy money policies of the Bank of England giving us a real interest rate of around 1.5% for about 5 years, nothing to do with taxes.
Taxes are almost always bad as they distort the market resulting in a sub optimal allocation of resources and reduced productivity.
The only tax that more or less avoids this is a land value tax which should be the primary source of public expenditure. It’s also good as it’s near impossible to avoid.
Inheritance tax is probably a good tax i’d argue. Though one that is limited in scope and easy to avoid.
“Do these right wingers have any economic sense at all?”
Short answer: no! They have only ideological nonsense. They believe that taxation is theft and that only the private sector can produce wealth — with the public sector being nothing more than a giant, malevolent leech, weighing it down. They take the public sector to be an evil that’s necessary insofar as there are yobbos to lock up and foreigners to kill but anything more is a ‘luxury that we can no longer afford’ and must be slashed and burned back to those bare bones.
It isn’t even a matter of economic theory as such. Whatever they understand economically, *ideologically* they know government expenditure to be a subtraction from the economy — whatever theoretical subtleties their higher brain functions come to appreciate this is what they *know* to be true, fundamentally. It is their fundament, the root of their fundamentalism — the seemingly solid ground they ‘stand’ on to begin any conversation. They’re scarcely aware that it’s *there*, let alone that it’s false. Before they can even engage with ideas that cognitively dissonate with their ideology they have to, like the proverbial cartoon character, look down and see that the ‘ground’ they’re standing on is in fact thin air.
Taxation is theft. What else could it be? I certainly don’t want the government to take my money and never authorised them to do so at any point, but they do it anyway. That is what theft is, forcefully taking property from somebody without their consent. Whether you believe the ends justifies the means or not, it is still theft.
I tend to believe that adults should engage in voluntary transactions and not forceful transactions, and i don’t that’s such a terrible “ideology” quite frankly.
You will note the draft GAAR describes your opinion as “extreme”
That’s the diplomatic view
Upon posting I was concerned that my polemic might be taken to be an unfair caricature. Seems that I needn’t have worried, even the extremist agrees!
Taxation is no more theft than the rent I pay on my flat is theft. If I didn’t want to pay for the privilege of living in the flat I could move out and live in the woods or something. That’d avoid council tax! If I quit my job, closed my bank accounts and lived off the commons (what of it still remains) then I wouldn’t have to pay income tax either.
Then again, if I wanted to live and work in a functioning, industrialised society I could stop whining and pay my taxes like a grownup.
Tax is the price we pay for living in a society. The fact that ‘living in a society’ is largely unavoidable is neither here nor there. It’s a price we have little choice in paying — but then so is my rent.
‘You prove by your answers most major events in your life have been state funded’
State funded? Who funds the state?
If I choose to educate my children privately, use solely private medicine, etc. can I get a refund of my bit of these state activities, less an amount for the care of others less fortunate? No – didn’t think so.
Don’t you think it would be morally better for you to come clean and admit that you see the state as owning all my money and assets, and the state will give me some pocket money.
This debate now fails moderation
Your position is clearly that of an extremist
Max and A literate, do you want to live in a society? Quite frankly your attitudes if put into action would create a dystopia for most!
I suppose that will be the same private schools that you take the kids to along roads funded by society, using I guess a gas guzzler that pollutes our society, where the kids are educated by teachers trained in universities and schools funded by our society, where the school is equipped with nice new facilities some of which are funded in large part by an exemption from society’s taxes. The kids then of course go off to be further education in universities funded by society and then get jobs in the City which will give them big fat bonuses if they are successful in their gambles with money provided by our society and if they are not they will be bailed out by society as a whole.
And if you get ill then you can use private medicine, which will use hospitals funded by society as whole for the most serious and expensive complaints and is staffed by those who have been trained in our NHS, universities and schools. And of course if all those nasty oiks in society as a whole might object to your selfishness then I daresay you wouldn’t object to them paying for the police and courts which provide you with protection. And of course you are more than willing to express your views over a medium that would not exist were it not for the State originally having set it up.
I’m afraid all you are saying is that you believe that you and your type have some sought of divine right to say what the State should and shouldn’t do — unless you really are a hermit who wants to live in a cave and scavenge a living. Personally I prefer to stick to the usual democratic processes.
Just imagine that we were to do what Fox proposes and encourage savings by tax breaks funded by public expenditure cuts. Could someone please explain the mechanism by which this flows through into the investment part of the savings investment culture that Fox proposes. The banks and corporates are flush with liquidity at the moment, interest rates cannot go much lower and still no one wants to invest – and given that public expenditure is to be cut even further I very much doubt the inclination to do so would increase either.
My guess is that the real aganda of these malicious who continue to hang on Says Law despite all the evidence to the contrary is that they actaully believe that a dose of mass unemployment is a good thing which will force the wages and working conditions of the working class (or chavs as they currently call them) down to 3rd world levels.
Exactly