Old Labour Economic Theory. Tax and spend . Nu Labour Economic Theory. Spend and Tax then we can spend even more
As we kick off into a New Year the wise words of CynicusEconomicus provide a warning and state succintly what all people with experience of the real world - as distinct from Guradian readers, politicians, head massagers for the police service in Sussex . etc
[I]n the UK (and the same could be said of the US), there had been no real growth in what I considered to be wealth creating assets over the last ten years which could explain GDP growth; manufacturing, commodity extraction, export of services, and tourism (no net growth).This unsustainable faux national economy cannot of course maintain the national tax (spend) base.
Instead I pointed to the growth in debt, and asset inflation (real estate) as the source of all of the GDP growth of the last ten years. This debt, in conjunction with the multiplier effect, along with upwards levers such as immigration, created an illusion of growth in wealth. It led to the 'post industrial', 'service economy'. My argument was that this was completely unsustainable, and that a collapse in asset prices would signal a self-reinforcing downward spiral in the economy, driven by a collapse in consumer sentiment (a massive belt tightening) leading to the collapse of the service economy, higher unemployment, more belt tightening and so forth into a downward spiral.
Such a service based economy cannot (and will not) survive because this type of economy depends on the velocity of the money supply - now virtually stalled - but the spending has been boosted beyond belief.
This all revolves round the incapacity of the policy makers, people like Balls, Brown, Darling (and Osborne , Boris and the rest of the Bullingdon Club) and the double first at the BOE to distinguish between GDP and wealth creation.
Also what the politicians don't (understand) and certainly don't explain is that the taxes they levy rely on the velocity of money. Every time it goes around the circle there is less money because of tax extracted from the system - balanced a little by a small amount going into cash savings.
The received wisdom (as per J K Galbraith) is that therefore we now have to get the consumer spending again! To ... er .... get the economy moving.
Guradian Darling renews effort to increase lending with cut in fee to banks ..."Darling said: "All these measures will continue to help ensure that we get bank lending going again."
Independent - Darling: Banks must go further to help businesses - "Mr Darling promised yesterday to push the banks on lending, as he told MPs on the Treasury Select Committee that a wider range of government guarantees to underwrite loans to companies and mortgages may also be implemented, as ministers make a determined effort to unfreeze the credit markets. "It's one of the range of things we are looking at," he said. He added that "we need to do much more" to restore lending to the economy.
Banks lend ...you spend ... we tax ... we spend .... altogether now ....