Chris Mercer 6.10.10
How to really fix the economy.
The more I think about this, the angrier I get. One hundred years ago, when the gap between the rich and the poor was also as wide as it is today there was revolution. But as George Orwell predicted, our society has become sanitised, our voices drowned out by the state. Big Brother is watching us, and we know it, and we accept it. We don't have the choice of rising up against the system anymore. The proletariat have been silenced.
We have a situation where the whole of society will have to pay dearly for the mistakes of just a few. This week in the UK, the government gave the go ahead for universities to begin charging students £10,000 for tuition. As it stands a degree will no more ensure a successful career than an O level would 30 years ago. This means students from poorer families will have to be saddled with student debt well into their 30s. Why are they paying when the generations before them benefitted so much from universal education, free and topped up by government help?
Government services are being scaled back at an unprecedented level, but yet taxes continue to rise. Hospitals, schools, police , emergency services, the list goes on, are all facing dramatic reductions in their ability to function. Today the taxation system is everywhere, it is a part of everything we do. V.A.T increases the cost of necessities, car tax, road tax, inheritance tax, fuel duty, alcohol duty, property tax/stamp duty, Council rates/tax, and of course income tax. These taxes are paid by everybody. In the UK V.A.T was not supposed to be levied upon children's goods, but ask any parent about the cost of flights,books and clothes-today there is no difference between adults and children. Taxation systems throughout the world are now efficient and the long arm of the taxman is very difficult to avoid. This means that governments' revenues are enormous. The majority of this windfall is paid for by normal people, 'upper middle class, middle class, working class, and even the great unwashed, those at the bottom of the tree.
Yet the return that normal people get back from that system is dwindling. The shortfall is the crux. The shortfall means that people have less to spend on leisure, consumer goods, luxuries. People only have enough to survive, to sustain themselves, to pay the myriad of government and utility charges they are burdened with. As this group represent a very large majority of the population, the knock-on effect is drastic. No purchasing power for goods and services, no sales, no jobs, less tax revenue, more unemployed to share that revenue. An ever decreasing circle, and if we listen to the idiots charged with getting us out of this, a very bleak future indeed.
Some things do have to change. We are living longer and stronger, we must work longer too. We cannot continue to let people rot away in the welfare system, deserving or not. There are ways to deal with long term unemployed, but non more successful as making sure they have jobs to go to. How can we not have enough manpower to help the elderly, to sweep the streets, to clean the beaches, to paint the fences, to teach our children, and to build our homes? We have to find a way, to get everything done that needs to be done with the people that we have. That means of course paying a decent wage. We can't escape big government, we just have to pay for it.
Back to the beginning though, and back to the reason for my anger. There are many reasons for the collapse of the world's economy, from the greed of banks that didn't care about the credit that they gave, that created a false sense of security based completely in the 'never-never'. The arrogance and fraud of the markets and financial institutions take your breath away. Surely we cannot let them continue to produce nothing, and trade only in imaginary goods. To think that these people spend their days pressing buttons on keyboards, gambling with the wealth of nations, for no apparent reason is staggering to the extreme-how stupid are we to let this go on?
Thatcher's idea that everyone should own their own home was seriously misguided, and still is. In the frenzied race that followed, the prices of those homes rose to way beyond the means of normal people. A run of the mill 2 bedroom house in the UK(outside London) now costs 20-30 year's salary!! I mean, really! That is unsustainable. It was great while it lasted for those able to buy and sell during those years, but now it's time to come back to earth.
The rich have become much, much richer and the poor much poorer, and that is a reality. Those least affected by all of this are the super rich and the rich. They are still paying the same amount of taxes in proportion to their worth as they were before all of this. In fact most of them have become richer. We find that more of the world's wealth is being controlled by a smaller group of people. In the case of the UK, we can also see that large corporations are becoming ever bigger monopolies and duopolies. These companies are able to dictate prices both to consumers and to those who supply them. There are areas of the UK that now remind me of those tumbleweed cowboy towns after the gold rush had moved on. In Hong Kong too, there is a definite danger that too few companies are beginning to strangle the very market that created them. Where is the dynamism, creativity and competition?
It is time to redistribute the wealth again. We don't need communism to do this, again as Orwell pointed out, it doesn't work. We don't even need to give up on capitalism, it's not perfect but it's all we have.
The Americans are terrified of the word socialism, and to be fair it does probably give the wrong idea. Yet in the US right now we have the rise of 'The Tea Party' , which were able to galvanise themselves into existence just because of the fear that arose from Obama's Healthcare reform. The terms Socialism and Communism were bandied around so much, even in relation to Europe that rallies of frightened right wingers soon sprang up. The US has an uphill struggle in trying to even the score out, but after a few years of middle class hardship the tide may well turn.
So, we need capitalism with some very strict controls, with a touch of socialism(not a dirty word outside the US). The controls need to be put on banks, as well as just making a profit, they have a role to play in society. We can't trust them to regulate themselves, so we will have to do it. To begin with, they are more responsible for the mess that we are in than any other group. Even if they didn't take any government money (Barclays, Hsbc), they still created the conditions for the banking collapse. I am not talking about a small levy on their revenues, but quite a hefty one. This levy must be agreed by the WTO, thereby ensuring the banks don't bugger off to avoid it. Also a simple rule that if you do any business here you must pay , no matter where your headquarters are. That should bring a nice hefty sum into government coffers to get started with the real recovery.
Next on the list are the large corporations, to begin with a large increase in business tax, with small and medium sized companies being given a reduction in tax. If the large companies don't like it-so what? Let them go. These commercial tax policies can implemented at least Europe wide, and once again if the companies want access to our markets, they will pay, one way or another.
Next is individual tax, the upper tax rate must be drastically increased, back to the levels of the 60s and 70s. The simple fact is, is that we have to rebuild. If we reduce the wealth of the wealthy, their purchasing power remains the same, they still buy the same things.That money is of much better use to the society that enabled them to gain so much wealth. As things improve this can be reduced again. In the case of the UK, a new law may need to be tabled that even if a citizen in the upper tax bracket was to leave the UK, they would still be required to pay that tax. There are not that many 'tax havens' left in the world, and certainly not many without reciprocal extradition treaties.
These measures alone are enough to balance the huge deficits of Western nations, but they are also sound measures for developing nations as well.
Of course balancing the budget is not enough, that only takes care of governments' needs. It surprises me how the leaders of the world have for some reason forgotten basic economics or are completely ignorant of basic economic principles. It was hearing Warren Buffet today and his views on taxation that gave me hope. I have had the same views on macro economics since school , and have watched the exact opposite happening for the last twenty years. That's why it was so heartening to hear those views repeated by one of the richest men in the world today, and why I felt the urge to write about it.
So back to the matter at hand. Demand also needs to be encouraged. As we have learnt, that demand should not be driven by reckless credit. We need to change society's mindset. The majority of taxation should not be borne by the majority of people. Of course, we should still have a system whereas services are paid for, and only occasionally subsidised(except for health and education which should always be free). Our aim should still be that government, local and national should pay for itself , but that is not a reality yet-only an aim. The majority need to be free from an overwhelming tax burden. Once they are free from that burden, they will have money to spend. These people are the middle classes, and the working classes. As they spend their money in the economy rather than give it to government, the economy grows. This in turn, generates jobs, and reduces the welfare cost to the government, and the cost of poverty to society. Hey presto! We once again have a functioning capitalist economy, built on work, goods and services rather than credit, speculation and the tooth fairy.
Obama understands this but he is at the helm of a very rowdy ship, and his chances of success are very slim. In the UK, we have a coalition of imbeciles who don't understand this, and can only think cuts, cuts, cuts, and oh yeah, more cuts! The money that they will get from these cuts is miniscule, and not nearly enough to address the deficit. They are also blind to the effects that these cuts will have on both the economy and to society as a whole. If they continue on their present track, disaster is nigh. The labour party are no better. All of these politicians are more interested in tabloid headlines, opinion polls and jingoism than thinking outside the box, or of having the guts to really change things.
Hong Kong is run by the corporations and by giant property developers. It, ironically has huge reserves, but won't spend them, it would rather keep the money under the bed. This when its own citizens suffer, when schools and healthcare are woeful, when the elderly sweep the streets and live in cages.
Revolution in the end is what is needed, unfortunately a peaceful one, in my opinion.
