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June 18, 2011



It wasn't good luck, it was us squandering North Sea oil. Discuss....

Ralph Musgrave

Re 1, “would employers really take on more workers in response to…a temporary VAT cut”, the answer is “yes” because the meet extra demand, employers normally need more staff. Hardly controversial that, is it?

Re your suggestion that interest rate adjustments are a near hopeless way of regulating economies, I agree for reasons I set out here:


However, you go too far in tarring all monetary policy with the same brush: more money in household pockets would have an effect, I think. E.g. if the above VAT reduction were unfunded, i.e. just consisted of new money, that would boost demand. The empirical evidence is that when households come by more cash (e.g. tax rebates, lottery wins, etc) THEY SPEND SOME OF THE MONEY!!! (Surprise, surprise).

Re 3, it’s true that the nearer an economy is to full employment, the more the risk of bubbles. Part of the solution to that is to tackle the fundamental cause of the instability that is inherent in the free market or capitalist system: the fact that commercial bank created money is pro-cyclical. I.e. commercial banks create money just when they should’nt: in a boom. And everyone deleverages just when they shouldn’t: in a recession.

Re 4, obviously the lower unemployment is, the higher are wage demands. I.e. there is an optimum trade off between demand and inflation : it’s called NAIRU. Given that unemployment was much lower four or five years ago than now, NAIRU is presumably below current unemployment levels. So I say let’s try to reduce employment to where it was four or five years ago.


is the unemployment number significant?

Given that I can take 2 million off the unemployment total by getting half of them to fill in forms and the other half to type the numbers into a computer, and achieve precisely nothing in doing that, aren't the unemployment numbers a work of fiction?


So then chris with your day job hat on, what would you do to revive welfare state capitalism?
What about confiscating all Profits not invested in productive capital? Spending the revenue on council houses for single mothers unless the bosses stop Saving too much? I am sure a quick assessment of social needs would turn up all sorts of investment that would benefit actual human beings. And increase demand.

gastro george

"It wasn't good luck, it was us squandering North Sea oil."

Well quite. Pissed away on tax cuts.

The problem with cutting VAT is that it's likely to disappear into increasing currently-very-squeezed profit margins. And while it might help the retail sector, out propensity to spend on imports will mean that manufacturers are unlikely to see much of it. But it would affect the much-heralded "confidence". But as has been pointed out in the Obs today, it's not going to happen because it doesn't fit in with Osborne's political cycle.

Ralph: I thought that MMTers brought out their sprigs of garlic when NAIRU is ever mentioned?

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