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Economically sound

As we all know the Economy is screwed.

Every day we read stories about the Euro failing, obscene amounts of non existant money being pledged to save Greece, Unemployment and general doom and gloom. What we don’t really read about are any real ideas on how to solve the situation.

I have little, if any knowledge of economics, but from what I can work out the overriding issue comes simply down to us, the consumer not spending enough money. This obviously means less jobs, as businesses don’t need staff to maintain the level of demand they are currently supplying, which in turn leads to less disposable income, which in turn leads to less demand, which in turn leads to less jobs and so the cycle goes on, an obvious vicious circle.

So it stands to reason that the way to beat this is to create more jobs, and thus reverse the circle, but for that to happen there needs to be the demand, that creates the jobs, that gives us the income, to supply the demand that creates more jobs.

Wait a second I’m pretty sure I just repeated my first statement but from a different starting point and I’m still stuck in the same vicious circle.

So it seems that we need to break the circle and come at it from a different angle, how about if we could create more disposable income, without having to first create the jobs.

The previous Government kind of dabbled in this idea with the VAT reduction in 2008, but let’s be honest despite the hype it was nothing more than a PR stunt.

Examples of how much you could save

If you buy something that costs £10.00 excluding VAT:

  • at the old rate, the net amount before VAT was £10.00, and the 17.5 per cent VAT was £1.75, making a total of £11.75
  • at the new rate, the net amount before VAT is £10.00, and the 15 per cent VAT is £1.50, making a total of £11.50 – so you pay £0.25 less VAT

If you buy something that costs £10.00 including VAT:

  • at the old rate, the net amount before VAT was £8.51, and the 17.5 per cent VAT was £1.49, making a total of £10.00
  • at the new rate, the net amount before VAT is £8.70, and the 15 per cent VAT is £1.30, making a total of £10.00
  • if the shop changes its prices to pass on the VAT reduction, then it will still charge the original net amount of £8.51, and add VAT at the new 15 per cent rate of £1.28, making a total selling price of £9.79 – so you could save £0.21 for every £10.00 that you would have spent

 

The entire thing makes me think of the Robert Rankin novel “Snuff Fiction” published in 1999.

The protagonist in this story suggests a couple interesting ways in which to save a british ecconmy facing similar problems.

‘And so,’ continued the Doveston, ‘I have drawn up a couple of radical proposals which I feel will sort everything out. Firstly I propose that income tax be abolished.’
    A gasp went up around the table.
    ‘I’ll give that the thumbs up,’ said Norman.
    ‘Please calm down,’ said the Doveston, ‘and allow me to explain.’
    ‘I am calm,’ said Norman.
    ‘He wasn’t talking to you.’
    ‘As we all know,’ the Doveston said, ‘no matter how much money you earn, the inland revenue will eventually get all of it. It is damn near impossible to buy anything that does not have a tax on it somewhere. Allow me to advance this argument. Say I have one hundred pounds. I go into an off-licence and buy ten bottles of whisky at ten pounds a bottle. The actual whisky only costs two pounds a bottle, all the rest is tax. So the man in the off-licence now has the difference, twenty pounds. He uses that to fill his car up with petrol. Tax on petrol represents seventy-five per cent of its market price. So now there’s only five pounds left out of my one hundred pounds. The chap at the petrol station spends this on five packets of cigarettes. And we all know how much tax there is on fags. Out of my original one hundred pounds, the government now have all but one. And whatever the man in the fag shop spends that one pound on will have a tax on it somewhere.’

So far so good, we can all relate to this, but how you might ask does this help us out of an economic crisis.

‘Yes yes yes,; said old silly-bollocks. ‘We all know this, although we wouldn’t want the man in the street to know it.’
    ‘Precisely,’ said the Doveston. ‘And we’re not going to tell him. Now this same man in the street is taxed roughly one-third of his weekly earnings in direct taxation. What would happen if he wasn’t?’
    ‘He’d have a third more of his money to spend every week,’ said old silly-bollocks.
    ‘And what would he spend it on?’
    ‘Things, I suppose.’
    ‘Precisely. Things with tax on.’
    ‘Er, excuse me,’ said what’s-his-face, the Foreign Secretary. ‘But if everybody in the country has a third of their money in their pockets to spend and they did spend it, surely the shops would run out of things to sell?’
    ‘Precisely. And so factories would have to manufacture more things and to do so they would have to take on more staff and so you would cut unemplyment at a stroke. And you wouldn’t have to increase anybody’s wages, because they’s all be getting a third more in their pay packets anyway. You’d have full employment and a happy workforce. Hardly the recipe for revolution, is it?’
    ‘There has to be a flaw in this logic,’ I said to Norman.
    ‘There has to be a flaw in this logic,’ said old silly-bollocks. ‘But for the life of me, I can’t see what it is.’
    ‘There is no flaw,’ said the Doveston. ‘And if you increase the purchase tax on all goods by a penny in the pound – which no one will complain about, because they’ll have so much more money to spend – you’ll be able to grab that final pound out of my original one hundred. You”l get the lot.’

As old silly-bollocks says there has to be a flaw in this logic, but is there? As I said I’m not an economist, but as a layman try as I might I can’t seem to find it.

The second one is a little more radical, but not an unheard of argument.

  ‘Now, my second radical proposal is this,’ said the Doveston, once all the clappers had sat themselves down. ‘I propose that the government legalize all drugs.’

The Doveston continued. ‘Please hear me out,’ he said. ‘Now, as we all know, the government spends a fortune each year in the war against drugs. It is a war that the government can never win. You can’t stop people enjoying themselves and there are just too many ways of bringing drugs into this country. So why does the government get so up in arms about drugs?’
    ‘Because they’re bad for you,’ said what’s-his-face.
    ‘You are amongst friends here,’ said the Doveston. ‘You can tell the truth.’
    ‘I’ll bet he can’t,’ said old silly-bollocks.
    ‘Can too.’
    ‘Can’t.’
    ‘Can too.’
    ‘Go on then,’ said the Doveston. ‘Why does the government get so up in arms about drugs?’
    ‘Because we can’t tax them, of course.’
    ‘Precisely. But you could tax them if they were legal.’
    ‘Don’t think we haven’t thought about it,’ said old silly-bollocks. ‘But no government dare legalize drugs. Even though half the population regularly use them, the other half would vote us out of office.’
    ‘But what if they were legalized, but the man in the street didn’t know they were legalized?’
    ‘I don’t quite see how you could do that.’
    ‘What if you were to take all the money that is wasted each year in the war on drugs, go over to the areas where the drugs are originally grown, the Golden Triangle and so on, and use the money to buy all the crops. Ship them back to England, then market them through the existing networks of pushers. You wouldn’t half make a big profit.’
    ‘That’s hardly the same as legalizing them, or taxing them.’
    ‘Well, firstly, the people who take drugs don’t really want them legalized. Half the fun of taking drugs is the ‘forbidden fruit’ aspect. They’re much more exciting to take if they’re illegal. Only the government will know that they’re legal, which is to say that the Royal Navy will import them. You can’t imagine any drug-traffickers wanting to take on the Royal Navy, can you? On arrival here, the drugs will be tested and graded, they could even be trademarked. They will be top quality, at affordable and competitive prices. Any opposition in the shape of rival drug-importers will soon be put out of business. The profits you make can be called ‘tax’. I can’t think of a better word, can you?’
    ‘But if the rest of the world found out..?’ Old silly-bollocks wrung his hands.
    ‘You mean if other governments found out?’ Well, tell them. Tell them all. Get them to do the same. It will put the Mafia out of business and increase government revenues by billions all over the world.’
    ‘But the whole world will get stoned out of its brains.’
    ‘No it won’t. No more people will be taking drugs than there are now. And fewer people in this country will be taking them.’
    ‘How do you work that out?’ old silly-bollocks asked.
    ‘Because a great deal of drug-taking is done out of desperation. By poor unemployed people who have given up hope. In the new income-tax-free society, they’ll all have jobs and money to spend. They won’t be so desperate then, will they?’

It might sound Crazy but the trade of opium features heavily in some of the most succesfull parts of british history.         

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  1. March 19, 2013 at 10:48 pm
  2. September 10, 2013 at 10:08 pm

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