Tuesday, 13 July 2010

Are we going double dipping

I was reading a rather good book about the inter war years, the 1920 and 30's, the book dealt with politics, economics and news worthy stories.

The story of Ramsey McDonald interested me, how he was persuaded to form a national government and how in 1931 he made cuts to government spending that made people poorer and forced the economy further into recession.

The other historical moment that effected my life would have been when the IMF was called in in the mid/late 1970's, this again caused public sector cuts, I remember clearly, sharing a book between three children in many subjects at Whitstone, or teachers photocopying texts as there were no new books.

The Thatcher monetary experiment in the early 1980's made the IMF intervention worse, further public sector cuts, with tax cuts mainly for the wealthy and transfer of taxation into indirect taxation like VAT. It took me over twelve months to get a full time job, with nearly four million unemployed.

So to the present day, the recent emergency budget will increase VAT to 20% in January, cut corporation taxes to banks and cut public spending.

The real problem is that by cutting public sector jobs now, hence taking money out of the economy, whilst the private sector is still not growing, will certainly cause a much reduced growth rate, without growth how does private business expand?

Before long the economy just stagnates, moving in decreasing circles, less investment in public services, the wealthy can do without public services, ordinary people rely on public services.

The other concern is the property market, if there is no growth in the economy, more people lose their jobs, with house prices locally inflated, how long before we have a Japan type property depression?

History teaches lessons, sometimes it's important to learn from them.

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