Paul Krugman

[Caulkhead]

crankedup said:

Caulkhead said:

crankedup said:

Caulkhead said:

crankedup said:

So exactly what is the answer, clearly the austerity program is not working for the PIGS or the U.K.

Why isn't it working for the UK? We can borrow at historically low rates and have a triple A credit rating despite our huge deficit because the markets trust our austerity plan. Growth is certainly too slow, but that's highly preferential over 5% instead of 2% borrowing and growth will be hard to find irrespective until the uncertainties of the eurozone collapse go away.

Agreed the triple A rating and low interest rates, but the current reduction is just a drop in the ocean of debt and the rate of reduction implies at least another decade before we are seeing the light. I cannot see how this can be sustained with increasing unemployment, SME having almost zero access to business loans and the increase in benefits which is bound to happen when we invite half of the PIGS population over. I cannot see an end to the Euro crisis before the end of the decade and the fall out from PIGS (lesser extent Ireland) will be a major downer for any growth hopes for us for years to come.
Not sure how much more the BOE will provide QE.
Would I be far off by suggesting that Labour will be in power next time around and they will introduce the major infrastructure building in the hope of stimulating growth. Seems to me that half of the 'experts' favour current Government action whilst the other half favour a stimulus program for growth, I refer to Economics commentators. Perhaps the answer is somewhere inbetween?

If labour get in and start borrowing for major infrastructure work, our credibility will disappear and we'll immediately be asked for 5% instead of 2%. This will stop the infrastructure idea dead.

No-one likes it, but the truth is we've got to hurt now to be ahead in a couple of years time. If you think petrol and food are expensive now, add triple the mortgage rate into your household accounts if we don't stick rigidly to austerity and see how the spreadsheet looks then. Not nice at all.

Having listened intently to 'experts' on telly and radio, read various newspapers about the subject I'm not about to argue the toss. But with half of the 'experts' on one side and half on the other its almost impossible to be able to judge outcomes. Well if the experts can't agree it has said it all I guess. Our saving grace is devaluation and a society that is, compared to many others, fairly compliant. But unless we can achieve some sort of growth how the heck are people going to find employment and start paying taxes. Its a nightmare in a bubble.

Actually, our saving grace is that we have our own currency. Growth is vital, but it's the type of growth and employment that matters. If the growth is based on borrowing and creates public sector jobs with salaries paid for entirely out of the taxes others have already paid, it will be short term and pointless. If we can generate private sector growth and continue to move as many public sector employees into the private sector paid by wealth creation, not taxation, then we can start to move forward.

[johnfm]

AJS- said:

johnfm said:

The 'investment' really needs to take the form of 'getting out of the way' via tax incentives to industries/sectors that they want to promote.

If you give a 10 year tax break to fracking companies or LNG storage companies etc, private companies will invest.

People will invest if they can get the return they're seeking on their investment.

What's so special about fracking as opposed to any other way of making money? Why not just cut general taxes?

What's so special about fracking?

Probably one of the few potential sources of growth and output outside the SE of England.

I don't mean to suggest that there is no industry in the north (there is quite a lot of small/medium sale manufacturing etc), but the opportunity that shale gas may offer for the regions outside of the SE/London cannot be ignored.

They should be accelerated and any impediments to projects removed by government as quickly as possible.

"People will invest if they can get the return they're seeking on their investment." - it is pretty clear that the return on investment for a company given a tax break will be enhanced compared to the case if there is no tax break. THat could take the form of corp tax relief or employers NI relief. Either way, it would improve the business case.

[crankedup]

Caulkhead said:

crankedup said:

Caulkhead said:

crankedup said:

Caulkhead said:

crankedup said:

So exactly what is the answer, clearly the austerity program is not working for the PIGS or the U.K.

Why isn't it working for the UK? We can borrow at historically low rates and have a triple A credit rating despite our huge deficit because the markets trust our austerity plan. Growth is certainly too slow, but that's highly preferential over 5% instead of 2% borrowing and growth will be hard to find irrespective until the uncertainties of the eurozone collapse go away.

Agreed the triple A rating and low interest rates, but the current reduction is just a drop in the ocean of debt and the rate of reduction implies at least another decade before we are seeing the light. I cannot see how this can be sustained with increasing unemployment, SME having almost zero access to business loans and the increase in benefits which is bound to happen when we invite half of the PIGS population over. I cannot see an end to the Euro crisis before the end of the decade and the fall out from PIGS (lesser extent Ireland) will be a major downer for any growth hopes for us for years to come.
Not sure how much more the BOE will provide QE.
Would I be far off by suggesting that Labour will be in power next time around and they will introduce the major infrastructure building in the hope of stimulating growth. Seems to me that half of the 'experts' favour current Government action whilst the other half favour a stimulus program for growth, I refer to Economics commentators. Perhaps the answer is somewhere inbetween?

If labour get in and start borrowing for major infrastructure work, our credibility will disappear and we'll immediately be asked for 5% instead of 2%. This will stop the infrastructure idea dead.

No-one likes it, but the truth is we've got to hurt now to be ahead in a couple of years time. If you think petrol and food are expensive now, add triple the mortgage rate into your household accounts if we don't stick rigidly to austerity and see how the spreadsheet looks then. Not nice at all.

Having listened intently to 'experts' on telly and radio, read various newspapers about the subject I'm not about to argue the toss. But with half of the 'experts' on one side and half on the other its almost impossible to be able to judge outcomes. Well if the experts can't agree it has said it all I guess. Our saving grace is devaluation and a society that is, compared to many others, fairly compliant. But unless we can achieve some sort of growth how the heck are people going to find employment and start paying taxes. Its a nightmare in a bubble.

Actually, our saving grace is that we have our own currency. Growth is vital, but it's the type of growth and employment that matters. If the growth is based on borrowing and creates public sector jobs with salaries paid for entirely out of the taxes others have already paid, it will be short term and pointless. If we can generate private sector growth and continue to move as many public sector employees into the private sector paid by wealth creation, not taxation, then we can start to move forward.

Yes thankfully, as you say, we retained our own currency. As Zod points out our traditional export markets are in meltdown, our export Companies are no doubt seeking out those new emerging markets to fill the order books, and have been doing so for a number of years I guess. I know that tech, science are prospering in and around Cambridge and three new Universities in the region have the green light, building due to start. Ok its regional but any good news is great to hear.
Just imagine for a moment that in years to come this crisis will be a valuable lesson to the world economists studied and restudied, pontificated for generations to come. Not such a good legacy but at least we got to the moon and back!

[AJS-]

johnfm said:

What's so special about fracking?

Probably one of the few potential sources of growth and output outside the SE of England.

I don't mean to suggest that there is no industry in the north (there is quite a lot of small/medium sale manufacturing etc), but the opportunity that shale gas may offer for the regions outside of the SE/London cannot be ignored.

They should be accelerated and any impediments to projects removed by government as quickly as possible.

"People will invest if they can get the return they're seeking on their investment." - it is pretty clear that the return on investment for a company given a tax break will be enhanced compared to the case if there is no tax break. THat could take the form of corp tax relief or employers NI relief. Either way, it would improve the business case.

Could well still come to nought. New technologies are notoriously high risk, and indeed high return, but the government isn't really in a position to be taking big gambles on something, with our money, and in so doing diverting money away from things that would otherwise attract investment that private investors (who typically have a much better grasp of what they're doing) would otherwise invest in.

[johnfm]

AJS- said:

johnfm said:

What's so special about fracking?

Probably one of the few potential sources of growth and output outside the SE of England.

I don't mean to suggest that there is no industry in the north (there is quite a lot of small/medium sale manufacturing etc), but the opportunity that shale gas may offer for the regions outside of the SE/London cannot be ignored.

They should be accelerated and any impediments to projects removed by government as quickly as possible.

"People will invest if they can get the return they're seeking on their investment." - it is pretty clear that the return on investment for a company given a tax break will be enhanced compared to the case if there is no tax break. THat could take the form of corp tax relief or employers NI relief. Either way, it would improve the business case.

Could well still come to nought. New technologies are notoriously high risk, and indeed high return, but the government isn't really in a position to be taking big gambles on something, with our money, and in so doing diverting money away from things that would otherwise attract investment that private investors (who typically have a much better grasp of what they're doing) would otherwise invest in.

The point is, they wouldn't be taking amy risk with our money - the whole point of tax incentives is that they do not involve cashflow from government coffers to private companies. They involve a future reduction in revenues if the companies risk their own capital investing in ventures.

The tax breaks help mitigate the risk and are no cost to government - if the companies do not invest and do business the tax revenues from that venture wouldn't exist anyway - so it is a no brainer.

Edited to add, even if it comes to 'nought', the investment made in exploration research etc flows into the economy. Not sure what money is being diverted by using tax incentives to attract outside investment into a region or sector.

Edited by johnfm on Friday 1st June 11:43

[AJS-]

johnfm said:

The point is, they wouldn't be taking amy risk with our money - the whole point of tax incentives is that they do not involve cashflow from government coffers to private companies. They involve a future reduction in revenues if the companies risk their own capital investing in ventures.

The tax breaks help mitigate the risk and are no cost to government - if the companies do not invest and do business the tax revenues from that venture wouldn't exist anyway - so it is a no brainer.

Edited to add, even if it comes to 'nought', the investment made in exploration research etc flows into the economy. Not sure what money is being diverted by using tax incentives to attract outside investment into a region or sector.

You're right in a sense, a tax break is not the same as a subsidy, but the overall effect is the same - a chosen group of businesses are handed an advantage courtesy of the tax system, while other businesses who pay full rate taxes in effect subsidise them. This diverts resources such as investment, labour and expertise away from other productive businesses. And then there are the administrative costs of deciding which businesses qualify etc.

If it's a profitable business why wouldn't it attract investment on it's own without the government favouring it through the tax system?

[turbobloke]

AJS- said:

If it's a profitable business why wouldn't it attract investment on it's own without the government favouring it through the tax system?

You should direct that question to Windymill and Photocell companies

In their case it was the Great Green God Gaia speaking through High Priest True Believers. Every politician (knee) bent.

[AJS-]

turbobloke said:

AJS- said:

If it's a profitable business why wouldn't it attract investment on it's own without the government favouring it through the tax system?

You should direct that question to Windymill and Photocell companies

In their case it was the Great Green God Gaia speaking through High Priest True Believers. Every politician (knee) bent.

Indeed.

I'd direct it at anyone asking for a government hand out, tax break or special dispensation on something. It opens up a world of lobbying, corruption and mismanagement and almost invariably ends in disaster for the government and the supposedly favoured industry, and expense for the rest of us.

It's also my current bugbear on Pistonheads. It's generally a pretty right thinking place with sensible opinions but there is a strain of people who have these daft ideas about government favouring one particular technology or industry, or insisting on manufacturing and exports as being the only possible way to economic growth, or engineering degrees being mandatory for high political office. It's all nonsense.

Government should exist (if at all) to provide a basic framework in which people and businesses can interact - property rights, the rule of law, a stable and dependable currency. Then it should stay the hell out of the way and let people get on with it. Countries are by and large peaceful and prosperous to the extent that this happens, and equally violent and chaotic to the extent that the government is involved in people's affairs.

[johnfm]

AJS- said:

johnfm said:

The point is, they wouldn't be taking amy risk with our money - the whole point of tax incentives is that they do not involve cashflow from government coffers to private companies. They involve a future reduction in revenues if the companies risk their own capital investing in ventures.

The tax breaks help mitigate the risk and are no cost to government - if the companies do not invest and do business the tax revenues from that venture wouldn't exist anyway - so it is a no brainer.

Edited to add, even if it comes to 'nought', the investment made in exploration research etc flows into the economy. Not sure what money is being diverted by using tax incentives to attract outside investment into a region or sector.

You're right in a sense, a tax break is not the same as a subsidy, but the overall effect is the same - a chosen group of businesses are handed an advantage courtesy of the tax system, while other businesses who pay full rate taxes in effect subsidise them. This diverts resources such as investment, labour and expertise away from other productive businesses. And then there are the administrative costs of deciding which businesses qualify etc.

If it's a profitable business why wouldn't it attract investment on it's own without the government favouring it through the tax system?

Because there are many countries and cities around the world competing to attract investment.

If there are two possible choices to site a car manufacturing plant, or pharma research lab or shale gas field and one offers a tax break which helps mitigate some risk and the other doesn't, then all other things being equal they will go for the tax break.

It happens in film production, car manufacturing etc etc.

In the US, different states attract business this way.

The current companies paying taxes & rates aren't subsiding anything - as it is new business. It will not exist but for the incentives.

[johnfm]

AJS- said:

turbobloke said:

AJS- said:

If it's a profitable business why wouldn't it attract investment on it's own without the government favouring it through the tax system?

You should direct that question to Windymill and Photocell companies

In their case it was the Great Green God Gaia speaking through High Priest True Believers. Every politician (knee) bent.

Indeed.

I'd direct it at anyone asking for a government hand out, tax break or special dispensation on something. It opens up a world of lobbying, corruption and mismanagement and almost invariably ends in disaster for the government and the supposedly favoured industry, and expense for the rest of us.

It's also my current bugbear on Pistonheads. It's generally a pretty right thinking place with sensible opinions but there is a strain of people who have these daft ideas about government favouring one particular technology or industry, or insisting on manufacturing and exports as being the only possible way to economic growth, or engineering degrees being mandatory for high political office. It's all nonsense.

Government should exist (if at all) to provide a basic framework in which people and businesses can interact - property rights, the rule of law, a stable and dependable currency. Then it should stay the hell out of the way and let people get on with it. Countries are by and large peaceful and prosperous to the extent that this happens, and equally violent and chaotic to the extent that the government is involved in people's affairs.

The problem with this is that capital is mobile. If Glaxo or Nissan or Intel want to do X, Y or Z they will do it where it is best for their business. Best access to skilled workers, lower red tape, less tax, proximity to raw materials etc etc - the criteria are endless.

The issue is that other countries are competing with the UK for the investment.

[AJS-]

A meddling, stupid government who are likely to have their policies overturned by another meddling and stupid government after the next election is really not that attractive, even if they have got a bee in their bonnet about some particular chosen technology. Having these tax breaks overturned is even more likely if the government is clearly running out of money.

Just keep taxes and regulatory burden low overall and it will be attractive. More attractive in fact than some cooked up scheme for a set period of time that might arbitrarily change according to the whim of the government at the time.