Friday, 10 June 2011

A few economic policies and the arguments for them

Just thought I'd do a blog on various economic policies and their merits. Probably not that interesting unless you like that sort of thing, but wahey if you don't like that sort of thing you may have picked the wrong blog. If you have picked the wrong blog why not try one of these?

But if you've not picked the wrong blog, enjoy this magical mystery tour of economics

1. Redistributive tax changes
This is a rather simple concept, reducing the direct taxes on those on lower income bands and financing this via increasing the taxes on higher bands. While the political arguments for this are obvious, redistribution of income, fairness, alleviating the problems of the working class at the cost of those who can afford it without much change to their standard of living, etc, I am more interested in the economic argument for it. This is based around the idea that people with lower income are likely to spend more of any money they recieve. For example a poor person who recieved £300 would be more likely to spend it than a millionaire. This principle also works in reverse, as a loss of £300 would have a far greater impact on the spending of the poor man than the rich. Therefore, if we take £300 from this rich man via increased taxes and take away £300 less from the poor man in taxes, the amount spent by them collectively on goods and services will increase. Increased spending on goods and services leads to increased employment and higher growth etc. Although it must be noted that this policy must be done in moderation due to the fact that the rich find it much easier to leave if they are overtaxed, although the extent to which they do this is often exaggerated.

2. Inactive asset tax
This is slightly more complicated policy, it is a tax levied per square foot on all land zoned for commercial or industrial use that is left unused. Actually it wasn't that complicated, but I digress, there is currently over 75,000 hectares of unused industrial land in United Kingdom. ( When one considers why this may be there are two plausible reasons, either the owner of the land is unable to put it to use, or they don't want to. If its the first case then they should sell the land to someone who can. It could however be the latter, for example supermarkets are known to buy up land so that their competitors cannot open stores, and there are countless examples of companies shutting down some of their production facilities in order to benefit from the price rises caused by a fall in supply. This tax helps solve these problems as if a person/firm cannot use the land effectively they will sell it to avoid paying the tax and if the firm can but refuses to use the land productively then the tax will disincentivise such behaviour, hopefully negating the extra profit earned through lower production levels and hence forcing the firm to use the land again. Even if this latter one fails, it will however still raise revenue for government spending, which is good.

3. 6 month unemployment guarantee
This is another rather simple one, well they all are really although I suppose thats as economics is the art of explaining the really complicated things behind doing something simple, basically it means that if a person is on unemployment benefit for a cumulative 6 months, they would then be provided with a job on minimum wage by the government which they would do for 6 months, after which they would be elligible for unemployment benefit again. These jobs could be doing a wide range of things from helping public services, to cleaning the streets, to helping the police patrol etc. In doing this we combat both the perception that the unemployed are unwilling to work, as well as hopefully instilling some work ethic into the minority of unemployed who are lazy and would rather live on benefits than do an honest days work. Finally this would benefit those who cannot find work due to lack of "experience" or past employers as references, this would provide a chance for them to show they are capable of working hard and are not unemployed due to being unfit for, or unwilling to, work. In summary it will raise both the percieved average productivity of labour, as well as to an extent the actual average productivity of labour, increasing employment through the desire by firms for profit maximisation.

While of course these are generally quite vague policies with pros and cons, this isn't exactly a party manifesto, its a blog, granted if my blog was a political party it would have three more policies than does the Labour party (seriously guys, please try to at least have one policy by the time I join in September), but this is irelevant and I shall simply summarise by saying: Behold my economic ideas, judge as you will and remember at the same time that nothing is more dangerous than economic policies driven by political ideology, rather than by economic analysis.

Economics is a complex and complicated world about all the simple things we see everyday. - Justin Val R. Virtudazo

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