I saw an article by James Suroweicki in the New Yorker, this was the first justification I saw of the VAT cutting exercise of the Labour government and the proposal to cut withholding tax by the Obama govt...till now I was convinced that it was nonsense. Why try to increase spending indirectly by cutting taxes on consumers: the reductions in price due to VAT are minimal, I for one never noticed anything and they rely on consumers deciding to spend instead of save. Why not instead just increase spending on public works -- we do need better tracks for the trains, we need better hospitals, universities etc. So, why?
Well, Suroweicki cites the behavioural economics stuff: people tend to spend more when they perceive a windfall gain to be an increase in income rather than an increase in wealth. Hence if the government wants people to spend they should increase income, i.e. give small increases in monthly take home pay but not large lump sums...all very well. But I still dont understand why its not easier to simply increase spending on public works, because that will surely not be saved at least in the first round..
While on the topic of the financial crisis: Its still quite amazing that almost none of the CEOs who led the way to financial ruin for so many are held accountable. They are not being taxed, its the middle classes as usual who bear the brunt...who else pays withholding tax? Madoff was surely only one Mr Ponzi....so if banks are nationalised will they actually change their incentives to punish those who take these risks?
A few people I have heard, have taken this to mean the end of capitalism as we know it. They are buying sustainable ways of living: having your own kitchen garden to grow produce, solar panels for electricity and hoarding food. the idea is that when the end comes it will be too quick to be able to survive without planning...governments will not be able to tackle the problems....money will be worthless...
