The Ghost of Reagan should haunt the hallway of Number 10 and the corridors of Parliament in a parody of the Scrooges' visitation in the hope Gordon is to be shocked out of his fatally damaging head strong charge of borrowing his way out of a recession.I therefore strongly advocate a return to Reaganomics and a tight embrace of the Luffer Curve. Without going into a huge theoretical explanation I will briefly touch upon a general understanding of such terms. Reaganomincs was the notion that you could actually raise the tax revenue by cutting taxes. This appears at first glance paradoxical.
What doesn't however, is Luffer's Curve that posits that there is a certain point at which the incentive to work is destroyed as a result of too high a tax policy. The result of this mentality means people stop working as hard, produce less, innovate less, have less income to spend on goods and services and generally become miserable.
So by cutting tax, the incentive to earn more when people climb the pay ladder remains high; thus more taxes means a great disincentive to work more. Also if people feel taxes are fair they are less likely of finding ways of avoiding it, thus more inclined to pay it.
However, the biggest positive that Reaganomics has to offer is that it stimulates economics growth. For instance, if individuals are allowed to keep more of their cash then they are more likely to spend it on goods and products, which will increase the economic livelihood of other people who produce these goods that will in-turn buy a different set of goods.
People wanting more goods, thanks to more money in their pocket, will results in businesses needing to hire more people to cope with demand. This demand may even lead to desiring after more goods to accompany their purchases. For example, a TV will require a DVD recorder, Sky TV, a games console etc.
Staying with Businesses, a cut in corporation tax would make generating even greater wealth more appealing. To do this you would need to design new products (as the demand for new goods is now there), thus requiring more innovative workers, or constructing more offices, therefore keeping the construction/plumbing/electrical etc. business alive.
In short – this is a prosperous circle and will help the British economy and her people get back on their feet again.
Therefore, how does cutting VAT do anything? This doesn't put money in people's pocket as Gordon Brown exclaims. People still have the same amount of money, i.e. not that much of it because we are too highly taxed. Morally, people need to see their bank balance at a higher figure each month to start spending, not be lured in by a price drop on the selves, when they can ill-afford to spend.
What needs to happen first is an Income Tax cut of biblical proportions. This does, literally, put more money back into peoples' pockets, this physical manifestation of cash in hand will make people mentally feel like they have money to spend and thus more likely to do so.
Secondly, by also cutting National Insurance – a tax on work in all but name, businesses can keep on workers or even expand their enterprise. This will keep tax revenue up to its current levels, despite my advocation of tax cuts.
With more people in work than before or by maintaining current workers who do pay tax in a job and off the dole, the actual amount of money generated will be higher, as more people are paying tax, rather than living on benefits, slurping up the Government's money on layabouts.
The public may even receive a culture shift and start to save more in these times. Thus thirdly, higher interest rates might also increase people to save and therefore put money back into banks, giving these banks greater funds to act as a stimulus and trade with one another again.
The confidence will be re-established via this culture of saving.
Instead of the Government giving banks money that they don't have, which will make us all in even more debt and weakening our purchasing power via the fall in sterling... (owing to our higher tariff to imported goods that we all enjoy.)
...We should therefore give more freely to banks our the extra money that has been granted to us by lower taxes, rather of always asking banks for loan after loan after loan.
Banks can then get back to the business of competing with one another by offering more seductive savers rates, thus accumulating wealth that they can then give to small and big business alike in the form of cheaper business loans to expand their enterprise, via hiring new workers or building new empires.
In light of this, how can Brown ask the banks to tighten their belts and not be reckless, in essence not lend to people who are unable to pay them back, then in the same near instance hold a gun to bankers heads and ask them to start lending again in a wanton fashion, which is exactly what got everyone into this mess.
Why should tax-payers lend their money to a government that can't tighten its own purse strings and has been exposed as a nation who isn't trusted by any other power to make good on their loans?
An individual wouldn't lend to someone who has a history of non-repayments or who is spend-thrift with their surplus, or for that matter their gold reserves at a wrong time. Individuals shouldn't do it so neither should Governments, especially one that has such a poor command of economic prudence.
If only Cameron had the gumption to say these things. We need a change of direction fast, if we are to avoid what the German Finance minster called 'Lemmings falling off a cliff mentality' duping ourselves into thinking Brown's fiscal stimulus is the right course to weather the economic tsunami.
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