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How to Stimulate the UK Economy

UK Economy
The UK economy is suffering from a lack of demand - people and organisations are not spending enough.

The lack of demand stops the creation of new jobs.  The lack of work means that people have no cash so there is a lack of demand.  This is a vicious circle.  How can the government create demand to create jobs which will then provide the demand to create further jobs?

The big problem is that our borders are wide open.  We can buy products from anywhere in the world so our spending creates jobs abroad and any jobs we create in the UK will be filled by people from poorer parts of the EU.

If the government gives you or me £2000 in tax cuts we will buy a computer from Taiwan and a television made in China.  We might use what is left over to employ a plumber from Poland.  If we buy more from abroad than we sell back to them the pound will fall in value and the £2000 will become almost worthless (See Note 1 below).

The challenge for the government is how to spend money so that it stimulates UK jobs and UK spending.  This is why governments focus on building projects such as building houses and constructing infrastructure. They reason that spending on building employs people in the UK.

The focus on building seems like a good idea but wait a moment.  If the money received by the people who work on buildings is spent on foreign televisions and foreign workers then it will rapidly leak overseas.  Stimulating demand in the UK is like trying to fill a leaky bucket!

(The government can only stimulate the economy with direct spending by diverting money from other parts of government expenditure - see Sydenham's Law).

How do other countries avoid this problem?  The Chinese cheat, they do not believe in free trade or free exchange rates, they simply offer to produce goods at a low price to foreigners and foreign governments let their people buy these goods so destroying their own industries.  The Germans cheat, they have a complex system of regional and State lending, spending, taxes and subsidies that allow German companies to compete.  The USA cheats in a similar way. Everyone cheats. The only way the British government cheats is to cheat their own people.

If the UK wants to stimulate demand it must fix the holes in the bucket.  It must stop wholesale migration which steals half of all new jobs from the British (see Migration and Unemployment).  It must stop subsidies to the EU and bend EU rules so that it can claw back the £46 billion it loses to the EU each year (see EU membership and laying up treasure from overseas).  It should introduce subtle taxes on imported goods such as a "distance tax" that is implemented as a "green" local government tax on goods (see A New Taxation System). It should allow local government to impose social taxes to level the playing field with the tyrannous Chinese.  It is only when much more than half of every pound spent by British people on consumer goods and services remains in Britain that we will become prosperous again.

If the government fixed our leaky economy then it could stimulate the economy by simply giving the ordinary people more money.  The money would stay in the UK and provide jobs for the ordinary people.

I am not advocating protectionism, just the implementation of the sort of cheats that other countries operate.  As in all things there is a balance, an equilibrium.  We should follow the rules of "free" trade so long as they are in the general interest of people and mainly in our own interest. 

If you look at the history of "Tiger Economies" they all had the same formula: use tariffs to favour your own country's workers and industries and have very low corporation taxes until you are as rich as the competition.  Once the Tiger Economies are forced to stop doing this trick they cease to be Tiger Economies, it is only the truly sophisticated cheats like the Germans who can continue cheating without being found out.

See:

Economic policies for recovery

The Way Forward

The rebirth of British manufacturing - how to do it

A New Taxation System

EU membership and laying up treasure from overseas

Getting richer every day in every way: income and wealth

British Aerospace EADS Merger

What is Socialism?

Is Labour any more than the Public Sector Party?




Note 1:  If the pound falls 5% and I earn £30000 my 30000 can only buy £28500 of goods so I will lose £1500 before I get the £2000.

 
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