Aside

Ideas for the ‘Great and Good’ in political office……

Recently I had the pleasure of listening to Roger Bootle an eminent economist giving his sometimes controversial opinion on the

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“state of the nations” and thought it may be useful to share some of those views together with asking some possibly thought provoking questions.

 

Why is Germany in such a healthy economic state? Using a base figure of 100 for 1999, in real terms their consumer spend has risen to just 109 in 2011. Over the same period Mr & Mrs America rose to 135 and Mr & Mrs Blighty to 125.

 

In simple terms they don’t spend which also translates to the fact that neither have they over-borrowed and their wage inflation over the same period has almost been zero in real terms. Their exports and manufacturing base are in pretty good shape too. A lesson to be learned? I thought I’d noticed a marked reduction in early morning towels on the sunbeds over the last decade, a remarkable economic indicator!?

 

There is a clear divide in the Euro Zone between the under-borrowed and savers of the north and overspent uber borrowers of the south. Is it sustainable? Will there be a North/South split? Perhaps & perhaps not & what are the ramifications?

 

The evidence points to complete management failure and what can only be called a totally botched job on the part of the poiticians. My concern is that poor Mr Fritz is subsidising his neighbour Mr Stavros & how long will he put up with that?

 

I am of the opinion that until such time as there is complete fiscal, political, social and monetary union there isn’t a chance that the common currency and the Euro Zone will work.

 

Should a North/South divide occur, the southern economies will become competitive with hyper inflation and plenty of drachmas to the good old pound through devaluation. If not, southern Europe will have years of deflation and depression whilst they repay debts and dig themselves honourably and painfully out of a very big hole.

 

Do those in the North have the will? Just as importantly do they have the financial means to bale their less thrifty neighbours out? The jury is out on this one.

 

Some good news. The sun continues to rise even brighter in the east. Emerging countries and their markets will continue to grow for many years to come mainly due to the fact that they are strikingly poor and coming from a very low GDP base. For example despite having a population of twenty times that of UK, India’s GDP is no bigger – plenty of room for growth!

 

It’s also been said that India has almost as many university IT graduates as UK’s entire population, now there must be an opportunity in that somewhere?

 

Mr Bootle does think that a fall in commodity prices will reverse the consumer squeeze, lower inflation and assist the western economies. I tend to agree on that point but there’s a lot more that governments could do in our opinion.

 

Some ideas for the great and good in political office:

 

We need to encourage employment, particularly amongst the 16-25 year old range and the corporate spend in the economies. We need to encourage business spending. Based on the assumption that the SME business sector provides some 80% of the UK tax take, employment and trade:

 

  • Reduce corporation tax now in small to medium size business enterprises of say up to 100 headcount to 15%.
  • Introduce a corporation tax amnesty now for new business start ups for their first 3 years trading with a prevention/penalty arrangement to stop them moving overseas after this period.
  • Exempt national insurance payments to all employees under the age of 25 for 3 years and all employees in new business start ups for 3 years.
  • Cap income tax for employees under the age of 25 at 20% for the next 3 years.
  • Encourage business angel departments in banks for new businesses and allow equity lending  to new businesses – ie the banks will be shareholders.

 

 

What will this do?

 

  • Get the unemployment queue down particularly amongst the young.
  • Reduce state expenditure on social waste and encourage improvement in social values.
  • Encourage businesses to invest in people and grow.
  • Encourage entrepreneurship.
  • Get people off the dole and into meaningful, productive, satisfying and profitable work.
  • Promote personal and economic confidence in the future.
  • Probably increase in time the income for the state via income and corporation tax.
  • Turn ideas into reality.

 

And who knows, such ideas might even help Mr Cameron’s initiative for the Great British Community or whatever he calls it. Realistically and knowing how the political cogs work at that wonderfully high speed of between dead slow and stop, none of the above will be implemented as nothing relates to the repair of MP’s duck moats or figuring out how to obtain second properties for nowt!

 

Hey ho, I hope the above contains at least one useful titbit of information or perhaps even raises a smile?

 

Keep in mind, things are never as bad as they seem and I will follow this with a suitably related rant very soon.

Mike.

 

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