A simple model of the world’s economic problems

On saturday I was asked to give a talk on the world’s economic problems to an international conference of young conservatives at Oxford.

I wanted to talk about the huge imbalances,as economists call them, that have caused the problems of boom and bust and Credit Crunch over the last decade. I decided to talk about two pairs of countries.

The first is the USA and China. Over the last decade the US has developed a large appetite for cheap Chinese goods. It wanted to buy many more than it could afford, so it borrowed the money to buy them. China was happy to keep her exchange rate down, to pay relatively low wages, and to sell the US more and more good value goods. China built up ever larger surplus funds from the profits of this trade. The US lent itself more and more money to buy these goods. China had to lend her surplus back to the US to prop up the US state and banks.

The US state paid poorer people in the US entitlements with money borrowed from China, so they could afford Chinese goods. It paid larger salaries and contract fees to individuals and companies to supply US defence and other programmes, also from money borrowed from China. These people could also then buy Chinese goods. Chinese people saved, as they do not have the same generous welfare system. Their country bought around $2 trillion of claims on the USA.

You can only do this for so long. To adjust, China has to pay itself better wages, and the US has to experience a fall in real incomes. The Chinese state can spend more, and the US state has to spend less. The Chinese currency has to go up, and the US currency to fall. More Chinese production has to be used to supply China, and less to supply America. The US has to expand its production, supplying more at home and exporting more abroad. These adjustments are beginning to happen. Chinese wages are rising well, and US real incomes are falling. US exports are rising.

The second pair of countries I looked at was Germany and Greece. Like the US and China, Greece has been spending too much and borrowing too much, and Germany has been building up a large surplus out of successful exporting. Greece has taken its excess further than the US and has a much weaker economy to try to correct. Worse still, by locking itself into the same currency as Germany, Greece has made it more difficult to adjust its economy to the new realities. It cannot devalue as the US is doing. Real incomes have to fall through cuts in wages, rather than through an adjustment to make imports dearer and exports cheaper via the exchange rate.

The adjustment has to happen through Germany sending Greece more money as grants and gifts, or lending Greece more money to pay the bills. If Germany refuses to send enough money, the downward spiral of the Greek economy could get out of hand. Greece needs to buy far fewer German goods, and supply herself with more. Greek people need to work more to export, and accept the lower living standards the Euro scheme is forcing on them.

The nearest the Greeks can get to a devaluation to solve part of their problem would come from a big move in tax policy. Greece could abolish or slash taxes on employment and earning, and impose much higher taxes on spending, to the extent that EU rules allow. This would make Greek goods cheaper by cutting the tax costs of production, and make consumption dearer, limiting the amount of imported goods that Greek people buy.

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114 Comments

  1. Mike Stallard
    Posted September 25, 2012 at 5:46 am | Permalink

    A friend of mine has just come back from Greece and he told me that there is a mutinous mood. “Wait until the end of the tourist season, and you will see a revolution.” About half the people he spoke with foretold the Drachma would be the currency next year.
    Here is an interesting quote from an economist who was a contemporary of JM Keynes:

    “The basis of production under the capitalist system is that the capitalist owns the means of production, but not the workers in production – the wage labourers…….who are deprived of means of production and, in order not to die of hunger, are obliged to sell their labour power to the capitalist and to bear the yoke of exploitation…….
    “This means that capitalism is pregnant with revolution………(There is bound to be ) a most acute class struggle between the exploiters and the exploited.”

    Thank you for sharing your talk with us – much appreciated. The economist was none other than J. Stalin.

    • oldtimer
      Posted September 25, 2012 at 8:54 am | Permalink

      I would not describe Joe Stalin as an economist. I doubt he would have thought of himself as one either.

    • outsider
      Posted September 25, 2012 at 12:13 pm | Permalink

      Dear Mike Stallard,
      In the UK, we had almost eliminated this Marxist class struggle through the growth of company pension funds, endowment insurance and the “popular capitalism” promoted by, among others, Mr Redwood.
      By 1990, workers and pensioners owned most of UK companies’ profits, mostly indirectly but with (as memory serves) more than 10 million owning shares directly. But the seeds of destruction were already sown through the 1986 revolution in the City of London, which busied itself with breaking the circle. As is evident from some who comment on Mr Redwood’s blog, the Marxist disconnect has returned in the minds of many citizens under 40. And, of course, almost no policymakers depend on, or gain much benefit from British companies being successful.
      In Germany, where company pensions effectively operate by employees and pensioners collectively “owning” a large chunk of their company, this virtuous circle remains intact. In Greece, which retains a Victorian-style private sector, it never existed.

      • uanime5
        Posted September 25, 2012 at 6:09 pm | Permalink

        In Germany by law the 50% of board of directors of all companies have to be composed of workers representatives (usually they’re from unions). Does this make Germany Marxist?

        • Sebastian Weetabix
          Posted September 25, 2012 at 8:16 pm | Permalink

          This is not true. There is worker representation on a works council (a bit like Whitley committees in public service for those old enough to remember) but they do not have seats on the executive/management board. As for your 50% fantasy, goodness knows where you got that from. Just look up the governance structure of any large German KGaA like Merck or Henkel. So, no, Germany is not Marxist. They are fully signed up to the concept of property rights. None of this Marxist “property is theft” claptrap for them.

          • uanime5
            Posted September 26, 2012 at 8:05 pm | Permalink

            You really should do basic research before criticising others.

            In Germany the Aufsichtsrat or Board of Directors by law has to be 50% employee representatives and 50% shareholders.

            http://en.wikipedia.org/wiki/Supervisory_board

        • outsider
          Posted September 25, 2012 at 9:06 pm | Permalink

          Not at all, uanime5. Did I write anything that suggested it would? There is much to be said for the German two-tier board system for larger (ie not generally owner-managed) companies. The upper tier supervisory board also, I think, includes half plus one representatives of shareholders, who are also excluded from UK boards under rules drawn up by the investment banks. Makes for companies taking a long view.
          It would not work here at the moment because most unions, like most investment banks, tend to take a narrow, short-term view of their interests. It might work if (a very big if) we could all agree that we need to work closely together to get out of this mess. But in any case, a substantial percentage of big UK employers are now just local subsidiaries of foreign companies so “co-determination” would be a bit of a fig-leaf.

    • Bazman
      Posted September 25, 2012 at 5:32 pm | Permalink

      The Captain or Tsar can only steal so much for sure.

  2. lifelogic
    Posted September 25, 2012 at 5:47 am | Permalink

    Indeed the Greeks are tied in such a way that slashing taxes on employment and earning, and imposing much higher taxes on spending is about all they can do apart from laying off most of the state sector.

    Taxes on employment, particularly employer NI, need to be slashed in the UK too, as does laying off much of the state sector.

    Now have I got this right? The government has forced (government owned) RBS/Natwest to repay £100 billion of its emergency loans back to it (no doubt much of it recovered by demanding back or refusing good loans to SMEs and individuals in the UK). Now Cable is going to set up a new bank to fund SME’s (doubless “LibDem on message” types of businesses) with just £1billion. Oh well perhaps it will help 1% of them if they have not gone bust in the mean time.

    Why did they not just get RBS/Natwest (and Lloydstsb) UK arms working properly two + years ago rather than forcing them to restrict/call in lending so much? Then government tax revenues, jobs and growth might look rather healthier now?

    • zorro
      Posted September 25, 2012 at 11:29 am | Permalink

      ‘Picking winners’ again I see. As ever, they will be utterly hopeless and not based on sound risk, but on some PC criteria which has nothing to do with business efficiency.

      zorro

      • lifelogic
        Posted September 25, 2012 at 1:18 pm | Permalink

        Indeed they will perhaps have to be fake green, sustainable (for a year or two), to do with bicycles, beards, electric cars, cooperatives, PV, or some other right on unprofitable nonsense – doubtless.

      • zorro
        Posted September 25, 2012 at 4:46 pm | Permalink

        As if I was reading their minds….http://www.bbc.co.uk/news/uk-politics-19719280

        Simon Hughes on sound reasons to lend money……He mentions ‘new rules’ are needed.

        zorro

        • lifelogic
          Posted September 25, 2012 at 5:34 pm | Permalink

          Simon Hughes makes Clegg look relatively sensible and pleasant (all be it a little on the slow side (as one might expect of Archaeology and Anthropology at Robinson College/Libdem. After all everyone knew the AV referendum was a dead duck before it even started.

          The party is wrong on green, wrong on government enforced “equality”, wrong on education, wrong on the EU, wrong on over taxing the rich, wrong on picking winners wrong taxing capital and people out of the country and more payment to augment the feckless.

          Right perhaps on civil liberties but has the wrong approach.

    • lifelogic
      Posted September 25, 2012 at 11:45 am | Permalink

      The coverage of the Libdem party, on the BBC, relative to the more supported UKIP is a complete disgrace. It is also unbelievable how little these Libdems actually know or understand.

      I have just heard Ed Davey (who apparently denied Tory minister a role in the absurd wind farm policy) talking complete rubbish about wind farms. What planet are these loons on? Do they not have a single engineer/physicist in the party who could point out why these bird and bat chopping crucifixes are so absurd, pointless and very, very expensive. Even in C02 terms and environmental terms. Have the Libdem all been bought up by the industry?

      • David John Wilson
        Posted September 25, 2012 at 12:35 pm | Permalink

        The BBC has to tailor its coverage to the number of MPs that a particular party has. Its coverage can thus hardly be described as biased.

        Perhaps it is also significant that the vast majority of scientists do not share your views on wind farms. Why would you expect the LibDems to include scientists who hold your highly biased view?

        • lifelogic
          Posted September 25, 2012 at 5:37 pm | Permalink

          No they do not have to do that do they they can use their judgement? They clearly have more voters than the Libdems when voters are allowed to vote freely as in polls and the MEP elections.

        • lifelogic
          Posted September 25, 2012 at 6:10 pm | Permalink

          Anyway the Libdems get nearly as much coverage as Labour and Conservatives do with just a handful of ragbag MPs – even fewer soon.

        • Bickers
          Posted September 26, 2012 at 12:50 pm | Permalink

          Please give us your evidence that ‘….. that the vast majority of scientists do not share your views on wind farms’.

        • lifelogic
          Posted September 26, 2012 at 6:46 pm | Permalink

          I am quite sure that the vast majority of scientists, those who have looked at it and are not in the pocket of the “industry” agree with me. The costs and intermittent nature of the energy renders it pointless other than for special situations. Why else does it need such huge subsidy and market distortions?

    • Bazman
      Posted September 26, 2012 at 7:13 pm | Permalink

      Laying off most of the state sector to do what? Collect dole and other benefits whilst paying no taxes which would also lead to much of the private sector being put on the dole too? Silly fantasy and what is the most silly part that you think it would personally not effect you and you would last five minutes under this regime. Lets face it lifelogic, like many, you would not be where you are now or could sustain your living standards without the middle class social security system, so do not prescribe what you cannot take.

  3. norman
    Posted September 25, 2012 at 5:54 am | Permalink

    I always thought Germany was in hock too. I realise they may have a balance of trade surplus but aren’t they spending like…drunken sailors isn’t what I’m looking for, it’s far worse than that…the British government and getting themselves into more and more debt?

    Whenever I read about Germany bailing out Europe I wonder what planet people are on. We’re living in a loosely confederated socialist state (not quite the USSR yet but we’re making great progress and within 5 years should almost be in Utopia after this blip is over) in the EU and all our economies are heading the same way. It’s like saying the oil fields of Baku could bail the Soviet Union out in 1985. Or wonder weapons could turn the war in February 1945.

    Complete fantasy.

    Reply Germany is in good balance of payments surplus. Its public deficit is modest by modern standards, but its debts could soon be swelled by accepting liabilities from around the Euro area.

    • Nina andreeva
      Posted September 25, 2012 at 7:09 am | Permalink

      Yes but what about Germany’s insolvent banks, especially the landesbanks? (etc)

      Reply: The banks are regulated and audited as going concerns. The weaker ones presumably have the German and European authorities standing behind them, allowing them to carry on trading.

    • Lord Blagger
      Posted September 25, 2012 at 8:31 am | Permalink

      You’ve also left off the state pension debts in Germany.

      • zorro
        Posted September 25, 2012 at 11:39 am | Permalink

        Expensive pensions too, along with the other benefits……

        zorro

    • Bazman
      Posted September 27, 2012 at 6:54 pm | Permalink

      How is all this possible with so many absurd employment laws and regulations and a land border with poor countries large as to be uncontrollable?

  4. ianj wragg
    Posted September 25, 2012 at 5:56 am | Permalink

    The best thing Greece could do would be to leave the Euro and revert to the Drachma. A good devaluation would increase the cost of imports and kickstart the tourist trade.
    We were in Greece a few months ago and a coffee was 5 Euro in a run down Taverna.
    Tourists were very few.
    Tenerife a coffee was 2 Euro in a lovely bar and it was packed. Discuss!!!!!

    • zorro
      Posted September 25, 2012 at 11:43 am | Permalink

      Depends where you go…..we went to Zante in May/June and it was one Euro for a coffee or beer and food was great value. Off course, it was gloriously sunny too!

      zorro

    • uanime5
      Posted September 25, 2012 at 6:14 pm | Permalink

      Given that Greece currently imports oil and petrol massively devaluing their currency will make these much more expensive. It will also make their debts much more expensive and make it harder to borrow money.

      • outsider
        Posted September 25, 2012 at 9:10 pm | Permalink

        Not if their debts are unilaterally converted into drachma Uanime5. That is possible (if dubious) when leaving a currency zone though not in a conventional devaluation.

  5. alan jutson
    Posted September 25, 2012 at 6:15 am | Permalink

    John an excellent post.

    You certainly have a talent for making what many politicians, media reporters and other so called experts see as very complicated problems, very simple, with your clear and concise explanations.

    If only many more would listen and then take corrective action accordingly, we may at last start to resolve our problems.

    The sad fact is we all know you have to live within your means or you eventually go bust, but our leaders for years do not (will not) seem to understand the simple logic of basic mathematics and compound interest, that millions of us do out here.

    Time for politicians to ditch all of the complicated words, lengthy explanations and do simple mathematics.

    We need small, simple, efficient and effective government, that all can understand.

    • zorro
      Posted September 25, 2012 at 11:47 am | Permalink

      They like to make things complicated to create a veneer of necessity around their roles, and justify their salaries and gofers. From my experience, these people like to ‘delegate’ and precious little can be traced to their own effort.

      zorro

      • lifelogic
        Posted September 25, 2012 at 1:24 pm | Permalink

        Exactly, nothing ever goes just new layer on layer of pointless or worse damaging activity with complexity always being preferred. That way no one know what they are not doing.

        • Bazman
          Posted September 27, 2012 at 6:56 pm | Permalink

          Like in housing benefit?

      • Bickers
        Posted September 26, 2012 at 12:57 pm | Permalink

        Zorro – very true.

        Most Government departments employ thousands of managers whilst at the same time outsourcing work that a small % of those managers should be capable of managing. And then there is the question whether the work itself is of intrinsic value to the people paying for it i.e. us the tax payers.

        Government should be cut back to run only the bare necessities; I doubt that would require more than 20% of GDP

        • lifelogic
          Posted September 26, 2012 at 6:58 pm | Permalink

          Indeed. The “work” itself is rarely of intrinsic value to the people paying for it the tax payers. They do not care whether it is or not so long as they are paid.

          They are just as happy doing paper work for say installing wind farms or speed humps as they will be doing it for there removal.

          • Bazman
            Posted September 27, 2012 at 6:57 pm | Permalink

            As in paying housing benefit when if left to the free market rents would be affordable for all and landlords would be much better off?

  6. Sue
    Posted September 25, 2012 at 6:52 am | Permalink

    Surely the same applies to the UK then doesn’t it? We stop importing goods and restart manufacturing our own. As with produce. Why we still import French revolting apples and export our own sweet and crunchy ones, is beyond me. We must become much more self sufficient.

    One thing we must not do, is approve this BAe merger. The idea is to stop us building a decent defence force should we leave the EU. It is a dangerous, stupid thing to do but then nobody ever accused this government of being particularly bright.

    • zorro
      Posted September 25, 2012 at 11:53 am | Permalink

      Even though they will deny that this is their aim, it is surely the practical consequence that we will be unable to field an independently armed force. Again little by little, drip drip, so that Cameron will say (if still in power, which must be doubtful) that it is in ‘our interests’ and there is no other option….

      zorro

      • Disaffected
        Posted September 25, 2012 at 4:55 pm | Permalink

        I am glad I was not the only one to notice Cameron’s EU defence force shaping up by stealth and making sure the Uk could not act alone independently, a bit like his air carrier sharing nonsense. Cameron is determined to blend the UK into a region of the EU superstate. Wake up Tory MPs for goodness sake.

        • lifelogic
          Posted September 25, 2012 at 6:44 pm | Permalink

          Indeed a proper defence force is certainly something worth having. Better still if it not depleted and stretched by pointless counter productive wars or “shared” assets.

          How many hundreds of thousands killed and maimed in these wars, so far, is it now?

          • zorro
            Posted September 25, 2012 at 11:52 pm | Permalink

            Many civilian casualties and lives ruined by the fighting in these countries – for what tangible aim exactly?

            Far too many Uk soldiers have lost their lives – including the added insult of ‘green’ on ‘blue’ murders, and not forgetting the many more badly mutilated soldiers who have lost limbs dealing with these cursed IEDs and having to readjust to life in the UK.

            zorro

      • Bazman
        Posted September 26, 2012 at 7:16 pm | Permalink

        Nuclear submarines in kit form from France and a defence industry ran like the car industry with most parts imported and assembled? It’s for the best I’m sure. The market will sort it out.

    • Lord Blagger
      Posted September 25, 2012 at 11:59 am | Permalink

      Great idea. Stop importing – just export.

      Now, what do we do when other countries think that’s a great idea too, and ban imports from the UK?

      What do you suggest then? We haven’t any gunboats left.

      • David Price
        Posted September 25, 2012 at 2:56 pm | Permalink

        Turnabout is fair play, we don’t have to ban imports or even apply import duty to any greater extent than the exporting country does to us. Or do you actually believe we have unfettered access to markets in the EU or even the US? Have you tried selling stuff in Germany? Are the French utility companies as open to UK buying their shares as we are to them?

        What is wrong with encouraging our consumers to consider having a preference for local goods if it means their jobs are more secure, or even the government insisting that the government favours local products? This is no maore than other countries do.

        The reality of buying imports and allowing unfettered access to our companies is that UK jobs get lost to other countries, how will we afford to pay you your state pension then?

    • David Price
      Posted September 25, 2012 at 12:25 pm | Permalink

      I agree. As consumers we need to emulate the Germans for example and buy more locally sourced goods and services. Similarly, as a country we need to be as protectionist with our industries and companies as our competitors are – buy a car made in the UK instead of one made in France or Germany for example.

      When we shop we always check the country of origin and give preference to Engalnd/UK to the extent of prefering more expensive British beef over Eire sourced meat for example. Consumers can do a lot and should insist on knowing where something has come from/been made.

      We probably ought to look at encouraging a critical mass of diverse industries, similar to what we had in previous years. The idea that our economy can thrive based on service industries such as hairdressers and banking alone tends to look silly when compared to the costs of importing everything else. However, I suspect the government can’t officially promote such a principle as they would get smacked by the EU mandarins.

      This is all probably wishful thinking though, consumers seem not to care or even understand that their job will go if they continue to buy imported goods and the public sector doesn’t seem to care where they get stuff from. I believe the MOD has stated that they will only give preference to UK sources for high security items, and has already moved to sourcing armoured vehicles from a UK company to a German one.

    • David John Wilson
      Posted September 25, 2012 at 12:38 pm | Permalink

      The same applies to French Cheese. Why do we import Brie for example when a better and cheaper British version is available in most supermarkets?

      • Bazman
        Posted September 27, 2012 at 6:58 pm | Permalink

        Err! Because some like Brie and don’t agree with you?

    • Bob
      Posted September 25, 2012 at 2:33 pm | Permalink

      The financial crisis was just the excuse they wanted to cut the legs off of our armed forces. The BAE sellout is just another slice off of the salami.

      Cameron is just following orders.

  7. Nina andreeva
    Posted September 25, 2012 at 7:05 am | Permalink

    Yes but why have you not mentioned the outright fraud and theft with regard to CDOs MBSs etc in the USA? According to The Obama sock puppet nobody did anything wrong,(individual case ref removed-ed) Until US AG Holder starts some serious prosecutions there is nothing to stop a repeat of 2007/8

    Although we are not talking mainly about criminal activities just excessive risk taking
    Here in the UK remember Godwin got away with it with generous pension to boot. While
    at Northern Rock several senior executives were disciplined by the FSA though Applegarth their boss who was supposed to be in charge gets away unscathed

    So until you rid the system of theft, fraud and excessive risk taking nothing is going to change

    • Lord Blagger
      Posted September 25, 2012 at 8:30 am | Permalink

      Actually Clinton mandated that banks make sub prime loans.

      Now, in this country look at Vince Cable.

      Lets set up a government bank.

      Hmm, its going to be risky Mr Cable, people won’t lend to it.

      I know says Vince, we guarantee it.

      Ah yes, the government goes into the CDS business.

      • zorro
        Posted September 25, 2012 at 11:56 am | Permalink

        Government bank….just what you need in a free market system. Mind you, they are probably setting up a pilot project for when they are absorbed in the new European banking system….

        zorro

        • alan jutson
          Posted September 25, 2012 at 1:53 pm | Permalink

          zorro

          It would seem they cannot control the policy of Banks where they have a majority shareholding.

          How will they control this new Bank, which it is forecast they are only to have a 10% share in.

          They are putting up £1 Billion and they are looking for private finance for the other £9 Billion.

          Indeed why set up a nother Bank at all with taxpayers money ?

          • zorro
            Posted September 25, 2012 at 11:56 pm | Permalink

            They are dreaming…..they will end up stumping up most of the ‘credit’ wasting a lot of it on new employees, and hopeless cases.

            zorro

  8. NickW
    Posted September 25, 2012 at 7:08 am | Permalink

    China and Japan are currently having a territorial dispute over some small and uninhabited islands. During the course of that dispute a Chinese official suggested that the Chinese should attack the Japanese economy by selling all the Japanese debt instruments that China holds.

    I don’t believe that threat was directed at Japan; I think it was a gentle hint to the USA that Chinese holdings of U.S debt would be used as a lever on US policy, if the US pushed too hard against Chinese interests.

    In the battle of the superpowers, the USA has potentially sold itself to China and lost, which is part of the thinking behind the US now purchasing its own debt and printing money to do it, thereby risking inflation.

    The country that lives in debt is selling its freedom.

    • Nina andreeva
      Posted September 25, 2012 at 9:41 am | Permalink

      At anyone time China only owns around 9 per cent of Americas debt so with Banana Ben also committed to print to infinity “to get unemployment down” The US can tell the Chinese where to shove their treasuries as well as their $20 microwave ovens. After all Hu Jintao does not want a load of newly unemployed workers gathering around Tianenmen Square does he? Remember 1989 was mainly triggered off by a bunch of unemployed graduates

      • zorro
        Posted September 25, 2012 at 11:58 am | Permalink

        Yes, it is threat and counter-threat….the Chinese threaten to sell, and the USA says it carry on printing so you can rebrand your bills as toilet paper….

        zorro

    • Bob
      Posted September 25, 2012 at 2:39 pm | Permalink

      The Chinese won’t need to sell down the US economy.

      Gordon Brown will be ringing the bell at the NYSE today.
      What were they thinking??

      Head for the hills!

  9. Acorn
    Posted September 25, 2012 at 7:29 am | Permalink

    An excellent post JR; if, we were still on the Gold standard. Art Patten of Jenkintown, PA., wrote a letter to a Congresswoman; I forward it in hope of a “Road to Damascus” conversion possibility. I recommend the suggestion in the PS.

    http://moslereconomics.com/2012/09/24/the-concord-coalition-honors-rep-schwartzs-leadership-on-fiscal-issues/ .

    • Acorn
      Posted September 25, 2012 at 7:51 am | Permalink

      BTW. Some of you, like me, will have received an e-mail containing the following:-
      “In 2009, the Political Parties and Elections Act 2009 was passed which requires party donors to make a declaration that they are resident in the UK and pay UK income tax when donating more than £7,500. Three years later, it is still awaiting a commencement order from a government minister so the Electoral Commission can enforce the law.”

      Just think a little deeper and you get to, what price any banking sector reform that actually causes any discomfort whatsoever for the 1%.

  10. Lord Blagger
    Posted September 25, 2012 at 8:13 am | Permalink

    Misses the point.

    The Chinese debt is small compared to the debts the US owes to its own citizens. Namely pensions and medicare paid for up front.

    We have a rough idea what figure that is, because the US publishes the number. The US can’t pay its debts to its own citizens. It can afford its debts to China.

    The core issue goes back to people not knowing that politicians have got them into debt, and that the services they paid for up front won’t be supplied. They don’t know because politicians keep it secret.

    Hence yesterday on the BBC they are still repeating the pay off the deficit nonsense.

    Time to keep those election promises, and tell us how much you owe for the state pension.

    Otherwise, you’re just like Clegg. Say anything to get elected, and then stick two fingers up when you know we can’t kick you out.

    • zorro
      Posted September 25, 2012 at 12:02 pm | Permalink

      How could you accurately calculate it though if it is a pay as you go system dependent on future tax payer contributions?

      zorro

  11. Edward.
    Posted September 25, 2012 at 8:17 am | Permalink

    It’s the system that is broken and it won’t be allowed to be fixed until something cataclysmic happens, all of the politicians of Europe are complicit in this enormous ponzi scheme.

    Let us have a look at Britain,

    A manufacturing base which is nigh on non existent [8%] and if we do make ’em it’s only ‘kit’ cars we have no real industrial base left.
    A government which keeps on printing money in the hope of something will eventually turn up – it does and its called inflation. Expanding the money supply, reserve banking – got us all in to this deep doings in 2001 but kicked off way back when Nixon went mad [fiscally illiterate] in 1971.
    Unit costs held down by a policy of mass immigration, immigration which goes on apace whilst the welfare state still supports 5 million idle men and women [disability, unemployed and off the register unemployed].
    A bloated financial and services sector which keeps on paying itself more and still with the ‘bonus culture’ – causes London house prices to be way too high, ripples countrywide – giving the all owner occupiers across the whole country a false sense of affluence, this cannot be supported much longer.
    A government which is supposedly cutting spending but which is doing nothing of the kind – PSBR [remember that?] going off the scale and soon – see the public debt = £3.5 trillion – inclusive of the public sector pension liability and personal debt north of 1.7 trillion.
    A government, which is beholden and enthralled by Europe and therefore obligated to the EU lunatic green agenda and taxation strictures – VAT.
    The British economy is moribund but there is lots of ‘money’ around, there are too many people still sucking on the teat of HMG milk and honey, not only those directly paid by HMG but those other leeches who also feed off it and here I am thinking of the legal profession and of the consultancy ticks.

    Corporate monsters, of the multinational kind have long stitched up small business through excessive regulation = the big boys love it because it stymies competition from the upstarts – crony capitalism is UK PLC.

    Too much borrowing, too much cant, energy and fuel prices are far to high, too much inflation – CPI and RPI do not mean a thing to pensioners on low fixed income.

    The coalition? What are they for?

    China, will one day come crashing down and soon the internal stresses will see to that, it is no great industrial giant – more like a junkie needing to feed a habit – in China’s case a growing population but with a worrying demographic – they’re aging fast.

    When the euro goes the talking will stop.

    • Lord Blagger
      Posted September 25, 2012 at 8:28 am | Permalink

      When the UK can’t pay pensions, then there will be riots. Then you have the civil war with MPs using the army etc to surpress the people it has robbed.

      Here are my predictions.

      1. means test of state pension. (Any one who has other money gets nothing).

      2. Confiscation of company and private pensions. See Hungary and Argentina for the 100% grab. Ireland forces people to “invest” in AIB. Poland and France have made partial grabs. Brown hit returns with his double tax on pensions.

      3. Wealth tax.

      Now, will they wealth tax civil service pensions? I suspect they will, but the civil servants will have to pay out of hard cash, now, rather than 5% lopped off their incomes. After all, the money is needed now to keep the Ponzi going. Cutting future payouts doesn’t change the Ponzi.

      4. Confiscation of the entire state second pension

      5. Property wealth taxes.

      You can’t move the house

      6. Rent controls.

      • backofanenvelope
        Posted September 25, 2012 at 10:53 am | Permalink

        Luckily, the Army will be so small, it’ll be lucky if it can hold Wokingham!

        • alan jutson
          Posted September 25, 2012 at 1:55 pm | Permalink

          backofanenvelope

          No chance of them holding Wokingham, Arborfield Garrison is closing and being turned over to housing, as REME move on elsewhere.

        • David John Wilson
          Posted September 25, 2012 at 2:51 pm | Permalink

          Too late, they are closing Arborfield Garrison

        • Wonky Moral Compass
          Posted September 25, 2012 at 6:13 pm | Permalink

          If it comes to this, what makes you think the army – or the police come to that – would be on the government’s side? They’re not winning very many friends in either group at the moment, are they?

      • zorro
        Posted September 25, 2012 at 12:13 pm | Permalink

        1, 6, and 3 I think would be most likely I that order, to try and limit payouts…

        zorro

      • Edward.
        Posted September 25, 2012 at 1:06 pm | Permalink

        Sounds bleak but our prospects are just that – bleak.

      • Bob
        Posted September 25, 2012 at 2:46 pm | Permalink

        @Lord Blagger
        After the way they’ve been sold down the river by politicians I wonder if the British Army might just side with us plebs come the glorious day?

      • oldtimer
        Posted September 25, 2012 at 2:51 pm | Permalink

        You forgot 7 – compulsory euthanasia as soon as you reach retirement age coupled with a ban on travelling abroad for five years before that date with destiny. Problem solved!

      • Nina Andreeva
        Posted September 25, 2012 at 4:01 pm | Permalink

        I would have thought no state pension (the biggest item of state expenditure) for anybody earning over £100k was most likely with a reduced IHT bill in return.

        This government is far more dangerous than the last one as 10,000 cops have so far lost their jobs. One would have thought that owning expensive properties in such a potentially combustible area as Notting Hill, Dave and George would not make such an error as this. It would be poetic justice if their houses went up in smoke when the Benefits Agency eventually fails to cough up

  12. Lord Blagger
    Posted September 25, 2012 at 8:21 am | Permalink

    Now if the Greeks were on the Gold standard, they would still be up the proverbial creek. They couldn’t devalue.

    So its not fiat or the gold standard that matters. It’s state fraud, taking money in exchange for promises, knowing they can’t provide. ie. Running Ponzis.

  13. Edward.
    Posted September 25, 2012 at 8:23 am | Permalink

    I should have said John,

    I do not personally see you as responsible for any of the above mess, in fact if you had been in the treasury in the last 16 years some, much of the above nightmare would be greatly mitigated.

    • Lord Blagger
      Posted September 25, 2012 at 12:02 pm | Permalink

      There is one area where John is responsible. He promised before being re-elected to publish the true debt figures. For example, how much the government owes for state pensions. That’s gone missing. Just like Clegg and his tuition fee promises.

      Without the debt figure being published, people believe that the government can borrow and spend its way out of the mess.

      No debt figures means John has to share the responsibility for the borrow and spend mentality, and the disaster that’s inevitable as a result.

      Reply: I wrote a whole blog posting setting out the full figures. Stop fibbing.

    • outsider
      Posted September 25, 2012 at 12:33 pm | Permalink

      Actually, Edward, we were all complicit in creating the mess you so well describe. That includes Mr Redwood, who was among those who thought that our chronic balance of payments did not matter so long as we could easily finance it and that it did not matter if British industry was bought up by foreign companies or states. He will correct me if I am wrong.
      I notice that our esteemed host has not posted on the intended demise of BAE Systems, which I suggest is more important for the future of the British economy than all the “moving the deckchairs” growth initiatives now being cooked up to pretend that “something is being done”.

      Reply: I always thought the balance of payments mattered, and always opposed allowing foreign states or foreign nationalised industries to buy up our companies.

      • outsider
        Posted September 25, 2012 at 9:56 pm | Permalink

        Thanks for your reply Mr Redwood. Point accepted. I guess you were only a new MP or a publicly constrained minister when Nigel Lawson and Ken Clarke were dismissing the trade deficit.

        On foreign takeovers, you rightly use your words more carefully than I did. In terms of the long-term harm done to the British economy, the trade balance and tax revenues, I do not see much difference between private or state-backed foreign takeovers of strategically important companies, especially those with worldwide interests. (Of course, foreign takeovers of secondary companies, such as Asda or Abbey National, can be very beneficial for all sides) .

        Whatever your personal views, I seem to have heard little public objection from the Coinservative benches to strategic UK acquisitions by such parastatals such as France Telecom, Deutsche Telekom, Dubai World or, most significant of all so far, Electricite de France (four fifths owned by the French state) .

        We await your party’s attitude to the proposed takeover by EADS, another parastatal company, which would cut competition drastically at the expense of taxpayers, neutralise a major UK centre of technical development and pave the way for the similar despatch of Rolls-Royce, which as I recall is the only other UK company that still has a national golden share or equivalent.

        • Electro-Kevin
          Posted September 26, 2012 at 6:38 am | Permalink

          “I seem to have heard little public objection from the Coinservative benches to strategic UK acquisitions by such parastatals such as France Telecom, Deutsche Telekom, Dubai World or, most significant of all so far, Electricite de France (four fifths owned by the French state) .”

          Driving a coach and horses through the argument that the state cannot own key infrastructure and see that it is run efficiently.

          Why not privatise the British Army ?

          • Bazman
            Posted September 27, 2012 at 7:00 pm | Permalink

            I bet they are not allowed to scam their customers? What do you think?

      • zorro
        Posted September 26, 2012 at 12:00 am | Permalink

        John, how would you have prevented these foreign firms buying up our firms when they were being sold off, and why didn’t it happen…..?

        zorro

        Rerply: We put in golden shares to stop just that.

  14. Electro-Kevin
    Posted September 25, 2012 at 8:32 am | Permalink

    Borrowing Chinese money to buy Chinese goods.

    Who on earth in America thought that this could work ? Someone must have thought through the consequences, surely ?

    So – as well as cutting wages – what does the US do now ? Sell off her Super Carriers so that she can pay China what she owes in good time ? Or does she ‘negotiate’ repayments in affordable installments ? After all she has ‘policing’ duties to perform in areas such as… the Sth China Sea ! She needs the cash.

    The US will doubtless steer around these economic storms, chiefly because she believes that she is special and that global primacy is God given and so she’ll justify anything to keep it. She is too big – and too full of self belief – to give way and fail.

    It’s not looking so good for Britain though.

    • outsider
      Posted September 25, 2012 at 12:48 pm | Permalink

      You are dead right Kevin. You may have noticed government ministers and officials scurrying round Beijing and the Gulf trying to persuade them to “invest in” Britain’s infrastructure. That is what happens. That is how we eventually pay for the imports.

  15. Gary
    Posted September 25, 2012 at 8:42 am | Permalink

    You have it exactly the wrong way around. Forcing a country to become competitive by increasing its efficiency and productivity through restructuring its economy is the only way that this can be sustainably achieved. Pricing competition through devaluation temporarily masks the the structural problems but does not solve them. Greece is on the correct path. China may already know this and that is why they are reluctant to inflate.

  16. oldtimer
    Posted September 25, 2012 at 9:16 am | Permalink

    Germany, like China, is the other dominant global example of a country that has piled up huge foreign trade surpluses with its trading partners, both EU wide and in the rest of the world. Greece is a tiny fragment of Germany`s foreign markets. But I agree it is symptomatic of the wider problem facing both China and Germany – how do their customers adjust to the trading realities. In one sense China`s problem is simpler to resolve through old fashioned devaluation-revaluation of the US-Chinese currencies. That solution is not possible so long as Germany and its EZ partners remain in the same currency zone without the money transfers you describe. Furthermore the fact of Germany`s EZ membership is slowing adjustment between it and the rest of the world. Greece is but the tip of a very large iceberg confronting MV Deutschland.

    • Lord Blagger
      Posted September 25, 2012 at 12:03 pm | Permalink

      It’s not possible in a world with Gold standards either.

  17. peter davies
    Posted September 25, 2012 at 10:16 am | Permalink

    That’s a very good article – I wonder how many Labour MPs and their cronies who used to run the treasury understand the simple fact of if a country borrows and borrows eventually you will make yourself a prisoner.

    Money supply has to come from somewhere and if there are trade imbalances with the importer needing to borrow from the supplier to buy their goods it will always end in tears.

    I wonder how much understanding the super economist the right honourable G Broon had of all this – if you borrow in good times and let the banks run out of control after tinkering with national governance structures something will break at some point.

    Your US – China analogy can’t be far off the mark for the UK but obviously on a smaller scale. If we are still borrowing around £130 Billion PA then where is that money coming from? Int money markets which probably lead back to Chinese investors buying Govt debt.

    What a shame JR doesn’t have a job in the Treasury now to apply some common sense. The only way any country can have a decent future is if they make enough goods or supply enough services overseas and they won’t do that if strangled with swathes of red tape.

  18. Martin
    Posted September 25, 2012 at 10:23 am | Permalink

    Your support for devaluation assumes that Greece has spare export capacity in its economy. If all the workers keep working for the state then the devaluation you support does nothing. The poor old private sector gets less real money for its efforts and the public sector usually prints more money to give state workers pay rises and the cycle continues.

    I’m still waiting (with zero optimism) for the benefits of various British devaluations!

    • BobE
      Posted September 25, 2012 at 1:55 pm | Permalink

      A devaluation would make Greece a very cost effective tourist location. People would flood in bringing money and work. The major industry in Greece is tourism and olive oil.

  19. Leslie Singleton
    Posted September 25, 2012 at 10:38 am | Permalink

    Good Morning John

    I have to say I was hoping (per Heading) for a Model rather than so many details and spaghetti-like consequences.

    And the comparisons I would love to see might be for instance 1) Japan and China and 2) New Zealand and Australia.

    Yes, this is another anti-EU tirade in disguise, this time asking the question how does all the baloney about how we cannot survive under our own steam as a small offshore island and all the rest, square with the fact that Japan and New Zealand (off big land blocks as I am sure you have noticed) do so well. Admittedly, Japan has had its problems but I have yet to hear that they are the result of Japan not being joined at the hip with China. My New Zealand friend describes New Zealand as a paradise (though partly perhaps because the fishing is so good).

    These two examples cover some ground in that one of the land blocks is all friendship and kith and kin whereas the other is, especially of late, distinctly frosty.

    Never been to either place and just asking–in particular why nothing along these lines ever, repeat ever, gets mentioned in the anti EU struggle and I do not understand why not. I ask because the whole basis of the idea that it is necessary for us to be merged in to the continent (especially at the simply daft and intrusive level as at present and getting worse) seems to me to be without foundation.

    BTW, I liked the idea of joint Embassies with Canada and perhaps down the line Australia and New Zealand–it would be good if the English speaking world could speak and act together more, as the world becomes a smaller place. Lots of common history and laws and culture and ancestry and of course language unlike with the EU.

    • Leslie Singleton
      Posted September 25, 2012 at 1:56 pm | Permalink

      Blimey, not moderated yet–how will Lifelogic have time to tell me where I am going wrong in my thinking? I pray that you find my comments so interesting, relevant and off the beaten track, even, that you feel the need to reflect on them over lunch.

      • Leslie Singleton
        Posted September 25, 2012 at 5:56 pm | Permalink

        O me miserum! Main effort still not signed off and wondering whether I’ve done anything to annoy you (or perhaps your computer??) Soon it’ll be tomorrow and history. I appreciate you are a very busy man but I am sure you agree that it is a pity that exchange of views in effect just dies perhaps when getting most interesting.

        Could you not start a new (is) thread (the word? – probably not!) for each new subject–in effect as now but with a different “Diary” (never liked use of that word BTW–perhaps it once was a diary, I dunno) for each subject continuing as necessary? Think of all the help and advice you are foregoing because people don’t carry on or backwards in to yesterday(s).

        Reply: Yes, I slipped up there. I left it aside as a long one when I was in a hurry and then it got muddled up with ones that need substantial editing which I often have to delay. Sorry, my fault.

      • Nina Andreeva
        Posted September 25, 2012 at 6:04 pm | Permalink

        A return to the gold standard is not going to happen. So all of the world’s fiat is going to be linked to two Olympic sized swimming pools full of metal. It may be part of the IMFs “special drawing rights” but that is about it. For those who spend their time reading Ron Paul and Co, if they do not have the wealth of Warren Buffett. I suggest they see the errors of their ways and that they read William Jennings Bryan’s “cross of gold” speech which was written around a 100 years ago and tells what a return would mean for them. A return to the gold standard were such a thing possible would be for the ordinary man in the street like seeing Britain enter a black hole where no one would know how society would be transformed,probably for the worst, after leaving it

  20. Neil Craig
    Posted September 25, 2012 at 10:40 am | Permalink

    It is clear from the way you answered that you are aware that there is no “world economic problem”. The world economy is growing faster than at any time in history (5%) and has been doing so throughout what the BBC dishonestly call “the world recession”. The problem is limited to the very badly run countries which are in low growth or in the worst cases, in recession.

  21. Iain Gill
    Posted September 25, 2012 at 11:47 am | Permalink

    You missed out an analysis of what India is up to…

  22. Lindsay McDougall
    Posted September 25, 2012 at 12:42 pm | Permalink

    China’s previous behaviour was very odd – keeping its currency artifially high and lending money to other nations to buy goods selling at an artificially low price. I found out the reason for this – a fear among Chinese leaders of unemployment, a fear of almost paranoid proportions. This information came from a Chinese man who married a British woman, lived in China for a few years during which he set up his own business, returned to UK but continues with business trips to China to keep his business going.

    Yesterday’s ‘i’ newspaper updates the Greek picture, as seen through German eyes. “Greece’s budget deficit is almost double the amount officially acknowledged by the government of Prime Minister Antonis Samaras and currently stands at around €20bn (£16bn).” (Source: Der Spiegel) Der Spiegel says its figure is based on a preliminary report released by the “troika” of IMF, EC and ECB, who are assessing Greece’s progress.

    Carsten Schneider, a German opposition Social Democrat finance expert, said any debt write-off for Greece could cost Germany’s taxpayers at least €8 bn. [And then there’s Spain ………. and Italy ……. and Portugal ……. and Ireland ………….. and later on France and its massive underfunded public sector pensions.]

    Isn’t it better for everyone if Greece simply leaves the Euro and defaults a little bit by converting its Euro debts to new Drachmas?

    • Lindsay McDougall
      Posted September 25, 2012 at 1:16 pm | Permalink

      To widen the issue, everybody seems to think that it will be a catastophe if the Euro comes to an end. Not so; provided that Member States leave one by one in an orderly manner, it would be a non-event. There would be a modest amount of default by devaluation and trade would continue (for the simple reason that it is in everybody’s interest that it does so).

  23. David Langley
    Posted September 25, 2012 at 12:44 pm | Permalink

    Will Germany approve the next handout to Greece? Will the Troika decide that Germany must let the ECB have whatever it needs in unlimited funds. Can the Germans break EU rules that forbid bailouts? Greece is toast, but your analysis looks fine to me.

  24. outsider
    Posted September 25, 2012 at 1:12 pm | Permalink

    Dear Mr Redwood,
    Your analysis is clear, vital and true. Everyone should read it.

    Behind it lurks the even more fundamental issue of developing and producing goods and services that people at home and abroad want to buy.

    So another pair you might have used is Britain and France, for long close rivals in size and wealth. French governments have treated their economy and industry like a competitive business, to be nurtured, looked after and championed. We took ours for granted. Result: the French economy, which was much weaker than ours when it abandoned socialism 30 years ago, is now much stronger and, whatever the current finance difficulties, has plenty of solid industries and multinationals to build a future on. We have lost most of our industrial infrastructure and will have to build largely from scratch or, much more likely, sink ever further behind.

  25. BWoods
    Posted September 25, 2012 at 2:52 pm | Permalink

    A reasonable simple model for global financial strains. But one problem is that for US-China one could substitute US-Japan and turn the clock back to the 1980’s. Yet the western world at least was not that seriously inconvenienced by the correction which then ocurred between 1988 and 1992. In trade terms, that correction was also far more effective with the US in virtual trade balance in 1992. Compare the present – quite different.

    One must look at the asset side of international imbalances, recalling that trade deficits are investment surpluses. For example, why were foreigners so keen to buy into the US housing market?

  26. Antisthenes
    Posted September 25, 2012 at 3:54 pm | Permalink

    Yes very neat and tidy the basic economic truth; economic forces have to be in balance as any one who manages a household budget can attest to. When economic forces are not in balance then time and energy is needed to make them so. Is the world nations in economic balance? They indeed are not and never have been and probably never will be after all perfection is almost impossible to achieve. The imbalance is not the problem but by how much is the imbalance, what is being done to repair the imbalance and who is most affected by the imbalance. Just Zimbabwe and the rest it could be said who cares, however the imbalances are between the nations who’s economies drive the world’s economic forces. These nations are working to correct these imbalances and time and energy is being employed. Although you point out there has been some success it appears that time and energy is being squandered as much of the time is taken up in energies that are not correcting the imbalances but exacerbating them by copying the follies of Japan and not properly addressing root causes.

  27. Iain
    Posted September 25, 2012 at 5:01 pm | Permalink

    Some of us were debating this 8-10 years ago on the BBC’s Today message board. But as far as I can see our political classes are just as dead above the neck now as they were then on the issue. Our trade numbers just carry on deteriorating, and not a whiff of interest from the political classes. For all George Bush’s failings, he at least, all be it very late in the day, saw the danger of the Chinese hollowing out the US economy through their predatory exchange rate, and tried to do something when he went on a state visit there, but the British political classes, if only. If I remember rightly Brown followed Bush to China, and rather then take up the cudgels for British industry, he instead said the Chinese could buy up what ever asset they wanted here, boasting that we were ‘ open for business’ . And what of our Conservative opposition? I am afraid it was a case of me too, what ever was good for New Labour was good for Cameron and Osborne.

  28. Bert Young
    Posted September 25, 2012 at 5:15 pm | Permalink

    Without the Euro Germany would not be competitive in foreign markets . Hayek must be turning in his grave ; current borrowing and the printing of paper is just another way of creating inflation and making sure there will be another economic slump . Mervyn King admitted that trying to run the economy was akin to playing a lottery .

  29. Derek Emery
    Posted September 25, 2012 at 5:24 pm | Permalink

    The IMF said that the US was bankrupt in 2010 and has taken on far more debt since then. There is no way that the US can ever pay back the debt leaving defaulting or monetize debt. See a blackboard plus talk presentation on why the US must monetize the debt at http://www.youtube.com/watch?v=k0o8EQv9jPA&feature=related (7 minutes).

    This will reduce the living standard in the US which is one of the requirements you mention. Since the US is also the world’s reserve currency the effects will be worldwide.

    I suspect the rest of the western world will join in the monetizing debt process and far more rapidly that politicians can react to. Some predict this could happen next year but it is hard to predict the exact point when a piece of elastic will break.

    Reply: The US was not bankrupt in 2010, and is still paying all its bills as a solvent country. I have not checked out the You tube but have left it for readers to make up their own minds. The US has plenty of borrowing power.

  30. Terry
    Posted September 25, 2012 at 6:12 pm | Permalink

    You carefully bypass the position of the UK in this comparison.

    We, GB, should have the best of these worlds but we have the worst. Yes, we have our own currency but its’s being decimated by the ultra low interest rates and the continuing rise in national debt. Our balance of payments deficit is rising along with our Public Sector Borrowing requirements. The QE programme has been a complete whitewash. It has not improved our growth but has pushed up the value of the stock markets to provide but a short term benefit and only to the mighty rich amongst us. Despite the printing of £350 Billions the markets remain below their peaks of 2007. Trading volume is low and divergent against the rising Stock Market. A classical bearish indicator.
    House prices may be rising in London elsewhere they are either flat or dropping each month. The total National debt now exceeds £4 Trillion which has to be repaid eventually but the running bill is around £200 Billions per year to merely service that debt (twice the annual NHS budget). Private debt is falling whereas Public Sector debt is rising. And therein lies the solution. The Welfare State is no longer affordable and must be dismantled. We should not have to provide our State benefits to foreigners. We house them, educate them, feed them, breed them and pay them for just being here. If the EU insist that we continue to do this, we should demand a sizable rebate to cover the related extra costs. The UK is technically Broke. We, like the USA are relying on oversea Gilt buyers to fund our lifestyles much as they do in Greece. That is coming to an end very soon and when these lenders start to off-load our Gilts we shall watch as Yields rise, interest rates rise and stock markets crash through the low of March 2009. I do wonder if the Cabinet and the BoE really know what is going on and whether they are in complete denial of the Armageddon that is going to happen to the economies of the world. What can our MPs do if they are outside of the “Quad”? This is not a time for a single leader we must have the input of more of the elected MPs, more qualified to advise on such matters for the Quad have neither the knowledge nor the experience to cope.

    Reply: i did touch on the UK for the audience in Oxford.
    I write extensively about it here, and will do so again.
    I am currently working on a new lecture looking at the structural issues affecting growth, and the impact of QE, higher taxes and more regulation on the successful sectors of the UK economy. I will share this with readers when completed.

    • Terry
      Posted September 26, 2012 at 8:16 am | Permalink

      I look forward to it, John. But what can you do against such an insular group of far too young an inner cabinet? Does the 1922 Committee ever get access to their deliberations? And are they permitted their say, in any matter?

  31. Jon
    Posted September 25, 2012 at 6:33 pm | Permalink

    I would have found that talk quite interesting, I must be boring!
    So are we adding more tax on imported goods to encourage more UK production.
    I know in my industry globalisation as its called has put a downward presure the wage bill over the last 15 years. I guess thats similar in other industries. The public sector and monopolies are a real drag here.

  32. Dennis
    Posted September 25, 2012 at 6:33 pm | Permalink

    With all this talk of getting economic growth, manufacturing more, expanding airport traffic etc. etc. what will be the carbon footprint of all this activity? I still haven’t found out what it was/is for the Olympics.

    Let others in the near future worry about that, yeah?

  33. uanime5
    Posted September 25, 2012 at 6:49 pm | Permalink

    I trust you’ll also be recommending that the USA and Greece change their tax laws to attract the wealthy. After all that’s your solution for the UK’s problems so there’s no reason why it won’t work in another country.

    Reaply: The US does have a more attractive tax regime in several states, which does attract more enterprise and investment and produces a richer society.

    • outsider
      Posted September 25, 2012 at 10:25 pm | Permalink

      Dear uanime5,
      To the best of my knowledge, Greek tax laws are already pretty advantageous to their most mobile rich, the shipowners. Others seem to devote more energy to avoiding tax, or evading it by sending their capital to lower-tax countries, than they do to developing and improving competitive services and products. If lower tax rates helped enforcement ( which might or might not follow) they could well also swell the state coffers.

    • Lindsay McDougall
      Posted September 26, 2012 at 11:17 am | Permalink

      The rich are fairly nimble of foot, are they not? Why not try a democracy in which the number of votes you get is proportional to the amount of income tax you have paid to HM Revenue and Customs in the previous financial year?

      • Bazman
        Posted September 26, 2012 at 7:32 pm | Permalink

        An idea put forward by the comedy character The New statesman. Another of his ideas was to have MP’s sponsored by companies and have the names on their suits like F1 drivers. Laughable like your idea.
        A timocracy which would be run as a kleptocracy no doubt You assume that those with no income should not be part of a democracy which would include a large number of British citizens such as pensioners, students and non working partners to name a few. Maybe the worlds countries could take on the USA’s tax system and tax on worldwide income and at the same time declare war on tax havens hiding anything up to 21tn of wealth from the worlds citizens.

      • uanime5
        Posted September 26, 2012 at 8:28 pm | Permalink

        They tried this before, I believe they called it feudalism. It ended when the majority of the population revolted against a small elite having all the power.

        Expect the same thing if the Government is viewed as only supporting the interests of the wealthy, rather than the general population.

      • Lindsay McDougall
        Posted September 28, 2012 at 12:37 am | Permalink

        You two gentlemen don’t seem able to detect when someone is being tongue in cheek.

    • uanime5
      Posted September 26, 2012 at 8:20 pm | Permalink

      So why don’t the lower taxes attract more investment to Greece?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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