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The base problem here

But the wider economic problem is that much of the tax cut will not lead to higher spending. Give households more money and they will spend some of it, but also save some. And the higher their income bracket, the more they will save.

A much better way of getting money into the economy is through investment. Wise investment – in infrastructure and business – will raise productivity, and therefore increase long-term economic growth. Investment creates jobs, and therefore raises wages and spending. Economists call the rate at which an injection of cash into the economy raises national income the “multiplier”. As the OBR has noted, the investment multiplier is around three times larger than the tax multiplier.

This is dependent upon the efficiency of the investment. That “wise” bit.

Given the way that politics and bureaucracy pisses the money away that’s then not a test that politics and bureaucracy passes.

Michael Jacobs is professor of political economy at the University of Sheffield

Upton Sinclair comes to mind. Someone whose living depends upon politics is hardly going to tell us that politics is a shitty way to do things and markets are better now, is he?

5 thoughts on “The base problem here”

  1. What happens to the money I save? Do the Scrooge McDucks of the banks and building societies swoop around in Money Barn No. 9 admiring it? Or do they – um – invest it?

  2. Double digit inflation will surely mean that many of those fortunate enough to be in pocket as a result of recent events will immediately spend it rather than invest at real-term negative interest rates.

  3. “And the higher their income bracket, the more they will save.”

    Not necessarily… “Kwarteng’s budget has gone down very well amongst charity fundraisers, who are almost entirely dependent on wealthy philanthropists. The Charities Aid Foundation calculated that 9 per cent of the UK population contributes 66 per cent of donations, a group they call the ‘Civic Core’. A good chunk of that ‘core’ has just been given a stimulus.” (Fraser Nelson, The Spectator)

  4. ‘ Give households more money and they will spend some of it, but also save some….. much better way of getting money into the economy is through investment.’

    Isn’t saving investment? Doesn’t it provide money for businesses and others to borrow to increase economic activity. Might not the saving be in investments other then bank deposits.

    The fatal conceit – economic visionaries who believe they know every little detail of what is going on in an economy and can come up with a plan.

  5. There were people phoning in to Any Answers actually saying:
    Rich people don’t invest, they just put money in the bank. People shouldn’t save money, they should invest it. WTF do they think their savings are doing? Filling Scrooge McDuck’s basement?
    And one person even spent five minutes insisting: you don’t need any money to start a business, a bank will give you money. Errr…… so if you don’t need any money, WTF are you asking a bank for… duh… MONEY!? And where the hell does he think the bank gets that money from? SAVERS!!!!

    I was listening closely to check if it was Our Friend In The East, but the name he used was definitely not him. But worryingly, it means the contaigion is spreading.

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