(7b) Another response to comments on my comment on fall in public borrowing

Sometimes when I read the Guardian I respond to certain articles (nowadays I post more on the Guardian-website than I write on this blog as here is no response and thus no intellectual challenge).


And so I read this article that describes why people should not to be too happy with George Osborne's new budget proposals. The article mentions that the UK has one of the largest deficits in the developed world and thus this needs to change. Indeed, according to the finally reason, it seems there will be further £12bn reduction of the welfare budget and £13bn reduction of Whitehall departmental spending (i.e. on government spending) and thus I think this can only be achieved by freezing people's wages and probably via job cuts because simply by changing from expensive paper to computerisation will not be sufficient for these reductions. And thus, more people unemployed will result in more people who are not able to spend and when they do, they will need to use their savings or borrow, resulting in poorer people with more debts.

The article mentions as second reason why people should not be too cheerful with the fall in public borrowing is that any improvement is still coming primarily from lower than expected spending rather than higher tax receipts. Indeed, if people (fear to) earn less, they will reduce their spending so companies suffer while decreases in income result in a decrease of tax revenue. Similar in Greece where creditors are furious that the government re-employed people such as cleaners after Syriza came into power while they demand more savings by the Greek government; but later the creditors are surprised revenues were lower than expected (many people don't earn much while many others are unemployed) and thus continue to believe all Greeks are criminals who try to avoid paying taxes (of course, some do).

So, I wrote a comment (in the form of questions) under the article and received four comments (one in response to someone else's comment) in which two persons answered my questions - but totally opposite as I had intended the answers should have been.


My comment
Is it not that the UK has one of the largest deficits in the developed world due to the presence of many banks of which many needed to be saved at the start of the crisis because there had been too little control on how they behaved and thus they need more control?
Will more cuts really result in more revenue due to more spending? Can an economy grow when more people receive less or will people on benefits spend even less so more businesses may get into difficulties? Is it even possible to claim the economy must grow even further or have we reached a top and is redistribution of wealth and work needed to continue keeping everyone in work and with an income? Should tax avoidance and reductions not be stopped to generate more income for the government while tax reductions for the poor can help them so they too can continue to spend?

Response one:
The economy has no chance of growing when public spending is slashed. All that happens is the economy contracts and private contractors taking on any work ship the profits off-shore. The banks have got away with it and are now heading for hong-kong.
I agree with this reply as this person seems to understand that people should earn money to prevent that economies shrink and even that rules are needed. However, I think the banks are using the money to change London as they wish to attract more rich people but at the expense of ordinary people who struggle to pay bills. Still, many people voted for the Tories (although the system helped the winner), probably because the Tories promise a EU referendum, because of weak leaders in the two other main parties, because the Tories blame foreigners for the troubles and promise actions to stop immigration (from poor immigrants) but probably also because the Tories defend the City of London and many people hope they or their children will be able to work there one day and earn a fortune. Still, those heading to London should be careful: as the UK is on the border of an ocean and as other islands already experienced, one major storm due to climate change may cause major damage to property.


Response two (starts with a reference to one of my questions that will receive an answer)
Is it not that the UK has one of the largest deficits in the developed world due to the presence of many banks of which many needed to be saved at the start of the crisis because there had been too little control on how they behaved and thus they need more control?
No.

Response three (to the second responder)
Elaborate?

Response four:
In reply to your initial question.
No.
In reply to your second question.
Yes.
In reply to your third question.
Yes.
In reply to your fourth question.
Yes.
In reply to your final question.
No.

Thanks for asking...

This answer shows how people can completely differ in the way they think about a subject as I would answer the opposite to every simple question I asked - the reason why I wrote my questions in the way I did but still allowed others to have their own opinion as some had.

In answer to my first question about the deficit and banks: the UK had to spend billions to save banks such as Northern Rock, Lloyds, Royal Bank of Scotland (RBS) and others. Afterwards, many banks continued their behaviour (such as fixing rates or paying (huge) bonuses while many banks still have debts) and thus little changed to prevent another (even larger) disaster from happening in future although indeed, banks are repaying governments (so fewer money is available to use to invest in the economy, certainly when banks are also forced to pay fines). I think 'even larger' as the first crisis impoverished countries to such an extend that they may no longer be able (or allowed) to save banks nor savings during a next crisis (I was in favour during the first crisis of allowing the failure of (parts of) misbehaving banks with arrest of those who misbehaved while countries should have paid people their savings so people could have gone to good banks. Those who want all will think twice before misbehaviour if it may result in imprisonment).

In answer to my second question (Will more cuts really result in more revenue due to more spending?), I think cuts will result in people spending less and thus less VAT paid while more people without a job means more people who don't pay tax and social security and thus a reduction in revenues.

In answer to my third question (Can an economy grow when more people receive less or will people on benefits spend even less so more businesses may get into difficulties?) I think the last responder answered 'Yes' to the first part of my question while the second part illustrates my answer: if people on benefits receive less because benefits are reduced, some people may start to look for a job as life becomes more difficult while many (certainly those who lost recently their job) are already looking for jobs in an ever more competitive world. In addition, if these people receive less benefits, even McDonald may start to struggle when the poor can no longer afford to buy a hamburger and thus thousands of students may loose their jobs that pay (part of) their studies; as a result many students may no longer be able to go to university and thus also universities receive less and struggle. Remember, this is an enormous crisis, not a local one (that in the past decades was softened because the benefit system existed while this is now undermined).

In answer to my fourth question (Is it even possible to claim the economy must grow even further or have we reached a top and is redistribution of wealth and work needed to continue keeping everyone in work and with an income?), I accept an answer is more difficult as some (old) businesses will decline while others can grow such as renewables but also those supporting technologies (although I think all at a smaller scale such as local production). But many industries (including the financial sector) are changing their business into a computerised one to maximise profits and although that can lighten the workload, here redistribution is still necessary to prevent that many people loose their jobs while the remaining people become overworked. However, as computers allow that people can do home banking, it will be more difficult to redistribute work in the financial sector in the longer term, certainly when people will continue to have the impression bankers can't be trusted.

In answer to my final question (Should tax avoidance and reductions not be stopped to generate more income for the government while tax reductions for the poor can help them so they too can continue to spend?), many people will disagree while if most people would pay the taxes they should pay then taxes could go down for everyone. Indeed, tax reductions for the poor are hardly felt by society because in a healthy society the poor are a minority who have so little that tax reductions will be small; they can even receive help such as grants that would for instance allow the poor to send their children to college so they too can be educated and thus improve so they earn more and no longer are in need to receive tax reductions or help for their children. In contrast, more cuts in benefits while more tax reductions for (a few) wealthy will result in fewer people benefiting and thus more costs for society. Indeed, when even only a few billionaires pay similar taxes as everyone else, a society will benefit because this will result in large revenues that benefit the whole society and even allows lower taxes for everyone (thus including the wealthy). Some wealthy claim that they should be able to pay less taxes so they can invest more but if they are too powerful, they can prevent others to invest in something similar; therefore, a little less rich may still result in similar investments, now by others.

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