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The LVTC blog, by Henry Law

The comments in the LVTC Blog are a personal view of our Hon. Secretary Henry Law and do not necessarily reflect the official policy of the Campaign.

This is a place for personal observations and comments on politics, economics, current affairs, on-going discussions on the potential for LVT to remedy some of the current ills, and the impact on Society of any of the above. 

Please read and enjoy, and feel free to respond to Henry if you have any thing you would like to add.

G20 and its Keynesian critics

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The G20 consensus that public spending should be reigned in has been criticised by, among others, Paul Krugman, who are resurrecting the ideas put forward by Keynes. What are we to make of this?

Is the Chancellor hitting the poor with the VAT rise?

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Much of the uproar over the VAT increase has focussed on whether it is regressive and bad for the poor.

This is very much missing the point about VAT. It is very bad for business, especially smallish ones. Either they cannot claim back the VAT paid on inputs (if they are unregistered) or they are saddled with the administrative costs, which are considerable. And they have to build the VAT into the prices they charge, which does not bring customers into the shop. To say nothing of the fraud that goes on.

VAT has much the same effect on the economy as pouring a mixture of sand and water into a machine.

Fighting the 1930s arguments all over again

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Some commentators are suggesting that next week's budget of retrenchment results from a re-run of the argument that arose in the 1930s. Introducing an article in the Financial Times on 17 June under the heading “Once again we must ask ”Who Governs?”, Lord Skidelsky, emeritus professor of political economy at the University of Warwick, wrote.

”In one sense, next week's emergency Budget is simply the logical working out of an intellectual theorem. The implicit premise of the coming retrenchment is that market economies are always at, or rapidly return to, full employment. It follows that a stimulus, whether fiscal or monetary, cannot improve on the existing situation. All that increased government spending does is to withdraw money from the private sector; all that printing money does is to cause inflation.

"These propositions are a re-run of the famous "Treasury view" of 1929. By contrast, Keynes argued that demand can fall short of supply, and that when this happened, government vice turned into virtue. In a slump, governments should increase, not reduce, their deficits to make up for the deficit in private spending. Any attempt by government to increase its saving (in other words, to balance its budget) would only worsen the slump. This was his "paradox of thrift". The current stampede to thrift shows that the re-conversion to Keynes in the wake of the financial collapse of 2008 was only skin-deep: the first story remains deeply lodged in the minds of economists and politicians.”

Both views wrong?


What is the Chancellor to do?

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Faced with a huge deficit and the need to act quickly, what should the Chancellor do? Of course we do not like the present tax system, which is a major cause of all the present problems. Cuts are part of the solution. But there is no gain if those who lose their jobs then spend months unproductively on the dole, and it could – probably will - lead to social unrest. The real problem, the one that has brought this dire situation about, is that we have taxed that which we ought not to have taxed, and left untaxed that which we ought to have taxed. But even within the limitations of the present tax system, there are things a Chancellor can do to help, and things that will make matters worse.

What free market?

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Vacant buildings According to free market theory, if supply exceeds demand, then prices fall to market-clearing levels. As it obviously is not happening in this town in a prosperous part of the south of England, there must be something wrong with the theory.

Read more about the story here

Why can't the journalists shut up?

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It says little for the press that with the coalition less than twenty-four hours old, commentators have already rushed to pass judgement. Why not shut up and wait and see what happens before passing judgement? It is not as if we have lost a government  of the wise and good. It was obvious as early as 1993 that Labour was always going to be a disaster, though the extent of it surprised me. It is a paradox that conservatives have, historically, often been more effective at delivering overdue radical change than the radicals, and not just in Britain. I have no great expectations but this coalition may, against the odds, deliver a pleasant surprise.

Which voting system?

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One of the effects of the British election result is that it has called into question the country's "first past the post" electoral system. The problem is to find a better one. The three main parties reflect, in a rough and ready sort of way, the threefold division of the economic process and those who take part in it. There are those who own the land, those who run businesses and are the owners of physical capital, and those with nothing to offer apart from their labour. But with first-past-the-post elections, the smallest party is squeezed out and so, for most of the past century, the business interest aligned itself with the landowning interest, leading to a political structure which does not reflect economic reality.

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