Thursday, May 17, 2012

UK government slams 'whingeing' business. There's a simple solution.

From the Financial Times:
In a sign of deteriorating relations between the coalition and business, Philip Hammond, defence secretary, said some large companies were sitting on large piles of cash and urged them to start investing it to meet future demand.
And it gets quite pathetic, actually:
"Earlier William Hague fuelled an increasingly tense relationship when he said: “I think we should be getting on with the task of creating more of those jobs and more of those exports, rather than complaining about it." Mr Hague, interviewed in the Sunday Telegraph, added: “There's only one growth strategy: work hard.”"
Here we have a government, which is a champion of 'Lazy-Faire' economics, sitting around name-calling, hoping the market will sort itself out if you just leave it alone, instead of getting to work putting in place proper policies to do something about it.

We can think of one such policy, which is a no-brainer, and directly answers Hammond's point about companies sitting on idle cash. It is called Taxing Corporations. It is very straightforward. As we have remarked before, it will take money away from corporations, which are sitting on huge dormant and unused cash piles, and transfer it to a sector that will put it straight to good use, investing it in roads, schools, universities and so on.

Read more on this unarguable point from the LSE blog here, as well as in more detail from the Treasure Islands blog here.

And as for all those cries of 'don't tax capital, it's inefficient and stifles growth!' well, the economics profession appears to be in the midst of an epiphany here, with The Economist magazine having just written a most useful piece with the subtitle "Economists are rethinking the view that capital should not be taxed."

Strangely, the UK government appears to be moving in exactly the opposite direction, shoveling new tax breaks and lower tax rates on corporations - which will merely let this money sit idle, as there aren't the opportunities for putting it to good use.

It is very simple, really.

And on a somewhat related topic, there is another very simple answer to a very current question in the UK, which is about who to blame for the financial crisis. The very simple answer is here.


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