An Economics Lesson, the way out of recession

17/11/2008 by info.

Firstly a quick economics lesson.

We have gone into recession for the following reasons.

1. Businesses borrowed money and these businesses could not afford to pay it back

2. Individuals borrowed money and these individuals could not afford to pay it back

Isn’t it strange therefore that governments think that the best way out of the recession is for governments to borrow money and hope that they can afford to pay it back!

This is Keynesian Economics and I’m glad that at least my economic lectures at University are now of some use. Perhaps the Conversative party will readopt Moneterism later.

Maybe though the reasons why we went into recession were:

Firstly that the banks were looking at short term profits and bankers were purely looking at their next years bonuses, lending money that could be repaid in the short term but not in the long term. They then packaged up this “bad” debt later and sold it to other institutions with some “good” debt.

Secondly taxes increased, taking out incentive for people in business.

Why do we tax something that is good for the economy? I.e Jobs via National Insurance Contributions, that has always puzzled me.

We also tax the transfer of businesses via Capital Gains Tax, but surely it is a good thing if businesses are sold rather than closed down? It again maintains employment. Plus the new business owner buying that business is taking on less risk compared to setting up from scratch.

A business is only worth something if it has made profits, and the government has already made money from taxing those profits via Income Tax and Corporation Tax.

So, isn’t it about time that the government stopped taxing goodwill on the sale of a business?

Perhaps then people looking to invest money will not be looking at property, but will invest in businesses and invest in jobs.

The truth is the government just want a share out of any economic activity via taxes, which during a recession is not good for the economy.

Stop taxing business owners and more money will be left in the economy in the first place.

It makes more sense than having governments taking that money from individual business owners via taxes and spending it themselves later (probably in a very inefficient way) in an attempt to take the country out of recession.

Posted in The Economy | No Comments »