So the debate goes on. For defenders of sterling - and the Swedish and Norwegian crowns -- the precipitous slide against the euro over recent months is broadly a boon, unless you work in the travel industry, or ski a lot. It acts as a shock absorber at a crucial moment, helping to cushion the economy against debt deflation.
Export profits may hold up long enough to give a lifeline to UK manufacturing and service firms as banks shut off credit lines. It is the difference between survival and failure for thousands of healthy companies. This is what an independent currency is for. It preserved social stability in 1931 when Britain left the Gold Standard, and again in 1992 on leaving the ERM (from which the pound later roared back to a higher level, at the appropriate time).
That's certainly the view that I take. There has to be flexibility in an economy and it's a great deal better that this flexibility be in the exchange rate and interest rates than it is in nominal wages and prices. Because trying to get flexibility in nominal wages and prices is almost impossible.
4 comments:
Yes, independence and flexibility, agreed. But the real problem, surely for us is that Labour has vastly over-estimated our real wealth. If they are really going to print money in the end (they can't borrow for ever) to carry on the spending spree, then the pound is going to inflate (I'm a great fan of Liam Halligan's articles).
I'm not saying this to support the Euro - quite the opposite - but we do need to be saying in UKIP that we have a totally different economic policy from the three major parties, and I wonder if you agree with me that we(UKIP) must focus on a) lower public spending b) encouraging savings c) de-regulating and liberating business particularly new technology. Mrs Westrop (Edgbaston Branch)
Liam Halligan does indeed get to the heart of the matter in his articles.
a) Yes, we most certainly do want to lower public spending. It's partly an economic issue, in that private spending is going to be more productive, create more real wealth in the long term. But it's also an issue of freedom and liberty: instead of tax being taken from us to be spent as others would like it to be we get to spend our own money as we would like it to be spent.
b) Yes, savings do indeed need to be increased. The most important reason being to do with c).
c) Yes, we need to de-regulate so that new businesses have an opportunity to thrive. And certainly new technology is an area where the greatest value can be created, the greatest wealth to be enjoyed by us all. And this is part of the central UKIP message of course. The regulations that hinder business are almost all coming from Brussels. The REACH regulations ( I've personal experience of registering products under them and believe me, it really isn't a simple or cheap process), the Working Time Directive and the plethora of odd environmental rules.
We've got to get out because we most certainly can't change these from within the system.
I totally agree. With your comment about the importance of lowering tax in mind, I wonder if you have any comment on my thought that it might be a practical and productive policy to advocate generous tax breaks (for new technologies in particular); rather than for the Government to take taxes and redistribute them as subsidies - or to use the Labour buzz-word, for 'kick-starting' the economy. Surely, it must be fairer and more effective because the Government has to be a bad judge about who gets these favours, quite apart from your good point about Liberty. If I were Chancellor, I would I think, explore completely tax-free profit periods for new technologies - fuel cells, pharmaceuticals, gene-therapy, say - and why not similar breaks for the associated businesses that spin off from new industries, too?
I tend to go further (and I must emphasise that this is not party policy) which is that we simply shouldn't tax the profits of companies at all. Tax profits from investing, yes (tax dividends and capital gains for example) but not the company. There's a theory (called "tax incidence") that says that it isn't the companies that pay the taxes anyway.
But moving away from my own thoughts, it's actually true that for innovation, for invention, it isn't tax that is the real problem. It's regulation. Most really new products (as opposed to improvements of existing ones) tend to come from start up or new companies. And it's the weight of regulation that holds them back rather than tax rates.
And where does most of the regulation come from? Brussels.
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