[Spaz Man]

It's very sad that so many potential future Nowegian leaders were killed in Norway

[ghettolefty]

(Original post by Silver Aurora)
There can only be one PM in this town!

Bring it on, biaaaatch!

[Silver Aurora]

(Original post by ghettolefty)
Bring it on, biaaaatch!

Okay. First one to become PM wins, cool?

[ghettolefty]

(Original post by Silver Aurora)
Okay. First one to become PM wins, cool?

Deal

[Jay99]

Imagine if 'im so academic' became prime minister!
Horrible thought.
*sorry not horrible, but absolutely disgusting.

[Jacktri]

nobody with connections in politics understands how to use a computer

[Markleberry]

Dibs on Chancellor.

[jos10]

(Original post by Markleberry)
Dibs on Chancellor.

Seeing as your blog say you lean to the left, just no. We've seen how successful the last 2 left-leaning chancellors were...

[jos10]

(Original post by Markleberry)
Dibs on Chancellor.

And I just read the top post of your blog, the only one I have read and whilst you use sources well, you miss a massive point. The cut in VAT will worsen our budget deficit, causing us to borrow more money to finance this excessive expenditure. This will see a rise in interest rates, discouraging the investment you proclaim will help in improving our productive potential.

You also fail to notice that there are taxes which are far more important to firm decisions than VAT (N.B. Corporation tax and business rates), and you completely ignore the fact that firms can claim VAT on investment projects BACK, so how a cut in VAT, other than potentially lowering their input costs, will lead to a rise in investment, is a weak argument, when a cut in corporation tax will leave firms a larger profit to either reinvest or pay out as dividends to increase the discretionary income you say is so weak.

You also fail to notice, that business which have something like a revenue of £120,000 have exceptions to paying VAT and so you are mainly generating a benefit for larger corporations.

You also claim that the cut in VAT helps lower inflation whilst also stimulating the economy, but then go onto state that there is a massive risk of deflation. Well what is it? And if you're cutting VAT, it won't come into effect until at the very earliest november 2011, when in january 2012 the effect of the rise in VAT stops effecting CPI figures. It seems a bit pointless. You are trying to find a solution to a problem without looking at the cause. The high inflation atm, is caused by a boom in commodity prices due to uncertainty in the middle east and demand from the third world, but the tighter monetary policy of china and the slowing of growth in other 3rd world nations suggests that the risk of high inflation is only short term, as these will factors will reduce over time and the continuing growth of the economy should bring our inflation rate back to target.

Finally, despite the fact you are completely wrong in your conclusion that we should cut VAT, it is a very well written piece, and I like how many sources you have and how you structure your argument You have the beginnings of a half decent economist, and I like the point building on other points like your argument about the manufacturing passing on higher rates of income in manufacturing.

[Teveth]

My ears are burning.

[Markleberry]

(Original post by jos10)
The cut in VAT will worsen our budget deficit, causing us to borrow more money to finance this excessive expenditure. This will see a rise in interest rates, discouraging the investment you proclaim will help in improving our productive potential.

Sorry, I tend to take people knowing my position on the deficit for granted. 'Tis a bad habit. I stick to the Reinhart/Rogoff limit of public debt/GDP of 90% (where it starts to affect the economy as a whole), so I really don't give a damn about our debt piling up. We can afford one more year, and that's all I want. One more year of stimulus spending (albeit partially offset by cuts and taxes elsewhere, to about 75% of the stimulus value). As for rates rising as a result, I'm banking on the commodity bubble bursting (with a resultant flight to sovereign debt investment) and on markets realising that another stimulus is going to be necessary. Those two things aren't as unlikely as you think.

You also fail to notice that there are taxes which are far more important to firm decisions than VAT (N.B. Corporation tax and business rates)

Corp. tax is already being cut back, so why would I mention it?

and you completely ignore the fact that firms can claim VAT on investment projects BACK

Now this I did not know. Many thanks for pointing that out.

so how a cut in VAT, other than potentially lowering their input costs, will lead to a rise in investment, is a weak argument

Low input costs = lower total costs. lower total costs = higher total profit. Higher total profit = more money on investment.

when a cut in corporation tax will leave firms a larger profit to either reinvest or pay out as dividends to increase the discretionary income you say is so weak.

As I said, already being cut, so I don't really care. I suppose you could achieve the same goals on the investment front with a targeted break for the manufacturing sector,

You also fail to notice, that business which have something like a revenue of £120,000 have exceptions to paying VAT and so you are mainly generating a benefit for larger corporations.

Again, didn't know. Thanks for the info though.
EDIT: Looking back, I'm not sure if you're talking about the overall VAT cut, or the manufacturing one. If it's the former, then I'm not bothered, as that cut is only really there to help consumers - the effects on firms are irrelevant. If the latter, then hopefully it'll lead to some larger investment projects with the increased profits, what with economies of scale and whatnot.

You also claim that the cut in VAT helps lower inflation whilst also stimulating the economy, but then go onto state that there is a massive risk of deflation. Well what is it?

I can admit that seems a little confusing. Artificially inflating the price level with VAT doesn't really count as stopping deflation - you've changed the figures but not the underlying fact of either too little demand or too much supply, which is still going to cause problems. However, placing unnecessary pressure on real wages when consumers are trying to deleverage is also unnecessary, and in this case VAT does 'count'.

And if you're cutting VAT, it won't come into effect until at the very earliest november 2011, when in january 2012 the effect of the rise in VAT stops effecting CPI figures.

I didn't know that either, surprisingly enough.

It seems a bit pointless. You are trying to find a solution to a problem without looking at the cause.

I'm afraid I have to disagree with you there - I know that already. As for being pointless - what about consumer confidence?

The high inflation atm, is caused by a boom in commodity prices due to uncertainty in the middle east and demand from the third world, but the tighter monetary policy of china and the slowing of growth in other 3rd world nations suggests that the risk of high inflation is only short term, as these will factors will reduce over time and the continuing growth of the economy should bring our inflation rate back to target.

If you look back, I did a piece on this earlier (paragraphs 6 to 9 are the relevant bits). I am entirely aware of the causes.

Just to make this clear, I only care about the pseudo-inflationary effects of VAT on households insofar as they slow down consumer deleveraging. Once that's out the way, jack it up as far as you want because it won't really matter (well, don't; it's a regressive tax, but you know what I mean). But if you try and shrink the government while households are shrinking, firms are going to shrink, and that causes recessions.
Oh, and as for 'the continuing growth of the economy'... I'm afraid I disagree with you entirely. Shizz is going to go down sometime in 2012.

Regardless of all that, it's nice to meet such an obviously intelligent poster as yourself. I look forward to debating with you.

[jos10]

(Original post by Markleberry)
Sorry, I tend to take people knowing my position on the deficit for granted. 'Tis a bad habit. I stick to the Reinhart/Rogoff limit of public debt/GDP of 90% (where it starts to affect the economy as a whole), so I really don't give a damn about our debt piling up. We can afford one more year, and that's all I want. One more year of stimulus spending (albeit partially offset by cuts and taxes elsewhere, to about 75% of the stimulus value). As for rates rising as a result, I'm banking on the commodity bubble bursting (with a resultant flight to sovereign debt investment) and on markets realising that another stimulus is going to be necessary. Those two things aren't as unlikely as you think.

Corp. tax is already being cut back, so why would I mention it?
Now this I did not know. Many thanks for pointing that out.

Low input costs = lower total costs. lower total costs = higher total profit. Higher total profit = more money on investment.

As I said, already being cut, so I don't really care. I suppose you could achieve the same goals on the investment front with a targeted break for the manufacturing sector,

Again, didn't know. Thanks for the info though.
EDIT: Looking back, I'm not sure if you're talking about the overall VAT cut, or the manufacturing one. If it's the former, then I'm not bothered, as that cut is only really there to help consumers - the effects on firms are irrelevant. If the latter, then hopefully it'll lead to some larger investment projects with the increased profits, what with economies of scale and whatnot.

I can admit that seems a little confusing. Artificially inflating the price level with VAT doesn't really count as stopping deflation - you've changed the figures but not the underlying fact of either too little demand or too much supply, which is still going to cause problems. However, placing unnecessary pressure on real wages when consumers are trying to deleverage is also unnecessary, and in this case VAT does 'count'.

I didn't know that either, surprisingly enough.
I'm afraid I have to disagree with you there - I know that already. As for being pointless - what about consumer confidence?

If you look back, I did a piece on this earlier (paragraphs 6 to 9 are the relevant bits). I am entirely aware of the causes.

Just to make this clear, I only care about the pseudo-inflationary effects of VAT on households insofar as they slow down consumer deleveraging. Once that's out the way, jack it up as far as you want because it won't really matter (well, don't; it's a regressive tax, but you know what I mean). But if you try and shrink the government while households are shrinking, firms are going to shrink, and that causes recessions.
Oh, and as for 'the continuing growth of the economy'... I'm afraid I disagree with you entirely. Shizz is going to go down sometime in 2012.

Regardless of all that, it's nice to meet such an obviously intelligent poster as yourself. I look forward to debating with you.

Just a few points to make:

1) I don't know if you've done any reading on IS/LM, seeing a you're in year 12, but that supports my statement about interest rates earlier on. Regardless, maintaining our current deficit will lead to the crowding out, harming our long run productive potential, as firms borrow less due to the greater discounting of the higher rate.

2) You're making the assumption that the lower costs will lead to higher profits, but that depends on prices! If you're in quite a competitive market, then firms are likely to lower their prices in response to the lower costs, so the VAT cut won't necessarily go all to firms to invest (and who says they'll invest? Currently, many firms are lowering their exposure to debt and some are paying out dividend to angry shareholders, due to the lower share prices), but to consumers, and the benefits to the LRAS are thus overstated.

3) Corporation tax, leading on from the above, guarantees that firms see a rise in their post tax profits, and so it is a preferable method of improving long run performance. That's why I bring it up, but don't state this explicitly. I'd rather see a cut in corporation tax than VAT, because it is far more likely to increase our long run performance.

4) Look up the fisher equation on real interest rates. You've said that the main benefit of the VAT cut is not to increase LRAS, but to help lower inflation, so as to help consumers. But if inflation is at 4.2% and interest rates only 0.5%, real interest rates are negative, so it is a lot easier for consumers to pay off their debts. And seeing as inflation is likely to drop off after 2012, due to the methodology of calculation (which, btw, MASSIVELY overstates inflation), the fear of sustained inflation due to a wage price spiral is probably overstated.

5) And one piece of advice, you say 'Shizz is going to go down sometime in 2012.' We're economists. We don't make statements based on hunches or best guesses (I don't think shizz will go down, but I think we will see slow growth again, and HOPEFULLY we can bring inflation down to about 1-2%) The governor of the bank of england, despite being a moron, can't make decisions based on best guesses, but empirical data.

One of the wonderful things about economics, is it's conflicting nature (growth Vs current account), and one of the best pieces of advise I've ever been given is to be intellectually open to new ideas and concepts. My teacher has hatred for neo classical economics, but has spent a lot of time studying it so as to construct criticisms of it. Often the best way of improving your argument is to look at the complete opposite argument.

And it's nice meeting someone who makes me have to have a very solid think as to how respond XD

[Markleberry]

My original response was probably better than this one, but because I'm an idiot I accidentally closed the tab with it on () so sorry if this is a load of crap.

(Original post by jos10)
1) I don't know if you've done any reading on IS/LM, seeing a you're in year 12, but that supports my statement about interest rates earlier on. Regardless, maintaining our current deficit will lead to the crowding out, harming our long run productive potential, as firms borrow less due to the greater discounting of the higher rate.

Going by that model, wouldn't the scenario I mentioned earlier (commodity bubble popping) or something similar drive the LM curve right, thus countering out the IS movement? Correct me if I'm wrong, because you're right - we haven't done the model yet, so I'm working off a skimread of wiki until this headache clears up and I can look at it properly.

2) You're making the assumption that the lower costs will lead to higher profits, but that depends on prices! If you're in quite a competitive market, then firms are likely to lower their prices in response to the lower costs, so the VAT cut won't necessarily go all to firms to invest

But if they're rational, they'll take advantage of the specific investment cut now to invest, which means keeping prices up to provide more money for said investment, rather than waiting until later and being priced out of the market by firms in countries which do invest a lot (China is one example; they invest tons and they'll be moving into manufacturing sectors we operate in very soon)

- (and who says they'll invest? Currently, many firms are lowering their exposure to debt and some are paying out dividend to angry shareholders, due to the lower share prices), but to consumers,

Manufacturers tend to invest more as a proportion of revenue iirc, and are less indebted than other businesses.

and the benefits to the LRAS are thus overstated.

Why would I be bothered about LRAS when I'm worried about deflation? I'm banking on this cut spurring an extension of aggregate demand as well as an increase by increasing confidence.

3) Corporation tax, leading on from the above, guarantees that firms see a rise in their post tax profits, and so it is a preferable method of improving long run performance. That's why I bring it up, but don't state this explicitly. I'd rather see a cut in corporation tax than VAT, because it is far more likely to increase our long run performance.

'In the long run, we are all dead'.
Anyhoo, why cut it if they're going to save it? If giving them more money to spend doesn't help (which it hasn't seeing as the corporate financial balance has increased despite corp. tax cuts), then the alternative is cutting prices and hoping for the best - however, if you want to achieve the effects on investment that I do then raise capital expenditure allowances.

4) Look up the fisher equation on real interest rates. You've said that the main benefit of the VAT cut is not to increase LRAS, but to help lower inflation, so as to help consumers. But if inflation is at 4.2% and interest rates only 0.5%, real interest rates are negative, so it is a lot easier for consumers to pay off their debts. And seeing as inflation is likely to drop off after 2012, due to the methodology of calculation (which, btw, MASSIVELY overstates inflation), the fear of sustained inflation due to a wage price spiral is probably overstated.

I knew what real rates were, but I was unaware of the name of the equation to determine them - I just thought it was common sense.
Anyway, if the non-discretionary income of households is at a higher price (I know the majority of non-discretionary products are zero-rated or at a reduced rate, but not all) then the ability to pay debt off early will be reduced, which just drags out consumer deleveraging and makes government cutbacks even less desirable.

5) And one piece of advice, you say 'Shizz is going to go down sometime in 2012.' We're economists. We don't make statements based on hunches or best guesses

I know we don't, which is why I haven't.

And it's nice meeting someone who makes me have to have a very solid think as to how respond XD

Likewise

If you want to continue this, I probably won't be able to take you up on it for a while; I'm doing a guest blog for a friend and I have to work on my UCAS application. It's been great fun debating with you.

[Gengar_1500]

(Original post by Blanc Pride)
I believe David Cameron will be prime minister again. Ed milliband is far to much of a weak Labour leader, and there is no chance in hell Ed Milliband will ver become prime minister.

Unless Ed Miliband resigns prior to the 2015 election.. :P

[Barden]

(Original post by AlexInWonderland)
Imagine if it were ISA....

[Potential trigger]...

[Clumsy_Chemist]

David Cameron was a student once. Guess it depends on what proportion of students are on TSR. If 30% are on TSR, there's a good chance that at some point in the future an alumnus (hope this is the right word ) will be PM. After all, if you're gonna be PM one day chances are you love getting into political debates on a forum like this