I haven't studied economics or anything so I may not have a great understanding, so feel free to chip in.
It seems to me that the reason we're in recession may be in a big part down to capitalism. The wealthy are extremely wealthy, and they're controlling the majority of our country's wealth. A lot of the high earners are finding loopholes to avoid paying tax, so they just keep gaining and gaining without giving anything back to society. Quantitative easing only works briefly until the rich get their hands on it.
The poor distribution of money means that greedy people are sitting on so much money, more than they know what to do with, for the sake of being wealthy. They won't spend it, so it doesn't come back into the economy, the money just stays in one place. If that money was distributed more evenly, everyone would spend and the money would circulate properly, staying where it's needed.
There's a BBC article today (here), asking whether Britain should let go of London. We look like a 3rd world country in comparison to London, you don't notice the recession down there. Obviously there are some poor areas, but generally it's home of the wealthy.
Here's a list of average house prices in London, which I doubt comes as a surprise.
Amazon have been under fire for avoiding tax too, due to some loophole which supposedly makes it completely legal. When the UK buy on Amazon (the biggest online retailer for the UK), shouldn't 30% of their profits come back to the UK via corporation tax? Instead it's all hidden away in Luxembourg I imagine where their HQ is based, purely due to tax laws I guess.
I do think there are other issues, but tax seems to be a big one. So many loopholes meaning that money isn't circulating the way it should. The problem is, AFAIK there isn't an economic model that can be implemented successfully, so it's a case of choosing the one with the least problems.
Is capitalism the reason we're in recession? Watch
- Thread Starter
- 26-03-2013 13:02
- Section Leader
- 26-03-2013 19:14
Yes, you've hit upon something known in economics which is that rich people have a low propensity to spend, whereas poor people have a high propensity to spend. Economic growth can be stimulated by redistributing money from people that don't spend it to people that do spend it, i.e., from rich to poor. The arguments against doing so are that the rich deserve that money because they've earnt it, and that you lessen the incentive for people to earn whilst increasing incentives to store money abroad (where it cannot be taxed); the arguments for are obviously the benefit to the economy and raising average quality of life in society (through increased welfare, equality, public services, etc.).
In terms of capitalism being the cause of the recession, of course it must be because a recession can only occur under a system with capitalist elements to it (as opposed to a communist system where the wealth is communally owned), but if the UK was non-capitalist whilst the rest of the world remained capitalist, we would still have recessionary problems as the recession was a global phenomenon. But capitalism has its benefits too - it just must be strictly regulated so that corporate profit aligns with the public good.
- 26-03-2013 19:53
well, recession is a capitalist economic term, so i would assume so :P
On a more serious note, the fact that the rich dont spend as much as the poor is why tax and welfare are successful policies, as the poor will spend the money and thus support growth.