It’s only money!
This week on Facebook: Trying to use last weeks post on Criminals & Taxation as a link to those that may follow at some point proved to be very difficult, the reaction of a public administration’s response to economic failure is more akin to investigative journalism than a short, singular, post. So this week I focused a little bit on factors relating to Government economic policy, with particular reference to Social Security and taxation in the UK. My post last week last week illustrated some of the financial disasters that can occur when a public administration overreaches its level of competence. In an earlier post on Debt & Taxation (2013) I began: ‘The role that economic theory plays in the creation of money and the role played by all politicians in the manipulation of economic theory for the purpose of a fiscal policy, bear little relationship to the social responsibility that Drucker applied to a private enterprise.’
“The first responsibility of business is to make enough profit to cover the costs for the future. If this social responsibility is not met, no other social responsibility can be met.” Peter F. Drucker, The Practice of Management (1954)
Another post, The Faustian Pact (2010), stated that in 2001 the public administration directed the Financial Services Authority not to discourage the launch of new financial products. The outcome of this action was manifest when the Chancellor of the Exchequer (Gordon Brown) told a meeting at The Mansion House in 2006 that the achievements of the financial services sector was an aspiration for the whole British economy. The whole British economy became part of the global financial crisis that Government economic policy had played a part in and which everyone, whether they pay taxes or not, now bear the social responsibility for the debacle that was created.
To paraphrase Nick Cohen in his 2009 article: Governments still believe that they can go back to a lost bubble world and its ruinous consequences, while demanding that the working and middle classes bail out speculators, who earned more in a year than they will earn in a lifetime.
Drucker’s statement in his book The Practice of Management (1954) was made during a period of economic growth, effectively full employment and relatively sound money. Before the demand on Government economic policy¹ for public spending on social security had risen to today’s levels, which is itself a complex issue when public spending on social security is financed through government debt and taxation. The government is the beneficiary of taxation applied through its economic policy while the taxpayer is the benefactor, in addition the government is able to finance its ever present budget deficit through taxation, but any debt incurred by the individual taxpayer must be financed from taxed income.
The rising cost of social security since 1948-49¹ could suggest that it is now Government economic policy is to assume total social responsibility an individual lacking work or in low paid employment. It certainly indicates the failure of successive government economic policies to create the employment leading to an individual having the ability to create their own wealth. Employment that would enable an individual to assume a role in social responsibility free from the constraints of social security.
Comparisons of wealth in a society are far more complex than those portrayed by the Lorenz curve and Gini coefficient² and although they each tell us something about wealth distribution they do not tell the whole story. This is particularly true of those individuals whose lack of wealth restricts their role in assuming any social responsibility when their income is conditional on social security.
Monday — The Post-Crisis Elephant in the Room: Why are regulators and bankers apparently seeking to double down on their mistakes? For starters, banking authorities never adequately investigated their own role in the previous crisis, because they had no incentive to do so. On the contrary, they jumped at the opportunity to hide their responsibility when disoriented politicians blamed other non-bank financial activities, which they have misnamed “shadow banking.”
Tuesday — How vanishing debt costs helped the UK forget about a never-ending deficit: The Bank of England’s policy of purchasing and holding public debt – extended after the referendum result – serves to underpin prices by keeping debt off the market. But with central bankers under growing pressure to end QE at their annual gathering in August, there are fears that its eventual resale could cause prices to slump and yields to jump. Some investors may even be gambling on the Bank simply cancelling the bonds it holds to avoid such a crash.
Wednesday — Why the Rich Stay Rich: When many of us have a little cash to invest, we might buy a mutual fund or a stock — if we don’t blow it on the latest tech gadget. Not the truly wealthy, however. They often put their money in property, art, businesses and other investments that the rest of us can only dream of owning. How this rarified group uses their cash differentiates them from the rest of us — and keeps them in the black.
Thursday — How our social security system holds back low-paid workers: Under the new social security system of Universal Credit, when compared to someone in the richest 1%, low-paid workers can expect to pay a higher marginal tax rate, as will working parents receiving tax credits This means our systems of taxation and social security are both unfair and ineffective, with low income families disincentivised to work, and unfairly penalised.
Friday — Why Britain needs an economic policy U-turn: There are deeper problems that go beyond the increase in the number of self-employed workers. These problems relate to changes in the UK labour market. The rise of low-paid and insecure work has held back tax receipts. It is not a matter of people en masse avoiding tax; rather it is matter of them not earning enough to contribute in a significant way to the total tax take.
¹The social security system — long-term trends and recent changes (pdf): Public spending on social security has risen as a share of national income over time, from around 4% in 1948-49 to nearly 13% in 2013-14. It is the largest single component of government spending, making up around 30% of total expenditure.
²Inequality & Gini Lorenz (reprise 2016): We now live in a global economy obsessed with wealth, particularly what is seen as the trappings of wealth held by others. There does seem to be a paradox inasmuch as the global drive for economic growth has certainly improved the lot of the already wealthy but it relies on creating and feeding an insatiable appetite amongst those less fortunate.
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