Fatal Frugal Finances

Please excuse the alliteration of this posts title, but it was just crying to be alliterated. But the title is accurate to the nature of this post. This week the USA has announced figures in the trillions, and many european countries are also facing financial meltdown, into the billions. But it seems to me that many of these countries are going about the economy all wrong.

Now I’m not going to be one of these people, like most dads and grand-dads who say, ‘I could run this place better,’ and then never really submit a true plan. What I will say is that I am going to outline how the governments, especially Britain, could save their economy, by radical methods.

Currently the UK government, with the ConDem coalition, has decided that shutting off finances, making huge cut backs and making people redundant is the way to rescue the countries finances. However, that is the economically wrong way of doing things.

The current UK government thinks that by not spending, it can rescue its debt from spiralling further downwards. It thinks that by raising VAT and other Taxes, that it can rescue it financial chaos. However, this propagates financial catastrophe. Cutbacks, Tax hikes and other drastic financial moves can be, and are being, a dangerous concoction for a once proud nation.

After the first world war, and the second, there was a mass of unemployment and dangerous living conditions for many, with starvation and absolutely poverty being the most likely route for many British citizens. However, it took two bright economists to change the economical landscape, which became the heart of the Labour manifesto at the time. As a result of this contribution from John Maynard Keynes and Sir William Beveridge the country’s economy began to grow from the dangerous economy fuelled by the conservative cuts.(Even though they had enough money to go to war.) The Labour party, with these socialist views and grand economic ideas, set up some of the most founding and loved things about the UK. This includes things like the NHS, welfare state, and nationalisation. (of course some are now going or gone.)

It is ideas from these great thinkers, Keynes and Beveridge, that I think the current government should adopt. And why? Because it is a simple, logical and an effective plan. So now, that  I have given a small history, I wish to take you through the fiscal plan at the heart of what I think the Government should do.

The current government has created a downward spiral of fiscal planning. I shall explain why. If the government raise taxes and cut backs, and scare its citizens with the idea of mass debt, then there is financial unrest. If people are laid off work, from cut backs in government, or people don’t spend as much at shops, as taxes have been raised, then the shops begin to suffer. Shops suffer because taxes are raised, and people don’t want to spend that bit more for taxes. The laid off don’t want to spend, those who have been cut from government, because they don’t have a secure income. So shops suffer as trade goes down. As trade goes dow, they have to let people go, as the shop can’t afford to employ them. So now there are more unemployed people, who will now not spend as much at stores, as they don’t have a secure income. Those shops then have to lay people off, as they can’t afford to employ as many people. Those laid of people then don’t want to spend as much,as they don’t have a secure income. As a result, shops and business’ close. So this keeps on spiralling down, and down. Now all those unemployed people still need to eat and live in homes etc. So where do they get money from? Well from the welfare state. The state has to pay money to the unemployed to keep them alive. So the government starts to lose more money to them. For the simple fact, they aren’t making money back in taxes etc. as people aren’t spending as much, so no VAT. They have no wages, so no National insurance. So it keeps spiralling that people get poorer and more and more become unemployed and business go under. And as a direct result, the government runs out of more and more money. So overall the whole country goes bust.

Now I propose the radical idea that the government spend. Not throw money away at unemployed people, but throw money at business, and the unemployed will get jobs as a direct result. You affect the small business to help the mass unemployed. not help the small unemployed man, to only help the small unemployed man. The theory is relatively simple. If government reduce taxes, and fund logical industries and education, then the economy will grow. If you fund industries, then that promotes more jobs. If you fund education, more people will be able to attend, and will go on to earn the higher salaries, and as a potential result, create more industries. Since these people are high earners, they can be taxed, and give more money to the state. As it stands not many people are high earners, and therefore do not give a lot in tax.

So if the state funds industries, business and education, you get a boom in finance as the educated can enhance the economy as teachers, doctors and entrepreneurs. And if the Government reduces taxes as well, then the economy can also gain speed there.So lets break it down to what should, and could, happen.
The state invest in industries. Those industries have more money, so employ people to help with R&D, manufacturing, sales etc. As a result of people working, they are able to spend more in other areas. AS they spend, those industries and business’ gain money, so can employ more people. Those newly employed can go on and spend more money in other industries. Those industries have more money, and so employ to keep up with demand. these employed people will go on and spend in other industries, ad infinitum.

But how does this help in the grand scheme of economics. Well, if more people are employed, they rely less and less on the government for financial aid, thus reducing financial pressure there. The government can also tax the workers wages, so as a result the government can gain more in taxes and reduce their debt and grow their economy. Business’ can also be taxed, and that in turn also adds to the governments growing economy. But why will people spend to grow this economy? Well simple. If tax, like VAT is lowered, then things become cheaper. If things are cheaper, people are likely to buy more. If they buy more, that fuels not only the government in tax, but fuels the business’ economy into growing more with profit. The more they grow, the more they employ etc., and the loop continues, like the one afore-mentioned. And with the more people employed, the more they can spend. And so the economy will slowly and gently grow, reducing the debt of a country, until the country is able to make a profit.

Of course, this is not the only problem. Governments should be careful of how they spend money. They should focus on how they spend money on running. They should think about how effective their phone bills are, their electricity, water and other expenditures that they consume. Where they source resources from. Are Governments spending wisely with regards to contracts and other consumables like paper, ink and technology. The UK government has several suppliers for all sorts of things, which one company could do, and that company could give a greater discount. Thus meaning the government aren’t spending as much money.

But overall, if the Government were to invest wisely into industries and education. If they were to workout their spending with regards to consumables and other running costs, and be more fiscally prudent there, then government would soon turn the economy around so that it could grow. A combination of financial checking, wise investments, education and business focus, and reducing tax to encourage spending, then Governments, not just the Uk government, would soon be able to slowly recoup their losses and debt. And by improving the financial conditions of the country, the general happiness and moral of a country is raised.

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