Value Added Nonsense

Nick Clegg is spouting some rubbish again...

"We would not waste £12.5bn on the VAT cut which the Prime Minister has delivered, which we don't think makes much difference," he said.

"We would use all of that money for a green investment programme, insulating every school and every hospital in this country, and installing smart meters in every home.

"That kind of radical action not only creates jobs but it's good for the kind of green economy we need in the future

What? Is he thick or something? Oh yeah, I forgot.

1) How exactly can a tax cut be wasted? Ok, so the microeconomic affect of the VAT cut is non-existent as companies wont be cutting prices across the board, and people wont respond to small shavings off prices, but the macroeconomic impact will still be significant. In a nutshell either consumers will pocket some of the £12.5bn or companies will. Either way it means more money flowing round the system. And is it not aggregates that really matter? (Ok, so from a presentational view, and to have had a greater impact on people's confidence, a cheque to every family or increased personal allowance would probably have had a better affect, but hey)

2) Creating "green" jobs is a cost. It's not a good thing. Labour is a cost in producing something, and when artificially created are even worse.

3) Taking £12.5bn and using it on pet "green" projects, as opposed to tax cuts, means that money will flow into new economic activity rather than into alleviating the pain for existing activity. In other words a tax cut means that desperately needed cash flows through those companies feeling the pain, and lessens that pain (kind of like Ibuprofen), whereas taking that cash and doing something new with it will not help existing companies to the same extent. It will take time for the wages of those new "green" employees to trickle round the system and into the pockets of those companies feeling the pain for one thing, but it is primarily an exercise in re-distribution from old to new.

Handing back money proportionally to existing companies does not distort the economy. Lower employers NICs, lower VAT, lower income tax, etc, all simply put more money in the hands of actors in the current economic arrangement to carry on doing what they did before. Taking that money and doing something new with it distorts the economy and means certain companies and people will gain, but others will lose out. Of course this losing out is only relative since the Lib Dems are talking about using the VAT cut for something else.

4) Finally, for what reason exactly does Clegg deem it appropriate to ordain how my money should be spent? Handing back money to the people who earned it when times are tough, or even handing it back in a slightly progressive manner, can be morally justified, but telling people that they are going to have to shell out a little more tax to pay for a pet project of Clegg's is authoritarian, socialist, and totally immoral.

So for clarification - Nick Clegg is a pillock.