Friday, February 1, 2013

More nonsense from the Ernst and Young Item Club.

The Ernst and Young are a firm of accountants, and no doubt they’re good at bean counting and microeconomics. Unfortunately their grasp of macro is normally woeful.
A report of theirs referred to here claims that the UK economy will not recover till corporations start spending their cash piles.
Accountants often do not make good business people or entrepreneurs, but you’d think the folk at Ernst and Young would have tumbled to the fact that businesses do not invest till they see orders pick up, or till they think orders WILL pick up. That is, entrepreneurs with their heads screwed on do not invest just because they happen to have cash to spare.
According to above mentioned report on the Item Club’s ideas, “British households remain under intense pressure”. Which is why the Item Club presumably thinks we have to rely on businesses to suddenly start spending / investing.
And therein lies the real solution. That is, it’s CONSUMER spending that needs to be boosted (assuming inflation permits). And boosting consumer spending is easy: just cut taxes on households or wage earners. The particular tax cut long favoured by Warren Mosler is / was the payroll tax. That would do the trick.
To be more exact, if we are going to leave the proportion of GDP allocated to private as against public spending unchanged, then it’s household spending AND public spending that needs boosting (again, inflation permitting). And if inflation does not permit, then that rules out more investment spending as well, doesn’t it?
Item Club in check mate, I think.

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