Saturday, 24 September 2011

Roller coaster ride anyone?

The second dip is starting so hang on to your hats or you will lose your shirts (to mix a metaphore or two). While the FTSE has a long way to go to the 2009 low of 3493, it has certainly been a rocky month and Thursday saw the biggest fall in three years.

The UK is still a couple of steps behind the Eurozone with the defaults about to start popping across the Med and predictions of a new global recession. Of course the developing world is enjoying a high level of growth to balance off the West's downfall. While many in the West will eye 7-9% growth with envy, it is worth remembering that many of these states have suffered being held back by the West for most of the 20th century.

With government income from corporation tax predicated on economic growth (corporation tax is on profits), no economic growth damages the ability of government to fund itself. If you look at the fall in tax revenues in 2008/9 you will see that the lion's share was in corporation tax. Jobs too, are created in the private sector on the hope of profits, rather than desire to create useful employment (usually). Without the forecasts of growth, the profiteers are not going to want to invest.

So it is surely time that we examined what economic growth is and what it means but most importantly it is time to ask how we can survive without it.

Whether there ever be long term growth again in the UK, is a discussion for another blog post, but having a different tax regime that ensures that government funds don't collapse every time the economy stops growing, and having a labour market that is able to withstand contractions, let along zero growth, is a must.

The hardest question is finding that new regime and making it acceptable within the globalised economy.


Steve said...

Is a "metaphore" a metaphor signed by flags?


Nothing else to add really. You're right. Keep it up.

Stuart Jeffery said...

Oh, for a spell checker on Blogger :-)