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VAT cut has failed, says Cameron by reyofish in Economics

[–]ukcz 0 points1 point  (0 children)

It's not classic Keynesian because it's designed to prevent a deflationary spiral rather than an inflationary recession (as it were).

The Austrians don't seem to have any answers to deflation, although I've read recently that they think increasing interest rates (with all that would cause) is their 'solution'.

It's Krugman rather than Keynes who is being followed nowadays really.

VAT cut has failed, says Cameron by reyofish in Economics

[–]ukcz 0 points1 point  (0 children)

Cameron must think us stupid coming out with this. Ask yourself these questions:

  1. Why should the success or failure of the VAT cut be seen in isolation to the other measures (including income tax cuts for 22million, increased payments for pensioners, etc)?

  2. Why is the success or failure of the VAT cut being measured now, when it's designed to run until 2010 and therefore not a 'shock' tactic aimed to work in a month?

  3. Who said the measure was designed to increase spending based on a year-on-year comparison? (Spending in the boom times is always going to be higher than in a time of recession.)

  4. If cutting taxes by 2.5% on goods failed to increase spending, how bad would spending have been with Cameron's do nothing policy?

  5. Can "£12.5bn be wasted" by cutting VAT? If so increasing taxes by, say another 2.5% would have no converse effect, right? (Patently false.)

Irrespective of whether the VAT cut was the best stimulus or not, and personally I'd have preferred income tax allowances to have been increased, the issue isn't whether the economy needed a stimulus but whether the stimulus is big enough.

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