The Great Debate UK
–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–
The deal to break the deadlock in the US looks awful, far worse than going over the cliff, which I suspect would have been a lot less damaging than is usually assumed.
The 1 January agreement was a compromise over the tax to be levied on high salaries, which is purely a political issue with little bearing on the critical economic issue of how to close the deficit, and otherwise simply takes the line of least resistance, avoiding the tax rise on middle incomes, extending benefits for the long-term unemployed and suspending the immediate cuts in defence spending which would have been enforced automatically in the absence of an agreement. Worst of all, it defers the really tough decisions on spending. In fact, given how easily America’s rich can avoid taxes, it is likely that the tax rise which the President has fought so hard to impose on them will generate nowhere near enough revenue to pay for the increased unemployment benefits agreed at the same time. In other words, far from being a first step towards dealing with America’s deficit, this is a step back which will only make things worse.
To see how little has been resolved by this 11th hour deal, just look at Obama’s New Year taunt: “If Republicans think I will finish the job of deficit reduction through spending cuts alone […] they have got another thing coming”. In other words, the hard bargaining is still to come.
There is really only one question on the agenda at the G8 and G20 meetings in Toronto and in policy circles throughout Europe and North America: to cut government spending and risk recession; or to keep on spending, risking a return to inflation, or more likely to stagflation – inflation with stagnant economic activity?
- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -
The unending saga of MPs’ expenses has to be seen in perspective. Of all the dishonest things that politicians do, inflating their expenses is about the least damaging. At their worst, they lie to us whenever they think it politic to do so and knowingly favour policies which suit their own interests rather than those of the country. How can this happen? After all, in a democracy the interests of government are supposed to be aligned with those of the electorate, aren’t they?
from The Great Debate:
The U.S. faces a lengthening series of request from industries and interests seeking shelter under the Troubled Asset Relief Program, most of which it should dismiss out of hand.
YRC Worldwide, a large trucking company, told the Wall Street Journal it will seek $1 billion in TARP funds to help relive it of its pension obligations.