So, economic stimulus

[fivemack]

VAT has gone down by 2.5% as of 1 December, which means the fancy camera I want to buy could conceivably cost 15 quid less in the New Year than it does now. Of course, fancy cameras being made mostly of microchips, it's likely to cost fifteen quid less anyway thanks to process optimisation in the silicon foundries of Taiwan, but hopefully these are cumulative.

But the purpose of an economic stimulus can't just be to move lumps of consumption around by a few months; I don't think that even in the current climate it's necessary to run a big sale in November purely so that you have the cash to pay the salaries for your shop workers in December.

So Alistair Darling's job is to make Britons more profligate than they are now for the next two years (despite the financial mess being, as far as I can see, a function of a decade of unbalanced profligacy) and more frugal than they are now for at least four years to follow. I don't see how subtle tweaks to the tax system can do this; indeed, I don't know if it can be done. Interest rates are the obvious instrument, but profligacy and frugality are functions of upbringing and circumstance in that order; after-tax interest rates on straight savings accounts are now below the rate of inflation, but this has meant that I grumble slightly, keep most of my money in just-as-insured short-term bonds, and devote slightly more to the stock market where there's a possibility of higher returns.

What government policy would make you go out and spend more in February?

Comments

[aldabra]

I think the big sales may be about next quarter's commercial rents being due on Christmas Eve, and the banks being less keen to lend after Christmas than before because Christmas is the most profitable retail season.

I'm surprised at VAT; I don't think shaving epsilon off prices is going to help if the 20%-off sales aren't. I think VAT must have some non-consumer effect somewhere I don't know about.

I'd feel richer if my pay went up significantly.

[fivemack.livejournal.com]

The third paragraph feels obvious, but demonstrably even that hasn't worked on me;
I have convinced myself that I feel sufficiently rich already and so, the last two times that my salary has gone up, I've increased the standing-order savings to exactly cancel out the gain.

I don't have a very good answer as to what I'm saving for; I'm in the absurdly lucky position of being able to pay for my gadgets and my holidays out of disposable income. If challenged I'd say house, but I think only because that's the conventional thing on which to spend: there's still part of my mind which contemplates moving to a big European city while I'm still young and free, for which aim a house in Cambridge would be unhelpful.

[aldabra]

Clearly what they ought to do is tax you more, which would come straight out of your savings standing order without you noticing, and give the money to me. 8-)

Although I feel distinctly more comfortable already, now house prices are falling even if they aren't in Cambridge yet; I was very much geared the wrong way in the boom, and I'm spending more freely now than I have in years largely because house prices aren't any more rising by more than my gross income. If the government allows house prices to fall to three and a half times average salary (especially now average salaries are falling...) I'll be entirely relaxed about buying things.

[dd-b.livejournal.com]

Liquid reserves represent choice and flexibility; it's perfectly sensible to run them up even without a specific goal in mind. I suppose if you decide to give it all away, you might then regret not giving it away *earlier*, but other than that, I can't think of a downside. House, early retirement, another degree, your own business; whatever.

Well, other than money become worthless and all.

What government policy

[ewx.livejournal.com]

A policy that led to hyperinflation would do it. I think this would be worse than the disease though (at least assuming that we don't end up with hyperinflation anyway).

[scat0324.livejournal.com]

Any policy that caused house prices to crash, so the difference between the house we are selling and the house we were buying was reduced, would allow us to spend more of our cash on doing the place up. I'm not sure that's exactly what's called for though.

[naath.livejournal.com]

A larger income would make me feel richer. I think a greater job security would make me happier about spending more of my income. House price collapses might lead to me buying a house which means spending lots of money both on the house and on furnishings for it.

I think that encouraging people to spend is daft. We need to spend less. We need to figure out how to manage an economy that involves less consumer spending. There will be pain, yes, but we should just get it over and done with.

[stephdairy.livejournal.com]

Free houses. If the Government gave me a free house I'd have to spend the vast wodges of money I have in the bank on something other than a house.

(S)

[despotliz.livejournal.com]

There's probably nothing they can do - I know I'm going to be job-hunting this time next year, so I will be minimising any unnecessary spending, and if and when I get a job it's unlikely to put me into an exciting tax band. If house prices fall the size of my landlord's mortgage, and therefore my rent, are not going to get much lower.

M&S did persuade me to go and spend money in their shop by having a one-day sale, but all it really did was make me buy a big chunk of stuff now, instead of spreading it out over a few months of occasional sock-buying.

[redbird]

Better (meaning both more generous in amount and lasting longer) unemployment benefits (I'm not sure what they're called in the UK), because I would feel less of a need to save in case I lost my job. Reasonable job creation schemes, also, but that might take longer.

Specifically in my case: more funding for the schools. No, I have no children. I work in educational publishing, and lower school funding leads to less money being spent on our books, which puts my job at risk.

[papersky.livejournal.com]

I thought of a good system in the summer for Britain to allow ordinary people to buy houses. I was thinking of it in the context of houses in villages where people buy holiday houses or commute houses so the locals get priced out, but it works more widely than that.

So if you have lived in an area for x time -- like five years, or ten years -- and the bank will lend you three times your salary, and you have a deposit saved, such that you could buy a house if it only cost four times your salary, then you find a sensible house within walking distance of your parents or where you're paying rent and the government pays the difference, and owns that % of the house forever, or until you sell it, or until you become rich and buy them out, at a % rate, not a number rate. The government is investing in people's houses, and mostly (house prices mostly rise) making a moderate long term profit.

As well as community building and the other positive social effects, this would have the incidental benefit of preventing financial crises like the current one in the US because people wouldn't be desperate enough to take out crazy mortgages.

[jiggery-pokery.livejournal.com]

A version of Taiwan's shopping vouchers (http://news.bbc.co.uk/1/hi/world/asia-pacific/7735027.stm), with a few alterations. Firstly, you would have to make the vouchers redeemable in February alone, which is hard luck for Britons on holiday throughout that month, but if you're able to holiday through the winter then a voucher is unlikely (though possible) to mean too much to you. Secondly, you would have to only be able to spend the voucher on things that you weren't otherwise going to purchase, so you can't merely use the voucher to buy essentials and displace the value of the voucher towards saving or debt repayment.

At this point, you may as well have the government start a bicycle enterprise and manufacture a bicycle to be given free of charge to every man, woman and child in the country - arguably more than one for every child.

[pavanne.livejournal.com]

I like the bicycle idea! And then we will have less bicycle theft. Though I suspect the economies of Cambridge and Oxford are actually powered by bicycle theft, so possibly this would not increase the amount of economic activity overall.

I expect I'll be spending more in February if my employer doesn't send me to Foreign Parts, which has two negative effects on my consumption: I'm not here to spend money, and I run up massive expenses which make me nervous until they're paid a month later.

[redbird]

Those vouchers sound like a more focused version of the "economic stimulus" checks the US government sent out back in the spring. I jokingly told people I was spending mine in Montreal, which is not exactly what they had in mind. Some people spent theirs on things they would have bought anyway (meaning, in theory, saving a bit of money, or not going further into credit card debt), but they do seem to have temporarily increased sales of things like new clothing and bicycles, which people sensibly want but in at least some cases could wait for or do without.

Since they were sent as checks (or direct deposit if people had that set up for their income tax refunds), the money could go anywhere, including savings, your favorite charity, or overseas. With vouchers, you couldn't do that, but you also couldn't get an annoying leak fixed, pay someone to paint your house, or get a massage, so it skews spending toward things rather than services.

[fivemack.livejournal.com]

I like the bicycle idea, but I'm not sure it's enough stimulus; bicycles made in that kind of bulk would cost no more than a hundred pounds each, which times sixty million is just over a third of what the government is spending to recapitalise RBS.

[arnhem.livejournal.com]

What government policy would make you go out and spend more in February?

The promise of devaluation of savings (whether explicitly by revaluation of the pound by fiat, or through policies leading to hyperinflation).

[simont]

... although, unhelpfully for a government considering doing it, this would also cause people to vote them out. Certainly me, if I weren't trying to do so already. If a government wants me to choose action A over B when I'm currently choosing B over A, then making A sufficiently more desirable will cause me to choose A with good will whereas making B less desirable will possibly cause me to choose A but certainly cause me to get pissed off with them.

[arnhem.livejournal.com]

I was keeping strictly to the boundaries of the question as asked 8-)

I hate it when policies punish the risk-averse; I'm not quite sure at the moment what the correct risk-averse strategy is if the prospect of effective devaluation becomes more certain.

[(Anonymous)]

Moving consumption around is a big part of the point. Consumers and shops have been engaged in a big game of chicken as consumers refuse to spend in the expectation that the shops will have to have a big sale and they can get stuff cheap; shops have been trying to put off having to slice their prices in the hope that people will eventually get fed up of waiting and buy their new stuff now.

The resulting economic inactivity is propelling us into recession.

Dropping VAT now and promising to put it up later is meant to encourage people to make their big purchases over the next thirteen months, instead of continuing to wait. So if I have been holding onto my old car instead of buying a new one for the last year or so, this is supposed to encourage me to buy my new car in 2009, thus helping the economy keep going around, instead of waiting indefinitely.

Is the idea that VAT goes back to 17.5% in thirteen months then? I was expecting it to rise to 20% or more, for the dual purpose of punishing those who wait too long to make their big purchases and plugging the vast budget hole, but they seem to have gone for NI and high-rate income tax instead. Well, it's not like they're going to win the next election, so I suppose these are things they'll never actually have to face.

S.

[jiggery-pokery.livejournal.com]

The BBC and others have seen a document where there has been discussion of bringing it up to 18½% from 2011, but this was apparently considered but rejected. Might well go up further than that still at some point.

[huggyrei.livejournal.com]

I would spend more right now if things with the word 'wedding' in them were actually the same price as the same things without the word 'wedding', as this would cut my current savings requirement in half.

[tigerfort.livejournal.com]

A sensible attitude to benefits and tax relief for disabled people. Some actual assistance finding a job I'm physically able to do full-time on a permanent basis would be best, though, and would definitely improve my spending power.

Or they could just pay off my mortgage for me, which would be a huge help, if rather less logical as a solution.

[monkeyhands.livejournal.com]

What government policy would make you go out and spend more in February?<

I'll have a Green New Deal, please, with a side order of social justice. As well as investment in renewable technologies and green job creation, I'd like to see some legislation forcing businesses to take a bit of sodding responsibility. For example, legislation that fixes a link between the lowest and highest salaries paid by a company. Not a fixed ratio but a spectrum of ratios. The lower the lowest salary is as a percentage of the highest salary, the more taxes the company pays. (And by "salary" I mean all remuneration.)

But the real reason I don't spend more is that shopping is such a miserable experience. I believe that the government could change that if it wanted to, but the Chancellor alone would have no chance and it couldn't be done by February.

[arnhem.livejournal.com]

I've wanted to tie the highest/lowest salary ratio for ages, but making it flexible by pinning the corporate tax rate to that ratio is _lovely_ .

Of course, what would actually happen would be outsourcing of all low-paid roles to service companies that would then outsource all their high-paid roles.

I suppose that it'd be possible to give the IR the right to determine the ratio they felt applied by fiat.

The other downside is that I can't see a way of making that rule apply to the government / civil service, who also are in need of such constraint.

[fivemack.livejournal.com]

I appreciate that you have a social conscience larger than mine, but I can't see how laudable government policies of that sort would have much effect on my personal habits of spending.

I might buy a few return tickets to Bristol over the course of a decade to watch the Severn Tidal Barrage being built, and I might find myself paying a bit more for electricity, but utility bills come out of a different part of my head than discretionary spending. I don't think I'd be more willing to buy fancy camera lenses, or to get trousers from John Lewis rather than Oxfam, if I knew that BHP Billiton was being charged a punitive rate of corporation tax because it had underpaid the people it had employed to clear up a spill of gold-mine debris in Papua New Guinea.