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Can’t we all be Keynesian about this?

Summary:
Much to our surprise we find ourselves agreeing - if only on the one specific - with Larry Elliott at The Guardian:In the long term, an economic rethink and reboot is needed. In the short run, the response has to be to protect as many jobs as possible. There are plenty of options: targeting the furlough at vulnerable sectors; allowing all companies to furlough part-time staff for longer; cutting employers’ national insurance contributions. Otherwise, the current euphoria will quickly fade in the grimmest of winters.That specific being the cutting of employers’ national insurance. As Keynes himself said:[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to

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Much to our surprise we find ourselves agreeing - if only on the one specific - with Larry Elliott at The Guardian:

In the long term, an economic rethink and reboot is needed. In the short run, the response has to be to protect as many jobs as possible. There are plenty of options: targeting the furlough at vulnerable sectors; allowing all companies to furlough part-time staff for longer; cutting employers’ national insurance contributions. Otherwise, the current euphoria will quickly fade in the grimmest of winters.

That specific being the cutting of employers’ national insurance. As Keynes himself said:

[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction in income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times. (July 1, 1942). Keynes, Collected Writings, vol. 27, p. 218.

It’s not necessary to buy the whole Keynes for this to make sense. Deficit financing or not there’s still value here. Employers’ national insurance is taxing people for employing staff. In the long term of course it is incident upon wages but in the short upon employers. The concern is that there is a wave of unemployment coming. If you tax something you get less of it. So, stop taxing employment if we wish to reduce the amount of employment we’re about to lose.

The worse anyone thinks this is going to get the more they should be arguing for employers’ NI to be reduced to zero for the duration.

Simple, logical, effective, no wonder it’s so rarely discussed as a political solution.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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