Reasons to be Impossible

OK, lets see.

In strict Marxian terms lowering taxes does not change the amount of consumption in the economy. the state is a non-productive consumer, and putting money into the hands of consumers doesn't change the magnitude of that part of the economy, just the shape and nature of the consumption being undertaken (home rather than office furnishing, for example). Cutting taxes, and borrowing simply means the office furnishing spending doesn't go down, but that money is being taken from profits and (more importantly) from capital accumulation:

So, to take uncle Charlie's reproduction schemas:

I. Production of Means of Production:
Capital. . . . . . . . . . . . . 4,000c + 1,000v = 5,000
Commodity-Product . . . 4,000c + 1 ,000v, + 1,000s = 6,000,

existing in means of production.

II. Production of Articles of Consumption:
Capital . . . . . . . . . . . 2,000c + 500v = 2,500
Commodity-Product . . 2,000c + 500v + 500s = 3,000,

existing in articles of consumption.

Recapitulation: Total annual commodity-product:
I. 4,000c + 1,000v + 1,000s = 6,000 means of production
II. 2,000c + 500v + 500s = 3,000 articles of consumption.

(Obviously, this is the simple reproduction schema, so it's assumed all surplus value is spent on means of consumption, we can stick with that, for now). Now, the point of this schema is that the total capital need to equal the value of the means of production, and the total wages+surplus value, the means of consumption.

Now, put those figures in a spread sheet, and try monkeying around with them. Say, move 1,000c from production to consumption. The total capital remains equal, but suddenly, the total means of production no longer equals the amount of capital available. This is a crisis of disproportion, much like the one we are suffering, as banks, housing and other means of consumption have outstripped production by a long chalk.

No amount of simply transferring between wages and surplus will affect this imbalance, the short way out is to destroy the capital (even though this will, bizarrely lead to an overall shrinkage). Indeed, this has been the traditional mechanism for capitalism, called bankruptcy. Of course, the owners of capital are unwilling to lose their capital, and so will try and pass the buck on. And it's difficult to alter one of these allocations without changing the ratios to the others (ratios which have real world constraints, you can't simply fling capital at a problem without adding labour)...

Raising the wages in means of production does offer another route to sort out the imbalance. Another way out is external resources, whilst bad debt clogs up the spokes, expanding the size of the economy can re-balance it...

I'll keep pondering, but I really don't think Darling's plan will work.

Labels: 330.3, Economic crisis, Reproduction schemas, Taxation