Sure-fire recipe for disaster (letter)by R.B. DewarNews Weekly
, February 26, 2005
John Ballantyne's article, "Time to abolish income tax?" (News Weekly
, January 29, 2005) deserves comment.
I cannot understand how anyone who has followed economic events in Australia over the last 20 years could take Professor Meade seriously.
Economic observers are almost unanimously agreed that it is the high level of borrowing during this period that has given the Australian economy its current strength. This borrowing has achieved something which has seldom happened in a market economy, except in war time - a balance between supply and demand.
Meade wants to stop borrowing and at the same time start socking away a large volume of currency into savings - surely a sure-fire recipe for disaster. The economy would go into free-fall. Or is he suggesting that we should continue with the current level of borrowing, while at the same time embarking on the savings program? It seems that he has firmly positioned himself in the same camp as the well-known 19th-century British economist, William Stanley Jevons, who theorised that inflation was caused by sun spots.
If News Weekly
is serious about bringing the economic debate into the realm of common sense, I would respectfully suggest that they examine the works of practical professional people who have looked at the subject from a different perspective, such as the Southampton Chamber of Commerce's Report of the Economic Crisis Committee
(1933) or Olive and Jan Grubiak's The Guernsey Experiment
John Ballantyne replies:
The introduction of Prof. James E. Meade's savings-exempt income tax would not bring about a collapse in general demand. Meade envisaged his new tax being phased in gradually over 10 years (America's Laurence Seidman believed it could be done in five).
Meade worked closely with John Maynard Keynes during the 1930s Great Depression and was passionately concerned about maintaining adequate purchasing power in the economy to avoid another slump, as can be seen in his book, Full Employment Regained?
(1995), as well as in studies he co-authored with other economists, notably Stagflation Volume 2: Demand Management
(1983) and Macroeconomic Policy: Inflation, Wealth and the Exchange Rate