2 years ago
It was Simon Cowell’s 50th birthday recently and he had a little party. The party was reported to have cost £1 Million and Cowell came in for a huge barrage of criticism for what was seen as ‘excess’ in times of economic difficulty. He was lambasted for spending so much on a party when so many people are struggling to make ends meet.
I’ve known for a long time now, that the vast majority of the population understand little or nothing about money, and this sort of criticism is proof of that. The implication is that money is somehow ‘wasted’ or ‘used up’ when it’s spent. So when Simon Cowell spends £50,000 on limousines to get guests to his party or £40,000 for flowers, this money somehow disappears and is no longer available to be used by other people But that’s not what happens at all. In fact the reverse is true.
To stick to the limousine example for a moment, the £50,000 goes into the bank account of the car hire companies, one of whom we’ll call Nigel. Nigel in turn pays his suppliers and employees. One of those employees is Jack, a driver and one of the lowest paid workers in the economy. If Cowell hadn’t thrown the party, Jack wouldn’t have had any work that night.
That would have been a shame because the money he was paid for transporting guests to Simon Cowell’s party funded a meal in Luigi’s Italian restaurant the following evening with his wife. The price of the meal went partly into the hands of Luigi, who in turn paid his suppliers, and some of it went to the waiter, Mario – again one of the lowest paid workers in the economy.
If Cowell hadn’t thrown his party, and hired Nigel’s firm who paid Jack, who paid Luigi, who in turn paid Mario, that would have been disappointing for Mario, because he would have missed out on the £5 tip that Jack gave him. And in turn, Imran the local newsagent would have missed out, because that’s where Mario spent his tip on a Health and Fitness magazine. Imran wasn’t in the shop that day though. Mario was served by a shop assistant called Carol. She’s on the minimum wage, but Imran can only afford to pay her at all if people like Mario come in and buy magazines. If that stopped, he’d have to make her redundant and then she’d need to start claiming benefits.
Can you see what’s happening here? The cash is going from one wealthy guy and cascading down through the economy, creating income and jobs for scores of other people on its path – and incidentally tax revenue for the government, while cutting the social security bill. This is just one tiny strand of the cash cascade that flowed from that party. Just within the confines of limo hire, there would have been dozens of Nigels, Jacks, Luigis, Marios, Imrans and Carols. Scale that up to include all the products and services needed to run a £1 Million party, and the economic impact is vast and practically incalculable.
So what’s going on here - why the criticism? Well aside from economic ignorance, there’s something else – something that would probably ensure that the criticism remained long after the economic ignorance had been removed. Envy and jealousy.
What the critics see is a rich and famous guy and his rich and famous friends enjoying a party they’re not invited to. They see them enjoying expensive food, wine and entertainment that they can’t afford. And they don’t like it. So rather than use the event as a stimulus and motivation for their own enhanced achievement, (I’ll have that one day) they seek to destroy (It’s not right that he should have it).
This is the response of the idle and feckless of course. It’s far easier to say that someone else should have the spoils of their success taken away than it is to commit to emulating their success. And as I hope I’ve demonstrated, there is absolutely no shame or harm in a wealthy individual liberally spending his or her own money. In fact there is only a positive benefit for the economy and population as a whole.
This negative attitude to wealth would be bad enough were it confined to uneducated and underachieving individuals, of whom perhaps no more can be expected, but it goes much further than that. In fact it goes right to the very top of our government - to people whose education and experience must surely have directed them to the truth of the matter, but who still choose to act at variance with it.
In a few months time, the top rate of income tax will have been raised to 50%, ostensibly to help plug the fiscal deficit. But even the most optimistic estimates suggest it will have virtually no significant effect, and the most likely outcome is far, far worse than that.
Just yesterday I had a meeting with a top firm of accountants who confirmed what I already instinctively knew - the increase is unlikely to put any extra cash into the government coffers. Many of the rich and powerful individuals who this affects can choose to live anywhere in the world. Is it any surprise that significant numbers of them will choose to live in a country which doesn’t take over half their income?
And those that stay – will they just grin and bear it? No they won’t. Some will enter into complex arrangements to remove swathes of their income from the tax net (the accountants were working on legal schemes within minutes of the rise being announced) and others will simply cut back on their work to stay within the old tax bands.
The end result will be net reduction in the tax collected, an exodus of movers and shakers from the country, and a fall in demand, spending and hence employment. The disgraceful thing is that the people who instigated this change are educated and experienced enough to know exactly what will happen. They do know, but like the people criticising Simon Cowell, they are more concerned with removing perceived inequality, than they are with creating a net benefit for society as a whole.
It’s called the politics of envy. And unfortunately, it’s alive, well and fighting fit in 2010. With the Tories committed to standing by the new rate (chiefly I suspect because they think that what I’ve just explained in a few sentences is too hard for the electorate to grasp) the error will be compounded, and the (ideologically sane but economically senseless) policy will be perpetuated.
I know what you’re thinking now – the sooner that I’m swept to power in a bloodless military coup, the better. And you’re probably quite right too. Reckon I’ll have Simon Cowell as my Chancellor though. Apparently he’s got all the money.
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