Boom and bust due to over investment is what makes the economic cycle which is part of capitalism. You can't have one without the other. You can have some regulation but striking the balance is a constant struggle between the opposing forces of individualism and collectivism. Most property bubbles are blindingly obvious even at the time. They happen because of ideological aversion to interference in the markets. A set of mechanical rules such as: "if mortgage lending increases by 20 per cent then so will Bank rate", would deter people from taking out overly large loans in the hope of speculative gains.

We need an informed debate with facts and figures to back or refute policy suggestions. Disturbingly, the evidence is that most voters and almost all journalists and politicians prefer to sloganise. I would urge you to read Chris Dillow's blog entry:
Fact Free Politics

Richernotbroker

Your Paragraph 1 - Dillow makes the point that actually we do seem to trust politicians or else why were people so outraged when Clegg reneged on his promises about student fees?

Your Paragraph 2 - New customers come from a growing population here and overseas and also from the growth in middle class consumers worldwide. The economy would benefit from spending on infrastructure to make the economy more efficient. Better transport to cut travel time and distribution costs, better health care to reduce sickness related absence, better education to produce a more competitive workforce, more and better R&D to develop improved and new technologies, high speed broadband everywhere sooner. Infrastructure and a fitter, better educated and trained workforce increase national competitiveness and allow us to increase market share even in a shrinking market.

I agree about loan guarantees.

Your Paragraph 3 - statistics on the overall economy are by their nature historical so do not help the individual company judge how much investment its competition is making now. So it is difficult to know when optimum investment for a whole industry has been reached.

You are obviously right that reducing the purchasing power of the poor whether through benefit cuts or below inflation pay rises destroys demand. Which is why the Coalitions plans to cut benefits in so many ways to so many people are very damaging. Sadly, evidence based policy making is not what politicians do, especially Tories who are nothing if not dogmatic.

Bill Gates and other charities do an enormous amount of good. People who have food and medical care are better able to look after themselves. Ultimately trade is probably a greater influence. The old "give a man a fish and he will eat for one day, teach him how to fish...".

It should be possible to limit boom and bust through automatic stabilisers. Keynes was not just about deficit financing in recessions but government saving in booms. That is higher taxes to moderate excessively fast growth in incomes and investment so cutting off inflation. The current property slump and the last property boom were caused by government refusing to act to raise taxes when it should. The Bank of England, which saw the problem, was legally barred from taking the actions that were necessary. In times gone by it could have forced lenders to shorten loan periods on new loans making monthly repayments on new TVs and cars for example too high to be affordable. This was called the Hire Purchase Regulator.

I agree that governments who offer too much protection to investors create a moral hazard. Investors who know that the tax payer will pick up the bill when things go wrong, while they keep all the profits when things go right take excessive risks.

Your Paragraph 4 - It is possible to make profits and grow in mature western economies. Technical change and new products backed by R&D create new opportunities all the time. In the last several decades it has been computers and healthcare. Demand changes are creating new opportunities in looking after the elderly. Not just low wage jobs wiping bottoms, but geriatric medicine, mobility aids, preventive health care etcetera. Gas supplies from fracking are fairly new in this country. Robotics is an obvious growth area which has been sadly neglected in this country. A lot of innovation will come in areas we do not yet know about.

Growth will be faster and easier in the developing countries but do not write us off entirely.

You are right to suggest that in a low growth or low profit environment, people do try to gain by taking extra risk. This is often by using borrowed money to invest or speculate. This is also what people do when they buy a house just that bit bigger and in a better area than they need. Borrowing for investment is good in that it increases the speed of innovation and growth. So long as the people who take the risks and make the profits also take the consequences when things go wrong.

It is quite fruitless to try and distinguish between investment and speculation in the financial markets because there is such an overlap. Talk about casino capitalism and other emotive phrasing is just empty air.

Clive B

I agree that facts are not sufficient in making policy but they are an essential component. Logic, ethics and personal preference are the other essentials. Informed people with basic goodwill make better decisions. In your example it is the job of philosophers and politicians to reconcile the opposing views or at least bring them closer together. What does not help is argument without facts, logic or any desire for an acceptable outcome.

I would start by asking why we have taxation at all. Which leads to defining the role of government. Then I would ask what happens in countries where there is no redistributive taxation and is a very large gap between rich and poor. Which leads to economic underdevelopment, revolutionary politics, fascist repression, crime and anarchy. Redistribution occurs through theft, corruption, kidnapping for ransom and so on. Which is the state of large parts of Latin America and Africa. So the question becomes, for most of us, how much redistribution, for what purposes and by what means. It might be that property taxes or luxury taxes are better than graduated income taxes.

We have to compromise almost all of the time. Even if you witness an attempted murder, you have to compromise between the desire to help the victim, catch the criminal and save your own skin!

The points about property taxes is relevant, but shouldn't this be done on the rates (linked to property value).

But would this be met with people moving into smaller properties to avoid paying so much tax?

This is one of those things, where with the richer people, they can afford to move or are motivated to move, and taxing over certain amounts, just squeezes them to move their money/business/living else where, just as unions, whilst improving pay and conditions in this country, has pushed many companies into moving production overseas to cheaper / lower regulation countries to help their profit margins.

Some parts of the economy are a bit like a tube of toothpaste, if you don't want to make a mess, be careful how hard you squeeze!

Richernotbroker

I agree with your comments about the food supply, agricultural land and the population. My caveats would be about the emphasis given to different factors.

I am in favour of immigration by educated and productive people who add to the wealth of this country.

I am against breeding by anti-social elements. The difficulty is in the definition of anti-social and in just how you persuade or coerce them (whoever they are) into not breeding.

I agree that too great a concentration of wealth in a small number of hands and too great a disparity between very rich and very poor is bad for the economy and bad for the body politic.

I like your toothpaste analogy. Our political masters rarely think through the consequences of their actions, so unintended consequences breed like rabbits.

Have you ever seen the film "Soylent Green", starring Charlton Heston?

http://www.imdb.com/title/tt0070723/plotsummary