Conference on economic success without a price system

Paul Oquist, Nicaraguan minister for National Policy
Iván Márquez, Lead negotiator in Colombian peace talks (Video link)
Francisco Torrealba, Venezuelan Member of Parliament
HE Robert Calzadilla, Bolivian Ambassador
HE Teresita Vicente, Ambassador of Cuba
HE Guisell Morales-Echaverry, Nicaraguan Ambassador
Chris Williamson, Former Labour MP
Tony Burke, AGS Unite the Union
Diana Holland, AGS Unite the Union
Gabriel Rodriguez, International Transport Federation
Andrew Murray, Unite the Union
Christine Blower, NUT
Kiri Trunks, NUT
Andy De La Tour, actor and writer
Ken Livingstone, former Mayor of London
Natasha Lycia Ora Bannan, President, US National Lawyers Guild
Keith Bolender, Canadian academic
George Galloway, former MP
Victoria Brittain, Journalist
Sue Branford, Latin America Bureau
Dr. Imti Choonara, Nottingham University
Dr. Francisco Dominguez, Middlesex University
Lindsey German, Stop the War Coalition
Kate Hudson, CND
Dr. Steve Ludlam, Sheffield University

A fair and balanced panel with a true diversity of views, no?

So, let’s see if we can work this out

Venezuela on the brink: a journey through a country in crisis
The oil-rich South American nation should be prospering. Instead it stands on the edge of an economic and humanitarian abyss

I’ve not actually read the piece yet so I’m wondering whether he will in fact give us the correct answer. Idiot economic policy.

The increasingly secretive central bank does not reveal how much it costs to print each bill, but based on international parameters, José Manuel Puente, an economist and professor with the Institute of Higher Administration Studies, estimates that the cost of paper, ink and printing of each note is about 20% more than their face value. “They are not worth what they cost. It’s a joke. But that’s the way things are,” he said.

I actually checked with a bank note printer. They wouldn’t reveal actual prices of course, but did say that the above was about right.

The government’s tendency to subsidise many products below the cost of production is a major reason why the economy is in such a mess.

Well, almost.

When Hugo Chávez came to power in 1999, he took this way of thinking a step further and used petrol dollars to subsidise essential products such as rice, sugar, toilet paper, sanitary towels and medicine.

It was an altruistic, populist move that allowed the poor to finally share in the nation’s oil wealth. But it also stifled incentives for producers and created a system of dependency and black-marketing that was already causing economic problems before Chávez died in 2013 and the global crude market collapsed the following year.

Well, no, that’s not quite right. Proper subsidy of something increases producer incentives. What Chavez and Maduro have done is price fixing which does kill incentives. But, you know, this is The Guardian, they might have the economic details wrong but they are at least insisting that the problem is idiot economic policy. So, Hurrah!

All about money, innit?

Poor and vulnerable Haiti remained essentially cut in half two days after Matthew hit, with routes to the devastated south blocked by flooding. Senator Herve Fourcand said that a preliminary figure counted more than 300 dead while Reuters reports that the civil protection saying that 339 people were killed. Haiti government government so far has said that 122 people were killed.

At least four people – three of them children – were killed in Haiti’s neighbour the Dominican Republic and more than 36,500 were evacuated, with 3,000 homes destroyed, flooded or damaged.

The wealthier Bahamas, which had more time to prepare, was less badly hit and there were no reports of fatalities, but there were power outages, some roads were cut and there was property damage.

This is what apartheid was all about in the first place

A quarter of a century ago black South Africans were living in squalor while most whites lived the good life in apartheid-era South Africa.
Nelson Mandela was released from prison in 1990 and four years later he took over as President from F W De Klerk and the pair shared the Nobel Peace Prize.
Apartheid – a grotesque and brutal form of government in which whites held all the power and blacks and other racial groups were segregated and oppressed – was condemned to the dustbin of history.
Nowadays there is a strange form of equality.
While the black South African middle class has grown and many live in big houses, with swimming pools and drive around in BMWs like their white peers; many poor whites live in squalid squatter camps just like their black peers.

South Africa always was, and still is by developed world standards, a low productivity economy. There’re thus going to be a lot of people who live pretty shitty lives in an economic sense. Apartheid was the structure which tried to make sure that who was decided upon the basis of skin colour (or race, description to your taste).

The whole point was not to make rich whites rich – it was to make sure that poor whites didn’t live like other Africans. And remove that racial distinction and there will be some whites living like other Africans. No, not because “Africans” but because it’s a low productivity economy and simply doesn’t generate enough income that all live those North Atlantic type economy lives.

One way of looking at this, an odd way to be sure, is that this is proof that apartheid has ended. When the privileged economic position that apartheid was meant to create no longer exists.

Interesting question

So, infant industry protection insists that you can only get an economy up and running if you protect said infant industries from foreign and more efficient competition. Thus tariffs!

Services generally do not face tariffs at all.

Some countries (India in programming?) have managed to build successful service industries without the protection of tariffs therefore.

What does this tell us about the case for tariffs and infant industry protection?


(That it’s bollocks is one useful answer of course)

This must be one of Chakrabortty’s

The lad never really did get the hang of economics:

A low wage economy comes with a heavy price tag. It is not only that employers have no incentive to invest in training or upgrading skills for their employees, or buying new equipment for their factories when they can increase productivity by hiring more cheap workers;

Buying new equipment replaces workers. This is exactly how the minimum wage reduces employment.


Well, this isn’t certain to say the least

NFL quarterback Colin Kaepernick said that Donald Trump’s suggestion to “find a country that works better for him” is “very ignorant”.

“It’s a very ignorant statement that, if you don’t agree with what’s going on, hearing that if you want justice and liberty and freedom for all, then you should leave the country,” Kaepernick said on Tuesday.

“He always says make America great again. Well, America has never been great for people of colour. And that’s something that needs to be addressed. Let’s make America great for the first time,” he said in a video shared by the Bay Area News Group.

Great compared to what? Compared to the average life in West or Central Africa over the past two centuries? Today? Compared to the average life anywhere two centuries ago?

Barring the occasional President or dictator (but I repeat myself) I’m not sure there’s anyone in West Africa currently living the lifestyle of an NFL quarterback.

Compared to how whites have been treated in the US these past two centuries yes, undoubtedly the blacks have been shafted. But what’s the correct comparison to be making about declaring somewhere “great?” There is at least an argument that a society in which even those shafted live better than almost any member of any previous human generation is doing pretty great. Even those getting shafted with nothing but the scraps of the welfare state are in the top 20% of the global income distribution (yes, after price changes across geography). Is that great or not?

No, not whether it could be greater, obviously every human construct could be that. But great or not?

That medical technology thing

Comment at The Observer:


“But the exciting new possibilities offered by genetic technology will be expensive and available only to elites. So the long century in which medicine had a “levelling up” effect on human populations, bringing good healthcare within the reach of most people, has come to an end. Even today, rich people live longer and healthier lives. In a couple of decades, that gap will widen into a chasm.”

As old Joe Schumpeter pointed out:

“The capitalist engine is first and last an engine of mass production which unavoidably also means production for the masses. . . . It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls. “

Mobile phones first became available, what, 35 years ago? £3,000 and a £ a minute or something? Now they’re £10 and maybe £20 for a month’s airtime? There’s also been some inflation in there. From, say two months average income to three hours, in one generation at most?

The truly astonishing thing about capitalism is how it makes these new things cheap for the masses. And how fast it makes them cheap for the masses. Medical technology is and will be no different to stockings and phones. How long did it take penicillin to go from priceless to cheap as chips? How long did Viagra’s patent last – 20 years from application date, of course.

There could be a bolus of inequality that moves through the system, true, as a pig through a python. But all of our experience is that new and expensive technologies become mass market ones within a generation.

So Danny Dorling believes in the efficient markets hypothesis then

This week, exactly two months after the vote for Brexit, I spent an hour on the property site Zoopla looking at the latest housing sale data available. Anyone can do this at the click of a button. Unlike the rise in stamp duty in April, which was well anticipated, the vote to leave the EU was not. And all markets react most strongly to the unanticipated.

Known information is already in prices, it is unknowns which become known which change prices.

Of course, if you actually asked Danny Dorling about the EMH he’d say it is nonsense. Because it’s neoliberal, you know.

But he does still believe in it.

This is interesting

A restaurant with a ‘pay what you want’ philosophy is facing closure because its customers are forking out less than $3 a meal on average.

No, it’s not just because it is vegan.

There was a bit of a flurry a few years back, economists noting that people, when asked to pay what they thought something was worth, were quite generous in their estimations of what it was worth.

This showed that we’re all caring sharing beings and thus socialism or summat.

My own reading is that we’ll be nice and kind occasionally. Often even, but not when the entire system allows us to not to be. At that point short term self-interest will take over. Which is why the or summat economic systems don’t work in the long term.

You really can get people to pull together for some great purpose for some period of time. You can’t exclude the normal price system for long periods of time though. ‘Coz people is peoples.

Another way to put this is that altruism most definitely works. But not over long periods of time with strangers. The people who manage that we end up calling saints.


And no, I don’t seriously believe a word of the nonsense you’ve just read. But then you probably guessed it was parody, because nobody with an ounce of sense talks like that about men. We don’t treat male career implosion as biologically determined or sadly inevitable, don’t leap quite so often from half-baked guesswork about one man’s motives to sweeping generalisations about all men.

Say something similarly stupid about women, however, and plenty of people will nod vigorously in agreement. Of course women just don’t really want what men have got! They’d frankly rather be at home with their kids. Even the ones that, um, don’t have kids. It’s only natural.

When we are summing across the population to reach the average then by definition we’re talking about sweeping generalisations.

If 10% of women have a different attitude towards employment then the average for all women will be different.

Oh, look, what do we see?

Female employment rate 69.6 %

Male employment rate 79.2%

That is, of course, working age population.

Good, so we’ve established that, on average, there is a difference between men and women in their desire for employment.

Jeebus wept

Last year, the New Economic Foundation produced a provocative analysis of food production, Urgent Recall, arguing that if the real cost of unequal access to a healthy diet and its impact on obesity and social wellbeing was counted along with the cost of environmental damage, lost birds and disappearing butterflies, there would be a public outcry. Most people in Britain spend a smaller proportion of their income on food than in other rich countries. If it cost more, it would be valued more; subsidies would go not to farmers but in, say, income support.

Seriously, food should be more expensive?

Guess generation rent is really, really, valuing those bedsits they’re living in then.


Ritchie will be pissed

So, a round robin letter which he wasn’t asked to sign. Arguing that the BoE should really do something about this recession:

A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes.

So, on offer is Ritchie’s PQE and Milton Friedman’s helicopter money.

I think we’ll go with St Milt, don’t you?

Not just because he’s not Ritchie. But because infrastructure in today’s UK has a what,m 5 year, 10 year lead time? And the construction industry is facing capacity constraints right now anyway.

We could also go with JM Keynes as an alternative. Cut national insurance…..

Better than Ritchie either way….

It’s also a bit of a cheat to describe David Graeber, Tim Jackson and Fran Boait as economists (Fran studied Natural Sciences at the University of Cambridge and went on to complete a PhD researching carbon dioxide storage.)

The amazing Prem Sikka

The data published by the Office for National Statistics show that at the end of 2015, workers’ share of gross domestic product (GDP) sank to 49.7% (see Table D on page 44 of the PDF file downloadable from here), compared with 65.1% in 1976. This is the biggest rate of decline in any western economy. Proponents of neoliberalism claim that workers’ low share of the GDP is the outcome of market forces.

Not really quite sure what “the workers’ share” is. We don’t usually measure GDP in that manner. However, to get to his 49.7 % in Table D he means total compensation, or the labour share of GDP. Note this is not the wage share but the labour share (ie, includes NI etc).

And back in 1976 this was 57% or so of GDP (look up YBHA and DTWMJ here.)

So, not sure what he’s doing at all. Could be that I’ve got it wrong so, if someone who is rather more au fait with the ONS site would like to check my numbers?

It’s also wrong to call the labour share the workers’ share anyway. Other income (17% of GDP or so both times) includes the incomes of the self employed….

As to what has actually changed over time. The low capital share back then is known to have been unsustainable. Not enough to cover depreciation near enough, let alone produce profit. So, it’s right that it has risen from 16% to 21%. Which is about long term average. What Prem is doing here is comparing to a time when that capital share was unusually low but presenting it as the norm.

The other big change is taxes and subsidies on production, from 7.7% to 12% of GDP. That’s essentially the rise in VAT over these decades.

As to the actual point that Sikka is trying to make, he’s claiming that Corbyn will take us back to those halcyon days of the mid-70s.

Oh joy.

You what?

The full amount of this tax would be borne by the financial industry, and not individual holders of stock or pension funds and other institutional investors. Evidence suggests that trading volume is elastic with respect to price, meaning that any drop in trading volume resulting from the tax would reduce costs for end users by a larger amount than the tax would increase them.

What the fuck has Dean Baker been smoking?

Trading volume falls, liquidity falls (same statement), bid ask spreads widen trading becomes more expensive.


My word, this is fun

Stephen Hawking on the real meaning of wealth (which he gets rather wrong) in The Guardian.

So I would be the last person to decry the significance of money. However, although wealth has played an important practical role in my life, I have of course had a different relationship with it to most people. Paying for my care as a severely disabled man, and my work, is crucial; the acquisition of possessions is not. I don’t know what I would do with a racehorse, or indeed a Ferrari, even if I could afford one. So I have come to see money as a facilitator, as a means to an end – whether it is for ideas, or health, or security – but never as an end in itself.

Interestingly this attitude, for a long time seen as the predictable eccentricity of a Cambridge academic, is now more widely shared.

Err, no, not really, standard economic structure is that wealth is the ability to increase utility. How utility is increased is entirely up to the individual, as our utility functions differ.

Or, if you’d like to put it this way, wealth is a facilitator, something that facilitates us increasing our utility.

Not unusual this, someone looking at an economic question from basic principles, getting close to the right answer but not realising that economics got there a century or more before. A better try at it that Ritchie of course, who usually manages to glom onto something which has been disproven via the same logical route but…..

Anyway, what’s really fun about this is that’s it’s a PR puff piece for a new web site run by UBS. You know, the Swiss bank and wealth management people?

Deeply unconvincing argument about ARM

No, really, no:

On the face of it, Mr Son is paying a fabulous price for ARM – a mouth-watering 60 times last year’s earnings, and a near 50pc premium to the company’s pre-bid value. But if he’s right in his vision, then it’s going to look a bargain ten years from now. Already, there are mutterings that he is underpaying, amid reports of strong sales growth.

Forgive the terrible pun, suggested by a well known City fund manager who won’t forgive me if I attribute it to him, but is SoftBank paying an arm a leg, or is ARM being sold for a son?

It will be a while before we know, yet it seems to be one of those other British deficiencies that we are good at innovation and start-ups but atrocious when it comes to developing them into global players. Too often companies are sold before they properly get going.

We really cannot use the example of ARM to show that we don’t build companies into world beaters. Because ARM is a world beater. So it’s an example of entirely the contrary, that we can and do build companies into world beaters. This is also wrong:

One of the things Theresa May promises to address in a still somewhat ill-defined and unconvincing agenda for revitalising the UK economy is Britain’s productivity deficit. This is of course the holy grail of successive post-war UK governments, and whereas some have done better than others, none has so far managed any more than limited progress in closing the productivity gap. So we must wish her luck.

One place she could usefully start is in taking on the endemic problem of “short-termist” thinking among UK investors and managers, a mind set that is deeply ingrained in British corporate, investment and banking culture.

I’ve long thought this a major part of Britain’s productivity challenge, and I’m happy to see that the City veteran and corporate financier, Sir Simon Robertson, a former stalwart of Kleinwort Benson and Goldman Sachs, agrees with me.

Measurements of productivity have sweet fuck all to do with who owns a company. they’re measures of the output (per hour normally) of people working within the British economy.

Who owns, who gets the profits, makes completely sod all difference to productivity measures. Productivity is measured by the hours those 3,000 around Cambridge put in as against the value of their output. And that’s it. British productivity will change by not one whit or iota as ownership moves from roughly 43% US, 35% UK, balance European to 100% Japanese.

It’s simply trying to measure things using entirely the wrong ruler.

We’ve looked at this before

Living near Waitrose could add £38,831 to your house price, survey says

No, Waitrose sells to the yummy mummys. That is, they deliberately target the middle to upper end of the socio economic spectrum.

There’s a Waitrose around the corner because your house is worth more.