So we’re told about Victorian poverty

In The Guardian, of course, a reply to which being:

“The solution he proposed was what he called a “universal pension for life”, or what we now call a universal basic income.”

Excellent, we now have this. It’s called the welfare state. Wages for an unskilled worker in Dublin in 1900 were some 20 shillings a week. That’s, accounting for inflation, some £350 a week today. Obviously, a rough number. The benefits cap is some £390 a week currently.

Note that our unskilled labourer isn’t quite what Shaw was denouncing as that poverty, that destitution. But still, we’ve a guide there. Society today is so vastly richer that what, back then, was considered a basic working wage is today what people do get, around and about, as a universal income. No, I don’t say that everyone gets near the benefits cap today but there’s certainly no one at all living in Shaw’s poverty.

So, we’ve done it.

What’s left is relative poverty, not absolute poverty. Note that even Barbara Castle agreed, 40 years ago, that true penury had already been abolished back then.

People really do, as here, forget quite how poor the past was, quite how different their definition of poverty to our.

It doesn’t matter, it just doesn’t damn matter

Workers in the constituency of shadow chancellor John McDonnell are at the highest risk of seeing their jobs automated in the looming workplace revolution that will affect at least one in five employees in all parliamentary seats, according to new research.

The thinktank Future Advocacy – which specialises in looking at the big 21st century policy changes – said at least one-fifth of jobs in all 650 constituencies were at high risk of being automated, rising to almost 40% in McDonnell’s west London seat of Hayes and Harlington.


Of the 92,150 employees in Hayes and Harlington in 2015, 36,170 (39.3%) were at high risk of having their jobs automated by the early 2030s.

Aha! 15 years in the future.

Jobs churn is 10% per annum for destroyed and recreated jobs, another 10% for quits and hires. There’s at least some technological movement in near all of these changes.

We expect somewhere between 150% of all jobs and 300% to change, technologically, over this same period. Just as has been happening these past 250 years.

It just doesn’t matter. It happens tomorrow then we’ve a late 20s (for the UK) early 30s (for the US) type problem. Over 15 years? Pah!

Of all the idiot suggestions

And a report from University College London’s Institute for Global Prosperity is advocating that UK citizens should receive free housing, food, transport and internet access to deal with that same daunting possibility.

They don’t actually say free food either, they say free meals.

Yep, the idea is that government cook lunch for poor people. Obviously, organic, no salt, no sugar, vegetable heavy. Won’t the poor be grateful. The Morris Marina of comestibles.

Sheesh, this violates the most basic stricture, always, but always, subsidise people, not things. What is more valuable to you, £10 to buy lunch with or a lunch provided to you that cost £10? £10, obviously. Because you can spend £5 on lunch and £5 on dinner, or beer, or soap.

These people are so fucking stupid they’ve just not grasped why food stamps sell at a discount to real cash money. Idiots, morons.

This is all rather the point

It’s not just the cruise ships and popcorn. Comfort is the organising principle of modern life. So great is our need for comfort – to be comfortable – that the most popular products are based around things fulfilling this need and have internalised within their very engineering the fulfilment of our need for comfort.

What is Netflix and on-demand TV, chocolate-covered popcorn, business class and premium economy, cruise ships, athleisure wear, our social media echo chambers, our online shopping and UberEats – other than things that sate our desire to be comfortable?

The aim and point of a socio-economic system is that the hoi polloi can have more of what they want. Preferably without impacting on the ability of others to do the same.

People are getting more of what they want, that comfort. What’s the problem?


This is for a foreign language publication and it’s aimed at people not all that up on economics. Thus the detail is a bit sketchy:

Richard Thaler has won the 2017 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel – also known as the Economics Nobel. There is no controversy over the award to him – he’s widely thought of as being a thoroughly deserving recipient. There is a little pondering over the when of the prize though, some think he should have been noted in 2002, with Daniel Kahnemann, or perhaps 4 years ago with Robert Shiller. For all three have been working at the same basic problem we have within economics, when is it that we do actually work as the textbooks assume and when don’t we? This is more generally known as behavioural economics, the teasing out of what really are, instead of what are assumed to be, human reactions to stimuli.
This being, of course, what we’re trying to do in the whole field – what is it that humans do? Once we know that, and the way that they respond to changes in the incentives they face, then we can at least to begin to design methods to aid in a better world.
One outcome of Thaler’s work, something discussed in his best selling book with Cass Sunstein, “Nudge,” is that we can get people to save more for their retirement simply by assuming that they will. In more detail, Thaler’s work shows that we value what we’ve got rather more than we do what we might get. That is, $1 we have is worth more to us than $1, or perhaps even $2, that is on offer – this is known as the “endowment effect.” This feeds through into a possible overvaluation of the status quo in many situations.
At which point, we know that we want people to save for their retirements – excellent, so, how do we encourage this? We could imagine tax breaks for saving, a law stating that you must save (the UK does the first, Singapore the second) and so on. Thaler has pointed out the implications of that status quo bias. As and when people are signed up by their employer for pensions savings schemes, the default option could be the maximum permissible savings amount. People are more likely to take the choice their offered rather than change it. Just this, this little insight alone, is said to have led to some $30 billion more of pensions savings among Americans.
At the heart of the work though there is a great point being made. Market economics makes an assumption of rationality, something which itself comes in two flavours. The first being that people are just consistent. If they prefer A to B and B to C then they will also prefer A to C. The second is that people are rational calculating machines who zero in on the optimal strategy to gain their desires given their constraints. The first is held to be generally true, the second only at times. Thaler, along with other behavioural economists, has shown that neither are always true. However, as is so often true the interesting part is in trying to work out why the irrationality.
Some early parts of Thaler’s work concentrate upon the ultimatum game. In this there are two participants in the experiment, one is given $100 and told to split it, however they wish, with the second. The second can accept or reject the offer. Rejection means that neither keeps any cash, acceptance that the split happens. Logic would indicate that a 99/1 split should be accepted, a free dollar is after all a free dollar. That isn’t what happens though, splits of less than 70/30 are routinely rejected.
At which point we want to explain this and the usual idea is that humans have some innate sense of fairness. One that’s so strong that they will reject “unfair” offers at costs to themselves in order to punish that perceived unfairness. This does indeed seem to be true among American undergraduates who were the experimental subjects.
This result did not survive testing in other societies though. We now have a pretty good evidence base that resolutely non-market economies will accept just about any split, market economies will reject ones perceived as unfair. Which leaves our mystification just that one level deeper – do markets create that punishment against unfairness or are they a precondition for them?
In this instance we’re seeing something that doesn’t appear rational yet, upon deeper examination, it becomes entirely rational at that deeper level. Other parts of Thaler’s work talk about “limited rationality” which is where people do things that really aren’t rational in either of our two meanings. One of his examples here is a fund called “Cuba.” That’s the trading name for it, it doesn’t have any assets in Cuba itself, nothing to do with the place, that’s just the 4 letter acronym it’s known by. For years it bumbled along at the usual 10 to 15% discount to net assets that a closed end fund normally trades at – then it leapt to a 70% premium to that asset value. What? The trigger event was the US stating that it would open up a little more to trade with Cuba. The island that is, the place the fund has nothing to do with.
This change in price is clearly irrational and if it was something that persisted for a day or two we could just mark it down as a mistake brought on perhaps by bad information. But it persisted for months. Even financial markets – which Thaler and most others would agree are the most rational of our markets – aren’t really all that rational therefore.
The implication of this, one that Thaler pushes himself, is that we should therefore nudge people into making better, more rational, decisions. Sometimes this is obvious enough, greater savings for retirement probably are a good thing as above. However, the idea does run into a logical problem, which is that if people are irrational who is going to be the rational nudger? Of course, as with Kip’s Law (“the central planner always, but always, envisions himself as being the one doing the planning”) there’s no shortage of people who claim to be more rational than the rest of us. But given the way politics works it’s not in fact a given that those who are will be the people giving the nudges. A casual glance around the world shows that.
One of the joys of Thaler’s work is that it isn’t heavily mathematical and in fact, it’s all rather obvious. Except it’s obvious in a non-obvious manner. Once he’s explained a matter – two examples being why people like it when you take away the cashew nuts they’re enjoying eating, or how men will improve their aim when you stencil a fly on a urinal – then yes, it’s obvious! But before it was pointed out it wasn’t obvious at all.
What we really want to know of course is what is the deeper significance of all of this? Preventing bathroom messes, getting people to save, these are good and useful things but hardly about to set the world alight. That importance being that the standard microeconomics does indeed assume “Homo Economicus,” that we’re rationally reacting to stimuli and opportunities all the time. Thaler, along with colleagues, is pointing out that human beings simply don’t work that way all the time. But the important part of this observation is the “not all the time” part.
We are not in a binary situation here. It is not true that humans are irrational, thus must be told what to do. We’ve tried those planned economies and societies and we know they don’t work. It is also not true that humans are rational, always and all the time, so the unregulated world of varied fantasists also will not work. What we actually want to know is when is it that people are doing that irrationality and perhaps should be nudged or regulated out of it, when are they doing just fine and can be left alone?
The correct answer here is unknown as yet but in my opinion will come from something closely related to Thaler’s behavioural economics. Which is the result of the Prisoner’s Dilemma, an experiment in game theory. Two prisoners, if they both keep silent then they will both get a short prison sentence. If they both tell on the other then both will get a medium one. If one keeps silent and the other tells then silence earns a long sentence, informing freedom. What’s the best strategy for the prisoners?
This is still argued about when it’s a one time event. But when it happens over multiple iterations then the optimal strategy is clear, cooperation, or tit for tat. I’ll do this time whatever you did last time – inform or stay silent. At which point we’ve the beginnings of a useful structure.
Thaler tells us, proves to us, that we’re sometimes to often irrational. Regulation, nudges, can improve matters when we are – but what we want to know is, when are we? As the results of the two games, Ultimatum and Prisoner show, the answer is different in situations with multiple iterations, many interactions. Punishing people into fairness is part of – perhaps cause, possibly result – the market economy that so enriches, it’s worth it. Cooperation, tit for tat works over time. At which point a useful rule of thumb can be constructed.
Where we do things regularly then we’re probably acting rationally. We buy bread often enough that an unfair seller will quickly lose custom and be driven out of the market. We buy pensions usually only once in a lifetime, we’re far more likely to be irrational at that point. Thus we can leave the regular activities to humans to solve, regulation is needed more with the irregular.
Note that the conclusion is mine, not Thaler’s. His great contribution though is to get us to the point where we can even consider the point. People are not as rational as the standard theory assumes, we must therefore consider where, when and why people are irrational and what we plan to do about it.

It’s an interesting theory alright

It has also underrepresented individuals who subscribe to what economic historians Avner Offer and Gabriel Söderberg described to The Atlantic as the “social democracy” school of thought, which emphasizes making public policy decisions to help governments care for their citizens. This is in contrast to what Offer and Söderberg describe simply as economics, which is highly theoretical and pro-free market.
“The reason that social democracy persists despite the absence of a robust intellectual foundation is that it works, and it is more efficient than markets in this particular domain,” Offer told The Atlantic. “You could say that economics is deeply theorized but dubious in practical terms, and social democracy is exactly the opposite. It is very practical, and perhaps for that reason it is not very well-theorized.”

Indeed, as the authors noted in their interview, only one adherent to the social democratic school of thought has won a Nobel Prize in recent years — Gunnar Myrdal, who was Swedish.

Umm, yeah, maybe not so interesting a theory.

The Nobel Prize for Economics has become less about rewarding innovation and pioneering achievement and more about touting one school of economic thought, involving the promotion of free markets, over others.

We’re going to use a definition of social democracy which doesn’t include Joe Stiglitz, Paul Krugman, James Tobin, John Hicks, Amartya Sen, Arthur Lewis, Paul Samuelson as social democrats?


Nancy MacLean seems a little overwrought

The Koch network and their allies claim they want “liberty.” They actually call themselves “the liberty movement” or sometimes “the freedom movement,” and speak in this very anodyne language about how they want to have limited government and freedom and lower taxes. For older white conservatives this language is very appealing. But what really bothered me in writing “Democracy in Chains” is that they’re not being honest. As libertarians they believe that there are only three functions for a legitimate government: To provide for the national defense, to ensure the rule of law and to maintain social order. Other than that, everything is illegitimate because other functions of government depend on taxing people — and particularly better-off people in a system with progressive taxation. For this type of libertarian thinking, taxing people to provide for programs, services and resources with which they may not agree is illegitimate coercion and therefore must stop.

In this Koch-donor dream, we are all responsible for ourselves from the cradle to the grave, unless there is a charity that happens to take an interest in us. We do not have federal laws to outlaw pollution or to prevent discrimination. Instead we trust everything to the free market and private property. This cause has pitted itself against the whole American model of 20th-century government. Regulation of food and drugs, the New Deal’s federal support for workers to organize and hold corporations accountable, the Civil Rights Movement, the women’s and the environmental movements, all of these things are illegitimate in the eyes of these people on the right.

Outside a few Ayn Rand devotees I can’t think of anyone who does actually believe that.

As the basic theory predicts

Economists tend to think that the corporate tax burden is shared between labour and capital, but even among researchers in the field there is substantial disagreement over how much of the burden is shifted to workers. This column exploits variations in local business tax rates in Germany to identify the corporate tax incidence on wages. On average, more than half of the corporate tax burden is passed onto workers, implying a reduced overall progressivity of the German tax system.

The smaller the economy relative to the world economy, the more mobile capital is, the more the burden of corporate taxation will fall upon labour.

Germany’s smaller than the US, capital is more mobile (think EU Single Market), the burden on labour is heavier than in the US.

Just how big are the digital monopolies?

The continued rise of digital platform monopolies – the dominant organisational form of contemporary capitalism – is likely to further concentrate economic gains and will drive debates about how data should be governed.

I guess we’re talking about Facebook, Amazon and Google here, yes?

Turnover of a company is the wrong thing to look at, should be wages plus profits to equate to GDP. However, ignoring that – $30 billion Facebook, Google $100 billion, Amazon $135 billion.

Call that $300 billion among friends. US economy is around $20 trillion. That, overmeasured – and I’m comparing global to national GDP as well – is some 1.5% of the economy. Concentration, eh?

There’s nothing like being ignorant of basic economics, is there?

Why Theresa May’s pledges won’t fix the UK’s housing disaster
Matt Wilde
Rent controls are drastically needed to stop people being priced out of homes. But the Tories are wedded to the free market and won’t let down their landlord friends

Guess the source?

Matt Wilde is a research fellow in the Department of Anthropology at the London School of Economics

Pity they didn’t ask someone who had been through the economics department of the same place:

For, as Assar Lindbeck (who is both Swedish and a socialist) has pointed out, “next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.” Which is why, when asked, 93 per cent of economists insist that a ceiling on rents reduces the quantity and quality of housing available. That two-decade wait for a flat in Stockholm could be a clue. But, of course, the more economists agree on a point, the more folk and political economics seems determined to ignore them.

The underlying logic is impeccable. Those supply and demand graphs at the beginning of your Economics for Dummies textbook are not optional extras; they are descriptions of our universe. Artificially reduce the price of something and demand will rise, supply will fall, and there will be shortages. Nicolas Maduro insisted that food be nice and cheap and Venezuela has no food. Another clue.

The market clearing price of something is the market clearing price. If you wish to reduce that price then you must either choke off demand or increase supply. Which is why all those economists keep insisting that if you wish to lower rents then work out some way to build more things that can be rented (insisting that we just have fewer people is not considered socially acceptable these days).


Instead of, you know, the anthropologist?

The truth is that the UK’s housing crisis is not merely a problem of supply and demand, but of class inequality being reproduced through property relations. Perhaps it is the prospect of the present system being curtailed that some find so terrifying.

Blithering idiot

He promised that cities would be given the power to control rents, and his advisers indicated that he wanted to go further than a pre-election promise to limit rent rises to the inflation rate. “Rent controls exist in many cities across the world and I want our cities to have those powers too and tenants to have those protections,” Corbyn said.

Assar Lindbeck: “next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities”

Labour sources said the party would be looking at models of rent control in cities across the world as part of a review, and said the property market was “dysfunctional”.

If you think it’s dysfunctional now you just wait until there’re rent controls.

Does no one remember how bloody difficult it was to rent a place when we had rent controls in the 70s and early 80s?

From a Parliament report:

The application of rent controls coincided with a decline in the private rented sector. The
sector had made up nine-tenths of the housing stock in 1915 but had reduced to onetenth
by 1991. Rent control has been widely identified as a factor in this decline; it is
argued that there is a direct correlation between reduced rental returns and reduced
investment in the sector.

Oh dear, George doesn’t understand what a commons is

That it is necessary to explain the commons testifies to their neglect (despite the best efforts of political scientists such as the late Elinor Ostrom). A commons is neither state nor market. It has three main elements. First a resource, such as land, water, minerals, scientific research, hardware or software. Second a community of people who have shared and equal rights to this resource, and organise themselves to manage it. Third the rules, systems and negotiations they develop to sustain it and allocate the benefits.

A true commons is managed not for the accumulation of capital or profit, but for the steady production of prosperity or wellbeing. It belongs to a particular group, who might live in or beside it, or who created and sustain it. It is inalienable, which means that it should not be sold or given away. Where it is based on a living resource, such as a forest or a coral reef, the commoners have an interest in its long-term protection, rather than the short-term gain that could be made from its destruction.

No, just no.

A commons is a resource, entirely true. But it’s a resource with common access – thus the name. And Garrett Hardin told us a lot about these. When demand for the resource is below regenerative capacity then it can simply motor along as is. When demand rises above that then some form of management must be imposed. Hardin thought there were two, state (regulation that is) or private property. Ostrom added the third, the community of users themselves, spontaneous order that is. Which works, up to some number of people – a couple of thousand tops.

That is, everything after the sentence stating that a commons is a resource, everything is about how people manage that access to the common resource, that’s not part of the definition of what the resource is, nor a commons. It’s in fact a definition of those commons which have survived, because people have worked out a method of limiting access.

George is entirely missing the point that is. And in doing so he’s also entirely missing the vast amount of work that’s been done on this sort of thing. Coase for example, illuminates which of the three methods we might use in certain circumstances. Hardin himself was insistent that which of his two methods depended on circumstances, nothing else. We might, as we actually do at times, be able to deal with water rights through private contracts. Atmospheric pollution less so and regulation is more likely as a solution. Or at least government action. How many cows the 30 farmers of the village can put upon Minchinhampton Common might well be left to the saloon bar of the Dog and Duck. Or the Manorial Court which is much the same thing as Ostrom’s communal regulation.

By not grasping the underlying economic point Monbiot is thus able to ramble off into wibble, sadly.

Err, Whut?

When he wasn’t making fun of his parent company, Oliver clarified how oligarchies allow businesses to create undesirable standards that hurt customers. Airlines, for example, are able to charge at least $25 for checking an extra bag, made possible because American Airlines started to do it and its competitors followed suit.

Over here in Europe we don’t have oligarchic airlines at all. It’s a hugely and vastly free market. We’ve also got charges for checking an extra bad.

Meaning that fees for checking a bag might not be the result of oligarchy….

Interesting Paul most interesting

Until the centre-left learns to break with the logic of neoliberalism, and to construct an economic model that subordinates market forces to human needs, it will continue failing.

People have been trying this for a few centuries now, No one’s found one. Got any ideas?

No, real ideas, how you’re going to replace what markets do, not some cheap rhetoric.

A short guide to why there isn’t a useful Magic Money Tree

Simon Carr at the Oldie, among others, seems mystified as to why we can have quantitative easing – which appears to be a magic money tree – and yet not a magic money tree to pay for everything that John McDonnell wants to buy to bribe the electorate. Another way of putting this question is, well then, why won’t Corbynomics, or Peoples’ Quantitative Easing (to use Richard Murphy’s name for this) work then?

One answer being that Richard Murphy is a retired accountant from Wandsworth not an economist. That seems to be insufficient reasoning to some even though McDonnell himself has been distinctly less than complimentary about Murphy’s economic knowledge.

Another possible answer is that this is important so you’d better go find out Carr. After all, as you say, an election could hinge upon this and in a democracy it’s the voters who have to get up to speed on this stuff. It’s our job to understand who is lying to us and who is not. You know, we’re the citizenry making the decision and all that.

At which point, the economics of this in baby steps.

The Magic Money Tree is the idea that the government can just print lots of money and then go and spend it. There’s no financial constraint upon government that is. They don’t have to worry about taxes to fund buying lots of lovely things for us voters. They just get the Bank of England to print more and then everything, but everything, can just be paid for. This is also the central claim of Modern Monetary Theory.

It’s correct. Government can do this. Many governments have done this. Henry VIII did it in Britain. OK, he did it in a slightly different way but it was indeed the same thing, he debased the silver coinage. Which is indeed the same thing, add 50% copper to the silver and you’ve twice as much money which government can then spend. His children spent much of their reigns trying to deal with the effects.

The effect being inflation of course. More money around did not increase the number of things around which could be bought. More shillings and the same number of things just meant that each thing cost more shillings. Inflation in short.

(Interlude – do note that central banks do increase the amount of money around each year. But they only increase it by the amount of more things there are around as well. A growing economy needs more money in exactly the same way that as a restaurant gets busier it needs more plates to put the food upon. But that growth in money should be at the speed the economy is growing itself, no faster)

At around and about the same time Spain also did much the same thing. All that gold and sliver from Latin America flowed into Spain. Spain didn’t have any more land, sheep, people, or anything else as a result, just more gold and silver. Thus prices rose in relation to that more abundant gold and silver. This inflation flowed across Europe.

Other historical episodes include the Weimar inflation, the Hungarian Pengo and in more recent times Zimbabwe – where they kept printing money until the last run of hundred trillion $ bills weren’t worth enough to buy the ink for the next run – and Venezuela.

Government can therefore just print money and go and spend it. This has an effect. Inflation.

Another name for this in the technical jargon is monetisation of fiscal policy. There’s a reason why it’s banned (yes, banned) under the eurozone rules. For we’ve a number of countries and governments all of which share the same currency. Any one of them could print more euros and go and spend them. This would be great for that specific country. They’d get to spend lots without having to tax. But the inflation would be carried by all the countries in the currency bloc, not just the one doing the printing. The incentive therefore would be for everyone to do as much as they could before anyone else did.

This is what actually happened after the break up of the Soviet Union. Each new country had a printing press which produced entirely legal rubles. So they all printed masses and whoo!, didn’t they all have inflation?

So, just printing more money leads to inflation. The more money printed the more the inflation is.

The Modern Monetary Theory answer to this is taxes. If you print lots of money to spend and then spend it then you can tax that extra money back. Which indeed you can. And look what happens then.

You’ve a high spending government which is taxing lots. The end result here is just Old Labour again, high taxes, high spending. More of the economy flows through government and we’re not anywhere different from when Healey was squeaking pips.

The basic idea just isn’t new. The results are predictable – and the way politics works no one will ever tax enough to stop the inflation. Spending is fun, taxing not so much. Which is why it always has led to inflation on a roaring scale.

So what about this quantitative easing then? This is just the same isn’t it? The Bank of England has just invented money and gone out and spent it, hasn’t it?

Yes, but with three little caveats.

The first is that we wanted to create inflation, which we did, so that’s good.

The second is that the BoE didn’t spend it, it’s just sloshing around the markets instead.

The third is that it’s reversible. And if we don’t reverse it then the inflation will come in a roar.

Baby steps, baby steps……but we have several different kinds of money. Various names, base and wide money, or the jargon of M0, M1, M4 and so on, or low powered and high powered, or if you prefer actual money and then credit. M4 is credit, wide money, low powered money, largely, M0 is base, high powered or even just money money.

You’ll have seen the claim around that 95% of all money is just created by the banks when they make a loan. Sorta, ish-ish, true. 95% of credit, or wide money, or low powered money, is created by the banks. 100% of narrow, high powered, money is created by the Bank of England.

The Bank of England creates notes and coins, that M0, (yes, it gets more complex but baby steps). Then we all go and use it, spend it, save, it, stick it in banks, borrow it, lend it, all sorts of things, and the net result of all of this is that wide money measure, M4. The difference between the two is the money multiplier or, in the jargon, V, the velocity of circulation (yes, I know but look, baby steps).

This difference is significant. Before QE the UK’s M0 was of the order of £50 billion. M4 was a couple of £trillion. Not the right numbers but about right, in magnitude at least.

After QE M0 is about £450 billion, M4 is still a couple of trillion.

Note that inflation is determined by M4, not M0. M4 hasn’t grown which is why we’ve not got massive inflation as a result of QE. So, why haven’t we?

Because our entire problem was that V, that velocity of circulation, or the amount of stuff that we did with the money the BoE was creating, fell massively as a result of the financial crisis. This is the central economic analysis of what happened by the way, which is why all the central banks did go and do this QE. And if that V falls, and we’ve the same amount of M0 around, then M4 will fall – and that’s the opposite of inflation, that’s deflation. What happened in the 1930s turning a nasty recession into the Great Depression (yes,that is now the standard analysis, Milton Friedman was right here). So, we print lots of M0, that’s the BoE inventing money in the basement, and we don’t get inflation. which is what actually happened. Great.

But what happens when V recovers? When we all start to borrow and save and move money around like we used to? That old relationship between M0 and M4 will revive and thus M4 will soar (we’ve 10x as much M0 as we used to) and so will inflation.

Which is where the difference between QE and magic money tree is. The BoE quite deliberately did not spend that new money into the real economy. It was used to buy bonds, mostly Treasuries. This lowered interest rates, a little bit, which is nice. But the big thing is that when (OK, if) we get back to normal now we can reverse things. We can sell those bonds, collect that money we created earlier, feed it back into the computers in the basement and cancel it. We thus bring down M0 but not M4 (recall, we think our multiplier between these two is recovering) and thus have we avoided deflation for a time but without creating inflation for the long term. Note that the Federal Reserve, just last week, announced the schedule it will use to do this. There is no mystery to what I am saying, this really is how this system works.

Magic money would be spent into that real economy. We cannot get it back again when inflation starts to arrive. Well, we can, but only at the price of extortionate tax levels. Which, as above, means that using the magic money tree to really spend just means higher taxes a la Old Labour. Not so magic, hunh?

At which point, the difference between quantitative easing and the magic money tree. QE is temporary, reversible, and is a tactic of last resort to prevent deflation and thus a depression. It works but it must, at some point, be reversed. If it isn’t reversed it will cause significant inflation. Two and three digits a year sort of inflation.

The magic money tree is permanent spending of the same invented money, it is not temporary – the effects are permanent – and it is not reversible without stinging tax rates. It is also known as the monetisation of fiscal policy, or the monetisation of spending. And it has everywhere and everywhen been a disaster from the point of view of subsequent inflation. Not inflation of a couple of percent here and there either, but of two and three digits a year sort of inflation.

That is, the effects of just making more money are the same either way, in the end at least. But QE can be reversed to stop it, the magic money tree cannot.

For the end effect of the magic money tree see the Hungarian Pengo.

And now to British politics. John McDonnell’s going to stop spending all that newly invented money to stop the inflation that’s going to arrive in 18 months time. Isn’t he?

Perhaps a small thing but where is it in GDP

Doddie Weir has MND – no, not a good thing. However, in this constant snarling about how we’re all poorer than our forefathers we’ve a little thing:

We’ve done speech therapy and voice banking. That means whenever my voice disappears, you’ll be able to go through an iPad, press a button and it will come out in my voice.

That voice banking might only be a mild advance for a small number of people in their terminal stages. But it is an advance. And it also doesn’t appear in GDP at all. It’s not a market transaction and thus doesn’t have a price, it’s a hedonic improvement.

And how many more things like that are there out there? Results of that technological change which just aren’t being counted?

Caribbean hurricanes – a little bet

So, think this is a worthwhile bet?

The standard of living in Puerto Rico after two hurricanes is higher than that in Cuba before any hurricanes this year.

Yes, including PR’s near total loss of power.


Nevertheless, in some of the worst-hit areas of the capital the operation was impressive and, government propaganda aside, the truth is that much of Cuba is getting back to normal after the devastating storm.

It’s that “normal” which is under discussion…..

Puerto Rico is an island mired in debt. Its crippling financial crisis is not recent, it has been happening for the past decade. Investment in infrastructure has not been seen in years, one long-term resident told me.
If so, the economic chickens have come home to roost in the most terrible of ways.

Quite, but which is worse?