Quite astonishing economics

The pound is already falling as a result of the decision to break international law. That is rational, and reasonable. It is also incapable of being addressed by any fiscal or monetary policy. This revaluation reflects a potentially permanent change in the terms of trade that will significantly increase the cost of UK imports even if tariffs are not applied whilst substantially increasing the cost of our exports, dramatically reducing demand for many of them as a result, with consequent further job losses in the UK.

Actually, quite astonishing logic.

A falling £ makes both our imports and our exports more expensive?

And this man used to teach economics in a British university…..

My answer is that I think it is. My belief now is that the government wants massive economic failure in the UK because this is its route to the destruction that it thinks will preface the state Cummings imagines that we need to fulfil his fantasies.

Nursie needs to make hate with that lithium bottle.

30 thoughts on “Quite astonishing economics”

  1. I will confess I’m trying to resist the idea the government actually wants economic collapse in order, presumably, to reshape the world as it wants. For instance, if we endure this, a principal argument against the wilder eco-lunacy vanishes.

  2. I’m trying to address this with your own logic, Tim. You say countries only export to pay for the gain in benefit they receive from the imports. The exports are a cost to the country, in this scenario. But countries do not in fact trade. It’s people who trade. So to them, producing the goods & services they export is how they pay for the imports. But the country runs a balance of trade deficit. And as you say, the books must balance so there must be an inward transfer of capital to balance them. But the people who benefit from incoming capital don’t have to be the same people who provide the exports. And with a falling £ the value of the incoming capital, in £’s, has risen. So it’s entirely possible it’s the beneficiaries of incoming capital get to enjoy the import surplus, and then some. Whilst others in the economy find a falling pound makes them nett poorer.

  3. A falling £ makes both our imports and our exports more expensive?

    No, he’s saying that the falling pound reflects the big bugbear that will make our imports and exports more expensive. You’ve missed his emotional forest for your economic trees.

  4. “My belief now is that the government wants massive economic failure in the UK because this is its route to the destruction that it thinks will preface the state Cummings imagines that we need to fulfil his fantasies.”

    The laddie doth project too much

  5. Good spot Tim – to make mutually incompatible claims about a simple concept in such a short space is quite remarkable.
    Murphy is one of the most malevolent men alive, based on his intent and the principles he would have us live by if he had any power and influence.
    I think Murphy has got Cummings wrong – my prediction is he’ll be gone by Valentine’s Day. In general he doesn’t like politicians, or civil servants.

  6. How do you make it through his turgid writing? I count 1270 words on that one blog post alone, with dozens of wild theories spliced together. My eyes glazed over by the third paragraph.

  7. “I’m trying to address this with your own logic, Tim. You say countries only export to pay for the gain in benefit they receive from the imports. The exports are a cost to the country, in this scenario. But countries do not in fact trade. It’s people who trade. So to them, producing the goods & services they export is how they pay for the imports. But the country runs a balance of trade deficit. And as you say, the books must balance so there must be an inward transfer of capital to balance them. But the people who benefit from incoming capital don’t have to be the same people who provide the exports. And with a falling £ the value of the incoming capital, in £’s, has risen. So it’s entirely possible it’s the beneficiaries of incoming capital get to enjoy the import surplus, and then some. Whilst others in the economy find a falling pound makes them nett poorer.”

    Precisely. Its the same error economists make about free trade, assuming that everyone lives in the average, where in fact every person lives in their own individual circumstances. Many of whom are very much worse off from free trade, and many of the ones who are better off are only better off by a few pounds each.

    In the trade deficit example there will be millions who are worse off by a few tens or hundreds of pounds per year because of the low pound due to a trade deficit, but maybe a handful of people who sell their country estate or business to foreigners. The books all balance but millions lose out and a handful gain.

  8. “mutually incompatible claims”

    Mere days after claiming inflation was impossible, he is claiming inflation is inevitable.

  9. @Jim
    “the same error economists make about free trade, assuming that everyone lives in the average, where in fact every person lives in their own individual circumstances. Many of whom are very much worse off from free trade, and many of the ones who are better off are only better off by a few pounds each.”

    I don’t think economists ‘ignore’ this as such, indeed the concentration of losses versus the thin spread of gains is one of the political explanations they trot out for why free trade so rarely happens…

  10. It’s interesting looking at Leftie blogs and trying to spot coherent arguments. “from arse to elbow” is particularly good. Wild assertions, lack of evidenced arguments, total bullshit. Apologies to TMB because using colons rather than commas is beyond me in 30 degree heat

  11. “I don’t think economists ‘ignore’ this as such, indeed the concentration of losses versus the thin spread of gains is one of the political explanations they trot out for why free trade so rarely happens…”

    They ignore it in their ultimate assertion that ‘free trade makes everyone richer’. It doesn’t. It makes lots of people very slightly richer and a minority very much poorer, in the West at least. Because the aggregate gains are greater than the aggregate losses their conclusion is its a ‘good thing’. Whereas no one lives in the aggregate, they live their own specific life. Gaining a few quid because T shirts are cheaper from Vietnam is not going to transform your life, while losing your job because the factory in the UK making T shirts closed is a very negative impact. And living in an area turned into an economic wasteland because a large employer has disappeared overseas is pretty bad too, even if your job hasn’t gone with it. And the more factories that close the more people are losers vs marginal winners, and you get Trump and Brexit as a result.

    But hey, free trade brings cheap face masks, if some foreigner can be bothered to sell you some when everybody wants them at the same time………….

  12. I’m having trouble why you’re making this a free trade issue in the direction you are. I presume the pound’s dropped because the market foresees EU tariff reprisals on the UK for its failure to cave in during the negotiations. So a reduction if free trade not an increase.
    Not saying I’m inclined to get exited about any of it. It’s just how markets react. All of this has been on the cards for some time. It’s not new information. It’s a change in the way information is looked at. And next week someone will work out what damage the EU’s going to do to its own economies & how politicians in those economies would react. And then the whole thing will swing back the other way. Markets do not like uncertainty & punish it.

  13. @Mr Lud
    +1 I have great difficulty trying to persuade myself Boris & Co are Not deliberately destroying UK economy and lifestyle

    @Jim
    I would say the vast majority have benefited immensely from Far East imports – from £1 T-shirts, £7 toasters through cheap TVs and more
    Unemployment, until C-19, has been low since 80s and mostly unemployable, won’t work and can’t work

  14. Criticisms of free trade invariably focus on just the disruptive, short-term negative effects of its introduction, but the fact is that introducing tariffs equally results in winners and losers, job losses and job gains. Hence the arguments made against the introduction of free trade can equally be applied against its abolition, which rather suggests they are not sound arguments. George Bush’s 2002 protection of the steel industry, for example, reputedly caused more unemployment than there are jobs in the entire US steel industry, due to the resultant higher domestic steel price.

    In any dynamic economy there is always going to be a significant turn-over of jobs every year; the alternative being a permanent Soviet-style stagnation. Free trade does not correlate with unemployment, but does result in a higher standard of living.

  15. Not quite. Each unit of free trade – each “tradeon” – works as you say, cheap t-shirts saving near all a few quid at the expense of the entire life’s work of a few. But free trade over all things adds up to many millions of those few quids on t-shirts. And the life’s works are regenerated in doing other things. The net effect is that all are made very much richer – in time.

    The underlying argument about trade is that division and specialisation of labour. We all know that living in an autarkic household would mean living very poor indeed. We could and would have only what we could produce ourselves, among a couple of adults and a few children. So, we specialise and trade and we’re richer. This logic is true of a village – only one widow learns to make beer, one of the blokes makes the mattocks etc – though to any sized grouping of people. “Trade” is just the name we give to this over national boundaries these days. And there simply isn’t any logic, not economic logic at least, which says that the international trade is any different or less enriching than using Bert as the blacksmith because he’s got big biceps and a forge. There simply is no dividing line where it is true that it makes us richer and where it doesn’t.

    Once you’ve bought the argument about division and specialisation then t-shirts from Chittagong, cars from Chzekia, computers from Canton all naturally follow.

  16. Yes, Jim, it is impressive how poor the countries that trade freely. It’s impoverished Singapore badly. And Taiwan. And …

    You may think your theories are sound. But the real world shows trade enriches. No matter how persuaded you are that everyone in the West is poor, we are the richest society ever.

  17. Although I wouldn’t agree with Jim entirely, I do think he has a good point. Your argument is based on a uniformity amongst the people concerned. Societies aren’t homogeneous. Let’s say you have a country with a highly paid highly skilled professional strata at the top, a medium skilled strata in manufacturing industry in the middle & low paid service workers at the bottom. The country opts for free trade & is able to import manufactured goods cheaper than domestic production. The high skill strata does well. It’s able to buy goods cheaper. The low paid service workers see an initial increase in their standard of living because they can now afford more manufactured goods. The manufacturing strata lose their jobs & are forced into lower paid service work. Increased competition for the low paid jobs results in wage levels being depressed. The top strata win twice. Cheaper manufactured goods & cheaper services. No doubt total utility has been raised but it’s all gone in one direction.
    Sound familiar?

  18. Politics
    After the sentence “. The low paid service workers see an initial increase in their standard of living because they can now afford more manufactured goods. “our free trading government calls a general election. And with votes from the top & bottom wins. In five years time, in the next electoral cycle, all the above has become the status quo. On further promises of bread & honey for all it wins again.

  19. Incidentally, you get much the same with immigration. Whilst it’s unskilled poor people on rubber rafts out of Calais our middle class professionals are remarkably liberal & humanitarian. If it was boatloads of highly qualified professionals hitting Kentish beaches you’d hear squeals of anguish from orbit.

  20. Why this assumption that services pay less than manufacturing? Accounting doesn’t. Insurance doesn’t. Finance doesn’t. Sure, waiters get less but then so did the bird in the chippie.

    I’ve not seen – don’t know whether it’s regularly reported – average wages split into services and manufacturing for the UK but it’s a regular report in the US. Services pay more – mean – than manufacturing.

    Entirely agree that some services pay less than some manufacturing. But then some manufacturing pays pretty shit too. Electronic assembly pays $14 an hour in the US. Only a little over half mean hourly wage for all jobs.

  21. Now that is fair. Bloke in the US, Dean Baker (sorta lefty I normally abhor) has been making this point for near two decades now. Let’s import lots and lots of professionals to lower the costs of professional services to the working class…..and let’s not allow the professional guilds to stop them practising when they arrive.

  22. Well yes, Tim. There are services & services. You can indeed count many of the professions as services. But your bloke fired from his manufacturing job in his middle years isn’t going to move up to a well paid job in accounting, finance or insurance. They’ve all put a barrier called ‘possession of a university degree’ in place stops that happening. Unless its cleaning the offices.

    In any case, it was a simplified example to suggest a point. Three strata with three distinctly different levels of earnings. In practice, of course, they’d be overlaps at both boundaries. Are you disagreeing that their can, be absolute losers from free trade?

  23. I entirely agree that there will be absolute losers from any specific instance of free trade. Moving to free trade in Corn sure screwed the landlords. I would argue very hard that, over time, there will be no absolute losers, only gainers, from a system of free trade. Might have to stretch that “over time” to make it work but supportable I think.

  24. I’m a big supporter of free trade. The freer the better. But if you’re going to have free trade your labour force is going to be competing in a world market. It needs to be agile to respond to changes in supply & demand, new technology etc. So it has to go hand in hand with a lot of deregulation of the labour market. I’d also say the education system’s a piece of shit for coping with change. It’s far too frontloaded on the beginning of people’s working lives. It’s trying to anticipate what skills will be needed 20 years in the future. People need to be able to radically change career track & get the support to do so. Shorter courses with more concentrated curriculums.

  25. The big problem for free traders is it always gets argued for by people who benefit. And when it’s pointed out there are people who lose, the response is always what you’ve given. All benefit eventually. People don’t live their lives on a timescale of eventually.

  26. @bis

    Spot on re education system.

    Also re free trade, think Timmy’s argument is strongest for pointing out why free trade (in general, across many sectors) beats unfree (ditto), in the long run by big margins across all strata of society. What you’re saying applies more realistically to the transition between freeish trade (more in some sectors than others) to slightly freer trade (where an extra sector or two have been liberalised). Because the effect of that on a one-industry town that only exists because of that now uncompetitive sector can be devastating, and last for decades or even a working lifetime, but cheap consumer goods don’t feel much consolation since they’re already “priced in”.

  27. Any change is always argued for by those who would most benefit from it. If I worked in the car industry, I’d very much prefer that my government erect tariff and non-tariff barriers to limit competition from foreign imports, even if that means the whole of the rest of the country have to pay an extra grand every time someone buys a new car.

  28. @Chris
    Yep and exactly why Gov’t should listen to majority, not vocal doom monger minorities.

    UK car industry was shit from 1950s and got steadily worse then collapsed. Now it’s among best in world. Nissan a good example

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