Tim Worstall

Oh, well, that’s that then

Nigel Dawson says:
September 19 2021 at 1:38 pm
Surely even the most basic economist must know that FX rates are primarily driven by interest rates in different currencies, not productivity?

Richard Murphy says:
September 19 2021 at 2:40 pm
They’re not

That’s why no one knows that



It is conventional in macroeconomics textbooks to see the interest rate
as the price of money and to consider it in the context of the supply of
and demand for money. Here, however, we consider the interest rate
alongside the exchange rate. The reason for this is that because capital
can move freely into and out of the country, UK interest rates are
closely linked to interest rates in international markets, particularly
those in the USA, Europe and Japan. Because investors, in deciding
where to place their funds, are choosing between assets denominated in
different currencies, this leads to a close connection (explored in detail
later in this chapter) between interest rates and exchange rates. In an
open economy such as the UK, the link between interest rates and
exchange rates is stronger and more direct than the link between
interest rates and the money supply. We start with interest rates, and
then consider exchange rates.

It’s astonishing what he doesn’t know, isn’t it? And yet he attempts to advise governments?

And we’ve the international Fisher effect, and interest rate parity to think about as well.

Ho Hum.

The worrying thing is that this is actual advice to a would be independent government

It’s also unnecessary. Given that exchange rates are largely set by relative productivity rates after hot money flows are taken out of account

Err, no. They’re – largely – set by differences in inflation rates/interest rates, those two being rather intimately combined. The FX rate is a monetary phenomenon, thus influenced by monetary factors.

We can indeed look at the real exchange rate and productivity, but not really the nominal.

And last, there is the rather odd assumption that the Scottish people would not be willing to lend their own government money after independence. As in the rest of the UK there are substantial savings owned by Scottish people. My research has shown that maybe 80% of UK savings are tax driven as to their location. This is likely to be true in Scotland, therefore. If the Scottish government decided that it wished to change tax incentives in ISAs, pensions and its own range of savings accounts to encourage people to save with it then that would very likely be successful in raising significant funds for it. The dependence on foreign money markets could be eliminated.

Better still, my solution puts Scottish savings to work, when at present few of those savings will actually fulfil any useful function within the economy. Much will be lying dormant in bank accounts earning almost nothing. And by Saving for Scotland what people will also do is provide the capital for the solid foundation of their new state – and in the process help build it for the generations to come. As a move towards national solidarity little could work better.

And that hot money he talks about is oft referred to, more correctly, as portfolio investment, which is exactly what those savings he’s talking about are. So, we’re to solve that FX problem of portfolio investment by portfolio investment. Hmm….

Umm, yes?

Accountancy does always require double entry. Tett is worrying about the size of the credit – as is so commonplace, based on government debt obsession – but the consequences of the debit – which represents the asset that ownership of debt represents – is just as significant.

Growing debt represents increasing wealth inequality. There is no widespread ownership of this debt, and nor is there widespread ownership of the legal entities that own that debt, such as banks. Pension entitlement is, for example, very concentrated.

Borrowing is required to provide access to funding for those without it. But that creates increasing wealth for a smaller number. In my opinion the issue here is not the debt as such. It is the increase in inequality that really matters here, I think, because that is the real cause of the stress Gillian Tett is worrying about.

How to tackle that? Additional taxes on wealth are one very obvious way to do this, not because we need the money to fund anything, but because inequality has to be reduced. It is time we recognised that.

So we tax folks more, reducing the debit, which means – ineluctably – reducing the credit which is that borrowing that is required.

This works how then?

Oooooh, Cool!


Britain’s broadcast media is too valuable to be the toy of politicians and moguls
Will Hutton

Privatise everything to get the politicians out of it!

Except, of course, that’s not what he means. Instead, he means that the taxpayers should still pay for it all. But elections shouldn’t be allowed to change either what is reported, how it is reported, nor who pays for it.

So even if we revolt against Willy we still have to put up with Willy.

This tells us something very interesting

Something very interesting about poverty:

Boris Johnson is warned today that more than 800,000 people risk being plunged into poverty as a result of an imminent cut to universal credit, amid a plot by senior Tories to force the government into a last-minute U-turn.

So, our definition of poverty is living in a household at 60% or less of median household income. We can measure this before or after housing costs and it is adjusted to size of household.

Median household income is £29,900. Without worrying about housing costs, without adjustment for household size, we’re working back of the fag packet here. So, poverty is less than £17,940. Or, £345 a week. £20 of £345 is 6%.

So, the entire argument here about 800k into poverty is that number of people moving from 1-3% above our invented relative poverty line to 1-3% below it. Or thereabouts.

About which we could say this doesn’t matter a damn. Or, equally, we could say that it’s obviously a fairly cheap problem to solve. But the thing that we should definitely say is that it doesn’t actually matter a damn. Because it isn’t, at all, about throwing folks from some bourgeois respectability back into the slums, it’s a marginal change of a few percent in the weekly income. Some folks who were pennies above the line will now be pennies of even a pound of five below it.


How very reassuring such assurances are #shouldagonefracking

Because of course people always do have emergency meetings about something that will not, cannot, happen:

The government was scrambling on Saturday night to reassure Britons that rising gas prices would not plunge the country into an energy crisis, as ministers held a series of emergency meetings with energy companies and regulators to establish whether the nation could keep the lights and central heating on this winter.


Proper apprenticeships

At 18 I left school with two A-levels and became an articled clerk studying to be a chartered accountant – at 21 I qualified as an associate, a fellow at 25.

More of this please. For there’s a very limited number of things which require a degree to be able to do. Being an academic is one of them. Other than that, well, teacher, nurse, social worker, lawyer, accountant, even engineer, why?

Fracking in the answer we’re looking for

It’s all so simple:

Frozen food, turkey and chicken supplies could run short as a result of the escalating energy crisis, shoppers were warned last night as the Government called urgent talks with suppliers.

Ocado, the online grocer, warned customers it has a “limited stock” of frozen items due to a “UK-wide shortage of dry ice”, while poultry and other meat producers face being unable to cull their animals due to a shortage of carbon dioxide gas.

So, frack the Bowland Shale. Just get on with it.


Seriously, these people are insane

Don’t these people think?

The UK is by no means the only Western government that currently finds itself wedged between the rock of energy security and the hard place of its commitment to net zero. Huge progress has been made on renewable technologies but they are a very long way from fulfilling the world’s energy needs.

There is a way out of the bind. Yes, it is expensive, but the alternative, as we are seeing now, could easily be far more costly. We need to go nuclear.

Somewhere between 10 and 20 years for a single new plant to come online. That’s not a solution.

On the other hand fracking the Bowland Shale would be providing feed into the gas network in what, 12 to 18 months?

Plus, nuclear doesn’t solve the fertiliser nor CO2 shortages.

Should’a gone fracking.

Actually, should go fracking, that’s the solution.

This is fun, isn’t it?

We have short term price pressure because of Brexit, Covid and climate change, but when iron ore prices can fall by 20% in a week, as they gave done in the last week, this can be seen as the price of disrupted markets and not the consequence of any underlying monetary trend that can be tackled by central banks.

All monetary explanations of inflation are wrong because the iron ore price can fall. Good to have that sorted out then, eh?

What is the way forward? With this post already 1,000 words long this is not the moment to address that in detail. But there is one over-riding message, which is that nothing will change until it is accepted that what we have had is broken, irreparably. Whilst we hanker for what was, and the idea that we can ‘get back to normal’ remains a dominant narrative, we remain in trouble.

What was has, I rather strongly suspect, gone. What we have to do now is build what comes next. It does not matter whether we want to or not. We have no option. The way we were was not sustainable in any sense, whether politically, economically or socially. When that is recognised we can move forward. My big concern is that I doubt that we are there yet. At the same time, I also think that awareness is coming. And that’s my basis for hope.

We must do something different though I know not what. A useful guide that, eh?

Good on Tammy Faye

I’d never heard the story beyond the mockery of the makeup and hair:

Her highly coiffed, heavily made-up persona was mocked and parodied on comedy shows such as Saturday Night Live. She died in 2007 at the age of 65, having remarried.

Pieters never met her in person but is a close friend of her son, Jay Bakker. “He was 10 at the time that I did the interview with her and he said that it changed his whole outlook on his mother and on on all of it. She began taking him and his sister to LGBT-affirming churches. pride parades, Aids hospices and hospitals and had them learn about people with Aids by interacting with them in the hospital.

“She saw that she had a ministry to the LGBTQ community and took great joy in it. She was the grand marshal of a pride parade at one point and she had all the drag queens and the gay people all singing, ‘Jesus loves me this I know / For the Bible tells me so’. She had them all singing along and I would have loved to have seen that.”

Good to find out that televangelist hucksterism does contain at least some Christians. It is, after all, love the sinner, hate the sin.

The Austrian explanation of recessions is actually true – Evergrande Edition

An interesting proof of the Austrian contention on recessions:

The potential timebomb has been ticking for some years. China’s housing market has become hugely bloated by years of cheap credit and is reckoned by conservative estimates to account for 16% of GDP, although some estimates put that figure at 25% – far more than the proportion in western economies.

But the low-hanging fruit of debt-fuelled growth has long gone. In 2007-08, about 6.5tn yuan ($1tn) of new credit was needed to raise GDP by about 5tn yuan a year, according to the IMF. In 2015-16, it took more than 20tn yuan in new credit for the same growth.

This means it is becoming much more expensive to repeat the trick, as more credit is pumped into the system for an ever-decreasing impact. In the end there has to be a reckoning and the crisis at Evergrande suggests that the cycle has finally caught up with the poster child of China’s property-market miracle.

Just to remind of the nutshell of that theory. Folks throw free money around into such a plethora of malinvestments that the only possible cure is to let them all go bust and start again.

This does appear to be true here. And it’s as with ripping off a plaster, better t’were done quickly.

The error with the Austrian diagnosis is as with any and every macroeconomic theory. Which is that recessions come in different flavours. They are not all the same. Today in China may have similarities with 2008 in the US but neither are anything like 1981 in the US. We have, sadly so, too little an evidence base to be able to settle upon the one cause of recessions. We know the numbers for some handful – not even all the OECD – of economies back to WWII or so, 5 or 8 business cycles perhaps, this just isn’t enough data on enough incidences to be able to plump for just the one explanation.

That is, as with most macroeconomic theories, each one is right sometimes, wrong others, and knowing which is which is the trick.

At which point, yes, China does seem to be on the cusp of an Austrian recession. Bully for the Austrian definition of recessions then.

The Hunger Winter

I’ve never really understood this:

The Dutch, long renowned for being the tallest people in the world, are shrinking, according to research published on Friday.

The diminution of the famously giant populace is partly explained by the immigration of smaller people from other countries and their children being born in the Netherlands, according to the study by Statistic Netherlands.

But it is less clear why people with exclusively Dutch roots, which is defined as all parents and grandparents having been born in the country, are also not as tall as they used to be, although a worse diet could be a factor.

That the Dutch are tall I can observe just by looking out the window at the folks visiting the bars. That immigration will change the genetic part of height reached seems obvious.

The bit I never have understood is the reason oft given for why the Dutch are tall, that Hunger Winter of 1944/5. That there was considerable malnourishment is true. That this is claimed to be – part maybe – of the trigger for the height I’ve seen claimed. But I’ve never really understood the argument as to why in-utero malnourishment should lead to greater height.

Is the idea that the required greater efficiency of calorie usage to even get born carries on through life?

The P³ on the World Bank Doing Business report

The allegation is that the process was corrupted.

There is much fury in the development community about this, and those who have always seen the World Bank as a neoliberal enemy are having a field day.

I admit I see things slightly differently. I am delighted by the demise of the Doing Business report. It has always promoted a profoundly inappropriate view of the world concentrating as it did on light regulation and low tax as the basis for prosperity when quite clearly what was not true. This report was part of the old Washington Consensus which the world can most definitely do without.

The background here is that the World Banks’ “Doing Business” report ended up with some governments putting the pressure on to get better results. They’ve thus cancelled the report.

Hmm, well, that just never does happen in other international bodies, not at all. The WHO is not, in any manner, beholden to China over ‘rona for example. Nope. Therefore we should not take this as an example of why we should be leery of international bodies and law. Nope.

But rather more interesting is the insistence that the WB is on the side of low tax and light regulation. And that this report measured that. Not really, no:

The reference to tax rates is here. It’s not even a majority of the ease of paying taxes measure.

It’s not even about light regulation. It doesn’t ask anything at all about gaining permission to operate in a particular sector or anything. It is about effective regulation – rule of law, contracts, courts, property rights and so on. But then those are ease of doing business, not predelictions for light regs and low taxes.

But the P³s opposition isn’t based on knowledge of what the measurements actually are anyway. As with his opposition to the Washington Consensus itself – merely a list of 10 stupid things you shouldn’t do to an economy – it’s just that there’s a vague lefty unease at anyone measuring bad government therefore the measuring should be opposed.

I’d not say this is exactly surprising

Fashion, eh?

Fashion has become a dirty word – and believe me, it hurts. Not long ago, fashion was the VIP room of popular culture and movie stars and politicians flocked to the front row. Now it has come to symbolise everything that is wrong with the modern world – from carbon emissions to global inequality and from crass materialism to unrealistic beauty standards. Fashion is not the only polluting industry, or the only morally dubious one. But even if you love fashion, as I do, it’s hard to deny that it tracks in the 99th percentile for pretty much all of the most problematic contemporary issues.

The actual problem is with fast fashion. That is, it’s cheap. Which means that fashion is no longer performative at its main duty – being able to identify at a glance, the Eloi from the Morlocks, the withit and glam from the proles.

So, of course, fashion is changing so that this base and only important role is reinforced. Concentrate on the price, peasants. For only then can it possibly work as a means of distinguishing those who can afford the price and those who cannot.

Should’a gone fracking

Bit of a missed opportunity there:

Soaring gas prices have forced two industrial sites in the north of England to close as fears grow of a winter energy crisis.

CF Industries, a fertiliser manufacturer, said that it was halting operations at its plants at Billingham in Teesside and Ince in Cheshire “due to high natural gas prices”. The company could not say when production would resume.

The two sites, which employ about 600 people, produce roughly 40 per cent of the UK’s fertiliser needs. Officials in the Civil Contingencies Secretariat, the government’s crisis planning unit, were believed to be meeting yesterday to discuss the impact on fertiliser supplies to farmers.

Given the costs of exporting natural gas – it’s entirely possible but it’s not wholly and exactly cheap to do so – we would have had, if we had fracked, significantly lower gas prices domestically than currently apply across Europe.

How grateful we should all be for Princess Nut Nut’s fears of earthquakes, eh?

A truth in The Guardian

Well, yes:

From crackpot Covid theorists to antivaxxers, hubris and fear haunt the wellness community
Brigid Delaney

The randomness of illness is far too frightening for many to contemplate – so they rely on a fiction they’re special and can control their bodies

People nutty enough to believe one stupidity do tend to end up believing many.

Understanding this is the only logical explanation for The Guardian of course.

Shocked, Shocked!

Who would have believed it?

Clinton lawyer charged with lying to FBI during Trump-Russia inquiry
Michael Sussmann is second person to be indicted in William Barr-ordered investigation of the investigators

When investigating who might have lied it is – allegedly – one of the Clinton lawyers. Who could believe such a thing?


What’s that allegedly doing there?

Protesters rallied outside the Supreme Court in Cyprus on Wednesday as lawyers launched an appeal against a young British woman’s conviction for allegedly lying about being gang raped while on holiday.

Since she’s been convicted why is it an allegation?

Or is this some linguistic thing about appeals that I don’t know about?

Give Me Money!

How to tackle that issue remains very largely unknown, but acknowledgement of the issue is a key first step.

Third, in that case what this suggests is that better data on many aspects of employment is required from employers. Gender, class, and race and ethnicity pay gaps are all required now by that most important of stakeholders of all corporations, which is what employees are.

There is no accounting standard on this issue. There should be. It’s on my list.

We’ve no idea what to do about this but someone should pay me to write some blather about it.