Economics

Britain misses out on £143 billion in lost economic output a year because of the unwillingness of investors to spend on critical areas of the modern economy such as software, research and patents.

A study, co-authored by Jonathan Haskel, the Bank of England rate-setter, and Stian Westlake, of the Royal Statistical Society, found that the UK’s inability to invest equivalent amounts to those of the United States in the “intangible economy” from 2007 to 2019 had resulted in the loss of £2,144 per household, or 0.5 percentage points of GDP a year.

That was published May 23 this year. So, presumably, the report came out May 24th. But I cannot find it – a couple of books by the same folk, but not this paper.

What I want to check is what are they defining as business investment? If they’re relying on the national accounts then they’re going to be wrong…..

This is Spud levels:

According to the latest national accounts, published last week, Britain’s current account deficit widened in the first quarter of this year to an astonishing 8.3pc of Gross Domestic Product, easily the biggest such deficit ever.

In layman’s terms, what this means is that overall expenditure in the UK is exceeding national income by nearly a tenth of the value of the entire economy.

All other things being equal, there would be nothing left at all in the national coffers in little more than ten years from now if we were to carry on like this.

Nonsense.

Fortunately, the balance of payments doesn’t work quite like that; the deficit is paid for by inflows of capital from overseas,

Quite.

Trade deficits are financed by capital surpluses. So, foreigners are investing more in the UK than we are outside it. Note that quite a few economists would argue that this is the actual cause here – the investment flows cause the trade ones.

GDP is £2 trillion and change a year, 10% of that is £200 billion, the national wealth (household that is) is £15 trillion. Take us quite a long time to sell all of that.

And we do create new wealth all the time as well. What we actually do is sell some portion of the newly created….

EY fined $100m after employees cheated on ethics exams
The Big Four accountant admitted that nearly 50 of its auditors cheated on the ethics portion of the CPA exam

An interesting little note for those who would plan everything, have rules for all parts of life. When rules become too onersous – are more than just a nudge in the right direction – then people will cheat. GOSPLAN being the grand example from the past century but we do keep getting more minor reminders as here.

World is on ‘tipping point’ of permanently high prices
Inflation risks becoming embedded in leading economies and difficult to control

Sigh.

Inflation is a continued increase in prices, not a high level of them. Difference between speed and acceleration, level and changes in level.

Getting all the news written by the arts graduates might not be the bestest of ideas….

The Prime Minister is preparing to hit several developing countries with new “safeguard” import limits designed to protect UK manufacturers from a “flood of cheap steel” from overseas.

At the same time, ministers will announce a two-year extension of steel tariffs already imposed on developed countries and China.

So, we’re all worried about inflation. At which point you’ll deliberately drive up the price of something we make other stuff out of?

Fool.

China’s crude imports from Russia jumped 55pc compared to a year earlier to around two million barrels per day after Beijing ramped up purchases at a steep discount.

Data from Beijing revealed that China bought $7.5bn (£6.1bn) of Russian energy products, double the amount a year ago.

Chinese oil giants have swooped to get Russian oil on the cheap as the West seeks to wean itself off the Kremlin following the invasion of Ukraine. Vladimir Putin is also keen to diversify exports by providing more to Asia after oil embargoes agreed by the US, Europe and UK threatened to deal a huge blow to a key source of revenue for the Kremlin.

While global crude prices have soared well above $100 per barrel, Russian oil has been selling at big discounts of up to 30pc.

Sanctions on fungible products don’t work, eh? Or, at least, don’t lead to no sales, but to discounted ones….a lesson there for all sorts of economics planners. Drugs, tabs, even high tax rates, sure, you can make rules but activity will out in some volume all the same.

You can’t target all three of them:

Fears over rampant inflation in Britain have sent sterling down almost 10pc against the dollar this year, to $1.22.

Ms Mann, who last week split with the majority of MPC members to back a bigger rise in rates than the 0.25 percentage point increase announced by the Bank, said: “I voted for a 0.5 percentage point increase at the last MPC meeting.

“In my view, a more robust policy move, based on both domestic conjuncture and commensurate with the global factor, reduces the risk that domestic inflation already embedded is further boosted by inflation imported via a sterling depreciation.”

The comments are an unusual intervention, with policymakers typically insisting that they do not target the exchange rate.

You can target any two of the three – FX, interest or inflation. But not all three at the same time. This is why, with a fixed FX rate, you can;t control both inflation and interest rates. Etc, with perm any two.

The $100bn Norwegian state energy company Equinor has privately told industry contacts it is reconsidering its plan to drill for oil and gas in the Rosebank field near the Shetland Islands.

Sources said Equinor wants the Government to change the terms of its so-called Energy Profits Levy before committing to the investment.

Shell has separately told analysts it is also less likely to develop the £2bn Cambo project in the North Sea after the introduction of an additional 25pc tax on energy company profits.

Incentives matter, do they? Is this something we should study a little more then?

Well, they could be, yes:

The quickest counterpoint: If–and even Paul Krugman and I agree on this, people, so the apocalypse must be nigh–speculators are driving prices above the competitive level determined by supply and demand fundamentals, (a) inventories increase, and (b) speculators hold the inventories.

So, are they?

Well, inventories are dropping to rock bottom levels in everything from oil, to diesel, to industrial metals. So (a) isn’t happening. And if (a) isn’t happening, (b) can’t happen.

No.

QED.

The first fruit of this strategy is a report shared exclusively with the Guardian. It shows that whatever Johnson and the Bank of England’s head, Andrew Bailey, warn about a wage-price spiral, there is no evidence of one. While global forces pushed up the cost of essentials such as oil and gas, a careful study of the accounts of the big FTSE-350 companies shows executives are now using this as cover to push up their profit margins – by 73%. Take out energy firms, and the numbers are still huge: over 50%. While the Bank of England is jacking up the rates on your mortgage and credit cards, and hastening a recession, policymakers are fighting a war that is half a century old. It’s not workers who are pushing up inflation; it’s often their employers.

Given that the report’s not public we can’t check it, can we?

The most obvious thing we want to check being which profit margin are they talking about? Goss or net? For Gross is the one before paying higher wages, right?

Britain is already in the grip of a deep malaise – what happens when zero growth bites?
John Harris

Why not adopt the policies which might create a little growth then? Like razing the bureaucracy to the ground, selling the population into bondage and sowing the land with salt?

Absolutely impossible

America’s central bankers are putting their money-printing spree decisively into reverse. In the aftermath of the financial crisis and during the pandemic they created tens of billions of electronic dollars each month and used those new dollars to buy bonds as a means to inject money into the financial system.

They now plan to do the opposite: to sell the bonds and sit on the proceeds. This has the same effect as destroying the money they had previously created – it will no longer be in circulation and will do the digital equivalent of sitting in a locked vault.

Then again, we were told this by the P³, who knows enough financial economics to get smothered by a wet paper bag…..

The task force made sweeping initial recommendations, including the creation of a state-subsidised mortgage programme to guarantee low rates for qualifying black candidates

People who can’t afford homes buying them is not a good idea. 2008 showed that, right?

Spud’s insistence that there’s been no inflation as a result of money printing:

Yes. Households have accumulated £230 billion of excess savings, according to the Office for Budget Responsibility, but so to, according to the Treasury, have businesses. On Bank of England data, net deposits of non-financial firms are £144 billion above pre-pandemic levels. That
“over £300 billion of excess savings” is actually £374 billion and nearer £400 billion. It is equivalent to 16 per cent of gross domestic product, a sizeable war chest indeed.

These excess savings of households and firms are the counterpart to the excess borrowing by the government during the pandemic. Were they all splurged, not only could we dismiss talk of recession, but we might be concerned about the inflationary impact of Sunak’s cost-of-living help package, though at £15 billion it was small in relation to these big numbers.

If all that money is still there in savings then the velocity of circulation of money is low. And if it were all spent then V would rise. Which would be distinctly inflationary of course.

Which gives us an insight into Spud’s insistence that all those savings must actually be invested in building real world things – that’s exactly what the trigger for massive inflation would be. For MV really does equal PQ.

Or, to run this same story another way, sure money printing works. But only as long as it’s not actually spent on anything.

American wage slaves: the sadness of life in the 70s – in pictures
West Chester, Pennsylvania, 1972
In photographing tired, unfulfilled US workers as they attempted to relax, Chauncey Hare depicted their domination by multinational corporations

Recall, this is the life many would have us return to. As Polly and the like keep reminding us, this is when the capitalist nations were at their most equal – at their best by that metric……

What Me. Monroe alleged could have been true. That poor folks’ food rose in price more sharply than non-poor folks’ food. So, the contention was tested. The answer is no:

The ONS examined the figures after Ms Monroe raised concerns that poorer families were disproportionately feeling the pinch from faster increases in prices of value items.

She said that the official measure of price rises “grossly underestimates the real cost of inflation as it happens to people with the least”.

ONS experimental data found that value range pasta, beef mince and bread jumped in price. The cost of value range potatoes, cheese, pizza and chips fell.

Budget brand pasta was up 50pc in the year to April and value crisps were up 17pc, a faster rate than their more expensive counterparts.

However, these increases were offset by budget products that rose in value more slowly than expensive versions, or fell in price compared to increases elsewhere.

Overall the inflation rate on low-cost items was broadly in line with the average product range, contrary to Ms Monroe’s complaints.

Food price inflation hit 6.7pc in April, compared to 6pc for the 30 budget items tracked by the ONS.

Well, good to have that sorted then. Except of course the claim is that it’s not sorted:

Nonetheless, Ms Monroe claimed victory on Twitter, saying the figures proved it is “far more expensive to be poor”.

She told the BBC News channel: “Almost all of the products had gone up in price and these are… the basics range and value range products.

“They are much higher than the official inflation statistics of 6pc and 7pc, which is what is used to argue for the uprating levels of benefits and what is used as the official inflation figures.”

No, that’s to fail to understand what an inflation basket is. Sure, pasta’s gone up, potatoes down. The net inflation effect is the change in price times the percentage of the food budget that is spent upon each item. If we want to get properly complex we also include how people substitute – buy less of one, more of the other – as relative prices change.

Trying to insist that this last is not so is betraying an entire ignorance of how an inflation basket is used.

Some 17 out of the 30 items tracked either rose slower than wider food cost inflation or dropped in price over the period.
In its research, the ONS said: “Highly experimental research, based on web-scraped supermarket data for 30 everyday grocery items, shows that the lowest-priced items have increased in cost by around as much as average food and non-alcoholic drinks prices (with both rising around 6pc to 7pc over the 12 months to April 2022).

“There is considerable variation across the 30 items, with the prices for six items falling over the year, but the prices of five items rising by 15pc or more.”

Inflation is the net effect of all of these price changes. Jack Monroe did ask an interesting question. Pity she appears unwilling to accept the answer.

Workers are demanding “pop star” treatment and four-day weekends, the chief executive of property giant JLL has said.

Christian Ulbrich also warned that working from home is poisoning workplace relations because conflicts are much easier to resolve in person.

The real estate chief said: “What’s happening is the labour market is so competitive that employees are being treated like pop stars so they feel like they can do whatever they want.”

Capitalists competing with each other for access to the labour from which they can profit is what drives up worker compensation. Good system, innit?

Rishi Sunak has claimed there’s nothing he can do about the external global circumstances driving the cost of living crisis, but he’s dodged the real question: how can he best respond, and avoid an escalating crisis and a costly recession? In fact, there are fair, green solutions to this crisis staring us right in the face.

OK, so, how?

Consumer spending drives the economy. If people are struggling to pay their gas bills, they have less money in their pockets to spend on the high street or a restaurant meal. Which is why, as the CBI’s director general, Tony Danker, has said, Sunak’s first step should be investing in social security via increases in universal credit and legacy benefits to prevent families falling into destitution. This would also help to stabilise the economy, not fuel inflation.

We’ve got inflation. So, sending more of the economy to those who spend all their cash, not save any of it, will not fuel inflation?

Umm, now wait a minute. When we’ve a recession, then we’re told that we should send money to the poorer because this supports demand because they spend it all, not save any of it. Inflation is the opposite of a lack of demand – it cannot be true that the answer is the same then, can it?

Second, we need a serious industrial strategy to boost confidence

Presumably a strategy designed by those who perform the above failure of macroeconomics?

Third, rather than continuing to slip on our green ambitions, we must double down. Every home newly insulated and each wind turbine erected across the UK will reduce household fuel bills. We need to make this investment before 2050 anyway – so let’s do it now, to support the economy and bring down electricity bills sooner. As Danker said, non-inflationary, green investment opportunities

Why is increasing demand through greater investment not inflationary?

In fact, companies can reduce their profits too, to keep prices down

We should increase investment by reducing profits.

Instead of forcing workers to take the strain, companies should show profit restraint and cut their dividend payouts.

We should beat inflation by raising wages?

Finally, as fossil fuel companies pile up huge, unexpected profits from the very crisis that is pushing millions into absolute poverty, it’s fair for the government to redistribute these into welfare and income support.

We’re going to tax supply at a time of dearth.

As I’ve said before about folks at the IPPR it’s amazing that they remember to breathe at times.

Warnings about the cost of living squeeze are reaching fever pitch. Last week, an Ipsos Mori survey found that two in three people have turned off their heating, almost half are driving less, and a quarter have skipped meals.

Prices work. Who would have believed it?

There’s a shortage of the things to do those things with. Prices rise. Folk do less of those things. Prices work.

Sir Simon’s latest wheeze:

Like the banks during the 2008 crisis, energy companies are oligopolies that cannot expect to escape public regulation, least of all when blessed with a political bonanza. The answer must be to slash the price cap and demand the companies spend their profits directly on cutting bills. The wimps of Ofgem, the industry regulator, must become tigers. They know that these companies – and their executives – are now wealthy. They know investment is not at issue: they are distributing massive profits and buying back shares. Unless the west goes collectively mad, energy supplies, and profits with them, will return to normal.

The folks making the money are the initial energy producers. Wind turbines, solar farms, oil and gas companies. The folks supplying the retail electricity are all going bust because of the price cap.

There’s a certain confusion to Sir Simon’s suggestion, no?