Economics

Well, yes, and sorta

Remember the “Phillips curve”, the idea that the tighter the labour market becomes, the more it pushes up wages, and therefore inflation?

It used to be the lodestar of interest rate-setters everywhere; the lower the rate of unemployment, the higher the likely rate of inflation, and vice versa.

For much of the post-war period, the Phillips curve was as good a guide as any on the likely path of inflation, and was therefore at the heart of much central bank thinking on the appropriate monetary policy stance.

It was, as said, an observation which held true. The exact mechanism tho’, that’s a bit trickier. Yes, we can and do talk of wage led inflation. And I’m most unsure.

True, I tend to think most macroeconomics is bollocksy. Simply because we’ve not got enough observations of enough different places and times to be able to sort through all the different variations of what might be the causes. We’re still at the stage, with macro, of noting correlations but really not having a great deal of clue as to causes. That is a very personal observation tho’. And undoubtedly at least partly caused by my just not like macro anyway – saying it doesn’t work is a great way of not having to study it.

Still, Phillips Curve. I tend to think that it’s not actually of unemployment and inflation. That unemployment isn’t the true variable. Rather, it’s spare capacity – effective capacity, a new coinage, a neologism, to be akin to effective demand – in the economy that is the true variable, unemployment merely being a proxy for it.

This aids in explaining why you can shift the curve as well as move along it. Change the structure of the labour market and the unemployment rate becomes a different measure of spare capacity in the economy.

But it’s spare capacity that matters, not purely spare labour. The link is between inflation and an economy producing as much as it can – or not – given the current structure of it. Unemployment being a symptom, signal perhaps, of that capacity.

But then as I say I don’t like macro therefore don’t know much about it.

Oh Dear God, the stupidity

He is not alone. The Argentine peso, an old target of the currency markets, is down by 16pc this year, and yet President Alberto Fernández remains in power. The Chilean peso is down by 12pc, yet there are few signs that the plunge has any real political cost, although that may change in elections next month.

Investors may be nervous about Poland’s rows with the EU, making it the fifth worst-performing emerging markets currency in the world, but there is no sign that anyone in Warsaw cares in the least, nor will anyone in Moscow be worrying much about how the markets might react to its aggressiveness along its border with Ukraine. What the markets do doesn’t matter.

That is a huge change. A generation ago, even major developed countries such as the UK lived in fear of the markets turning against them.

In Harold Wilson’s governments of the 1960s, plagued by currency crises, “the gnomes of Zurich”, slang for the currency traders, were denounced but ultimately obeyed, while through the 1990s legendary speculators such as George Soros could bring whole currency systems crashing down overnight by shifting their funds from one place to another.

The verdict of the global capital markets was always final. Lose their support and you were toast.

Look, comparing the effects of FX changes is a fixed rate currency system with that in a floating rate system is nonce boy twattishness.

And yet these are the people who write the newspapers for us.

Not really, no

The eurozone housing market is at risk of a crash that threatens to derail the bloc’s post-Covid recovery following a debt-fueled property binge, the European Central Bank (ECB) has warned.

Property prices in Germany, the Netherlands and Austria are heavily exposed to a jump in interest rates, ECB officials said, after ultra-cheap lending sparked a surge in prices.

The error is in thinking that there is something called the “eurozone housing market”.

As the Spanish and Irish booms show, housing markets are more local than that. Which is one of those reasons why the eurozone doesn’t work of course. One of the major channels by which interest rates affect the economy is through domestic finances and mortgages. And if these vary, substantially, across an area then a single interest rate regime doesn’t work, does it?

Here’s the plan Joe

The embattled US president insisted that tackling inflation is a “top priority” after the consumer price index hit 6.2pc in the year to October, its sharpest rise since 1990. This was a significantly bigger pick-up than the 5.4pc recorded in September, and was higher than economists had expected.

It is likely to raise fears that US price rises will be followed by a similar surge around the world, triggering a global squeeze on living standards.

After the data were released, Mr Biden said he had directed the White House’s National Economic Council to find a way of reducing soaring energy costs.

Allow folks to build pipelines, frack on Federal land, all that stuff. Not that this will help immediately but over time…..

The old idiocies do persist, don’t they?

Government officials and police are not the only ones to blame however. The state simply lacks the funds to maintain its institutions.

Corruption among the political elites has exacerbated the country’s economic situation, but so has decades of international pressure to “liberalise” the economy by cutting trade tariffs and reducing state expenditure.

Nowhere has ever grown, sustainably and substantially, through autarky. Yet it’s still the go to policy for idiots.

Old Labour planning

Yes, I know, post-war, country in ruins etc.

Although rationing was still in force, her mother was permitted to buy extra steak to build her up for what became known as the “austerity Olympics”.

Just think of the twattish detail of that planning. The vast number of adults who had to be tasked with deciding who could have extra steak and who could not. The absurdity of having people sitting in offices deciding such things instead of having them out there prodding cabbages into greater fertility or wherever it is that steak comes from.

Umm

I’ve debunked Nobel Laureates multiple times.

The paper is being published in an academic journal.

No, not the Sage. The claim is that Friedman’s “inflation is always and everywhere a monetary phenomenon” will be shown to be untrue.

Hmm, be interesting, doncha think?

We are getting richer

It’s long been said that GDP isn’t a good measure of how well we’re really doing. This is true. GDP measures what GDP measures an’ as long as we understand this then we’re fine. It’s when we try to use it as the only measure of advance that we fall into error.

Cervical cancer rates have fallen 90 per per cent among young women after the introduction of the human papillomavirus (HPV) jab for teenagers, research published in the Lancet shows.

The study is the first to examine the rollout of the immunisation programme, which began in schools in 2008. It found the jabs have stopped hundreds of young women from developing the disease, and thousands from experiencing pre-cancerous changes that can lead to it.

The King’s College London study found the programme had now “almost eliminated cervical cancer and cervical pre-cancer” in women aged 25 and under.

The costs of treating those cancer cases, when they used to occur, were part of GDP. The costs of the vaccines are also part of GDP. But we all agree that the costs of the vaccines are lower, in any real sense, than the costs of the cancer treatments. That is, the benefits of the program are higher than the costs, we’re all, in aggregate, better off.

But exactly that bettreoffness is just what GDP doesn’t capture. Sisters, wives, girlfriends, – to say nothing of the private benefits to those same women themselves not dying – not dying of horrible cancers in their 20s is getting richer.

But GDP is counting the loss of GDP from the reduction in the costs of treating the cancers, then adding back in the costs of making the vaccines. No, I don’t know the exact balance here – recall, we only know this about women in their 20s as yet – right now but over the next 50 years this will obviously turn up as a *reduction* in GDP. ‘Coz we’ve already said that vaccination is cheaper than treatment. Even before those lovely benefits of not dying horrible deaths.

Note the implication of this. People who look just at wages, adjusted for inflation, as a measure of how well we’re doing are going to be wrong. Or GDP per capita. Because the usual critiques of GDP are correct – it doesn’t include everything that’s valuable.

Short-bus economics

Democrats have unveiled a plan to “make billionaires cry” with a tax on the super-rich to fund Joe Biden’s massive spending proposals.

The “billionaires income tax” would apply to around 800 Americans and would force them to hand over annually nearly one quarter of gains they make in shares they hold.

In the standard literature the problem with wealth taxation is that you might – might, maybe – want to tax that old wealth that tumbles down the generations. Determining who gets the Lamborghinis via the lucky sperm club rather hits that warning flag of human perceptions of fairness.

At the same time we don’t want to tax the entrepreneurs who make the rest of us so much richer. That old Schumpeterean profits in the American economy thing, they only gain some 3% of the value that the rest of us enjoy out here in the wider society.

That being the base problem with wealth taxation. How do we grasp those old fortunes without killing the incentives for the entrepreneurs?

Here we’ve a tax that makes no dent whatsoever on those old and stable fortunes and hits hardest at the most successful entrepreneurs. Idiocy.

There are interesting things from different economic traditions, Keynesian, classical, neoliberal, even Marxist, all have useful insights. But this is from the short-bus school of economics, full on retarded.

Prove to me that he’s wrong here

“Be very careful with the French. You can always tell when the French are lying because their lips are moving,” he said.

As a general rule that seems to work. More specifically:

France is outlawing flights where the same journey could be made by train in under two-a-half hours. However, Mr O’Leary said the policy would have little effect except to strengthen the position of the country’s flag carrier.
….
“France is banning all domestic flights that are under 500 km – unless it is travelling on to a connecting flight through Paris Charles de Gaulle. So basically Air France will keep on flying, but everyone else will be banned.”

Protecting that domestic producer interest at the expense both of foreigners and, inevitably, all consumers.

Yes, Adam Smith liked the Navigation Acts but even Homer nods etc….

France understands markets well then

“We are opting for a kind of inflation-indemnity of €100 … which will be paid to French people – it’s a sort of a middle class-indemnity,” prime minister Jean Castex told TV station TF1 on Thursday night.

This will affect some 38 million people, he said, adding that “petrol prices will be frozen for the whole of 2022”.

We’ll increase real demand by handing out cash and prices will stay the same.

Sigh.

This is what happens in a market

Care homes are on the brink of collapse, as staff abandon jobs in favour of working in pubs and restaurants, the NHS watchdog has warned.

The Care Quality Commission (CQC) said that, without major reform, Britain was facing a “tsunami” of unmet need, with growing numbers of elderly people likely struggling to access the care they need.

The head of the inspectorate warned that the current system of health and social care was “not working” for staff, nor for those who depended on it.

Yea even in a labour market.

At which point worth treating it like a market. Pay what is needed, at the time and in the locality, to hire the number of people desired. Stop all this nonsense about national rates of pay for example…..

Seriously, at least try to get this right

Right now, the Treasury is having another go. As the Telegraph reported on Monday, the Treasury is revving up plans for an online sales tax as part of a package of measures to reform, and hopefully even reduce, business rates.

The online sellers would pay a bit more, and in return physical high street shops would have to pay a bit less. True, we can understand the arguments for that.

An online sales tax is not a tax upon online retailers. It is a tax upon online consumers.

Tax incidence is the study of who really pays a tax. The wallet of which live human being gets lighter as a result of the existence of the tax?

For business rates this is landlords. For a sales tax this is consumers.

At least try to get the basic economics right on the business pages.

Well, yes

Mr Orlowski:

In reality, much of “behavioural science” was really a collection of anecdotes and hunches, given an impressive pseudo-scientific coat of paint. Often these observations are quirky and interesting (and irresistible to some newspaper columnists), but no more than that. As a science, this was a house built on sand. The so-called behavioural experts’ incoherent Covid response must surely be the biggest blow of all.

“People are weird and they do all sorts of shit”.

“Well, yes, but that’s not particularly useful as a management technique now, is it?”

Things like oddities of behaviour only work as tools if they are consistent. So, yes, we can say that humans are subject to hyperbolic discounting. To home investment bias. Not all, all the time, but enough often enough that it’s a general feature of a society. But it ain’t true of much it is said to be true about…..

An interesting corollary to Murphy’s Law here

Perhaps we should call it Murphy’s Law?

When critiquing someone’s economics, getting the economics wrong?

If taxes go up – profits taxes that is – will companies raise their prices? Psaki says that would be unfair. Well, maybe. But this is silly:

See, what Psaki doesn’t grasp here is that corporations aren’t individuals. They’re companies that are beholden to stockholders. Those stockholders are going to ask why it’s fair they make less money when they could adjust prices to minimize any impact.

The companies are capitalist bastard organisations. That means that if they’re able to raise prices then they already have. Capitalist bastards operating to maximise profits, see? We really do assume that corporates are already exploiting all of their pricing power already.

The pathway is actually that companies *can’t* increase prices to make up for the extra slice of profits that government is taking. So, returns to capital fall, less capital is put in to gain those smaller returns, less investment is done, the economy is poorer overall and thereby wages are lower and the workers worse off.

Corporate taxation falls on the workers not because the corporations are capitalist bastards but because their shareholders are.

Sigh.

It’s not blasphemy but it is stupid

And also ignorant:

We have no hope of emerging from this full-spectrum crisis unless we dramatically reduce economic activity. Wealth must be distributed – a constrained world cannot afford the rich – but it must also be reduced. Sustaining our life-support systems means doing less of almost everything. But this notion – that should be central to a new, environmental ethics – is secular blasphemy.

Be poor peasants! is not actually a useful piece of guidance for the future.

The problem here being that Monbiot simply does not understand what economic activity, nor economic growth, is. It’s the addition of value. That’s what GDP, that incomplete measure, is. That’s also what the consumer surplus, that thing the modern world creates in ever larger proportion to GDP, is. We create value, we consume value, our incomes are the value we create in aggregate and consume individually.

There is absolutely no reason whatsoever that value creation is limited by the physical world around us. Rather, the limit is the knowledge of how to add value. Entirely agreed, there are physical limits on certain types of value creation – there’s some number of copper atoms on the planet, we cannot use more than that number. But using the copper for paperweights or telephone lines gives us different amounts of value creation.

The truth being that even in an entirely circular economy, one where no new resources are abstracted from nature, it is still possible to have economic growth. In fact, we would have economic growth even in such an economy. Therefore stopping economic growth is not the necessary solution to the abstraction of resources from nature, is it?

Monbiot’s failure to understand here is simply because he’s not grasped the most basic point about what the economy, or growth of it, is. Ignorance not being a notably good manner of divining what the problem is.

The glory of the impersonalised, global, marketplace

What’s weird is people complaining about this:

We have a weird relationship with food in this country. Many of us know the calories in an apple and have a specific preference for a caramel hazelnut flat white or type of fried wings in a bucket; very few can say how long it took for the apple to reach their table from the tree (up to a year), where the almond milk for their coffee was produced (California, with 300 litres of water per litre of milk) or how their chicken was killed (gassed in their transport crates). We are obsessed by cookery books, spend vast amounts on diet products and worry when the Deliveroo order will arrive but are less interested in sourcing our produce. We care about Geronimo the alpaca being put down, not the 300 cows killed each week because they are suspected of carrying tuberculosis or where the meat comes from to feed our pets.

We don’t need to know any of this. The entire joy of the marketplace is that we only have to deal with our particular and specific interface with it. What is it that we do in order to gain cash? What is it, among the things that are there, do we wish to spend that cash upon? All that interaction of the other 7 billion people on the planet gets boiled down into how much cash do we get in, what do we have to send out?

To take a different example, one from a little bit in the past. So, sodium streetlamps. Near everyone uses them, at least a bit even if only to lose keys under them when drunk. So, a miracle and vital ingredient is scandium. In tiny, tiny, quantities but it’s – often at least – there. How does that scandium get into that lightbulb?

Who gives a shit is the correct answer. It’s of absolutely no interest – well, OK, some do find it interesting but that’s rather different – to know that it’s (actually, it was) harvested from the runoff of uranium exploitation on the shores of the Caspian Sea. Refined up in Moscow to a 99.999% purity as the oxide. Shipped to Ohio where it is turned into the fluoride as an extra purification step, then the metal, then the iodide. That scandium iodide is then added to a bolus of mercury which is shipped to the actual lightbulb manufacturer. There was, for a time, an alternative route through Japan, where that Russian source replaced extraction from tin slags. This past decade it’s all been a largely internal to China operation.

When you’re walking down the street at night you don’t need to know any of this. Nor that for a decade and change much of this global trade was organised by one single Englishman living in Portugal. Even, for a couple of years, near all of it so organised. This is the entire point of the market system. You only need to know your own interface, you don’t have to try to understand that whole international and global economy. Prices at the interface do all of that for you.

Of course we don’t know where our food comes from. That’s the fucking point.

Is Ezra Klein an idiot? Quick, quick, no conferring now!

It is true that European countries free-ride off the high cost we pay for drugs, because it’s the U.S. market that drives innovation. But that doesn’t mean we’d be better off paying their prices, if that meant new drug development slowed. We don’t just want everyone to have health insurance in the future. We want them to be healthier, freed from diseases and pain that even the best health insurance today cannot cure or ease.

To this, progressives will note that pharmaceutical companies pump money into me-too drugs, spend gobsmacking amounts on advertising and administration, and make billions and billions in profits. And they’re right. It’s ludicrous to say that the pharmaceutical system we have now is oriented toward innovation. It’s oriented toward profit; sometimes that intersects with innovation and sometimes it doesn’t.

The solution for high prices is high prices. Because that encourages other producers to enter the market, increase supply and thereby lower prices.

Drug development is difficult, no one ever knows whether something is going to work. When something does what would we like? Other producers to enter that same market, increase supply and thereby lower prices.

Pharma companies pumping money into me-too drugs is the damn point.

Ezra Klein is an idiot, QED.

So here’s an interesting point about wealth taxes

The opening to this question comes from their own phrasing:

Net wealth encapsulates someone’s control over economic resources

They then go on to propose a wealth tax:

Household wealth between £3.4m and £5.7m would be taxed at 1%; between £5.7m and £18.2m at 5%; and above £18.2m at 10%.

Of course, they rather skate over the fact that 30 seconds before this tax starts there will be no UK households worth more than £18 million and very few above £6 million. Which is why wealth taxes only get that one bite at the cherry, they’re not useful as repeating sources of revenue.

But let’s run with that definition they’re using of wealth there. Which is indeed correct. Average wage in the UK is about £14 an hour. Ignore the detailed difficulties and just run with this for a moment. If you’ve £14 you can command the labour of one person for one hour. If you’ve £14 million then you can get 1 million hours of labour. That’s the command over economic resources that wealth gives you.

Such a calculation runs both ways though. If you can command 1 million hours of labour then you’ve got £14 million in wealth. This is also true and valid.

So, the NHS disposes of what is it, £180 billion a year? So, what’s the tax rate on the Secretary of State for Health?

No, that is a serious question. Wealth is control over economic resources. So, what is that tax rate on someone who is by far the wealthiest person in the country?