Economics

Does not compute

And this trade in human beings meant that you got free labor in the colonies in the Caribbean, in the Americas, and so on.

Sigh. If you buy the laborer then the labour isn’t free, is it? The labour costs that capital cost, the price of the labourer, divided by the number of years of labour gained. Plus, obviously, the operating costs of the labour.

Slave labour might well have been cheaper, but it wasn’t free.

Where primary commodities were produced at very suppressed prices, these primary commodities in their sale brought huge profits and this profit margin is what created the capital sums for the emergence of capitalism. That’s the origin of it. 30% of the British Midlands capital formation took place through the drain of wealth from India.

That’s the next sentence. Which doesn’t make all that much sense, given that slave labour wasn’t used in India……

And today, the debt crisis, the burden on so called developing countries is over $11 trillion. There is no way these countries can ever pay it; and in the current Coronavirus recession it is an impossible payment for them. This year developing countries have to pay almost $4 trillion in debt servicing. That’s not the $11 trillion principle. This is to service the debt, and it’s not possible.

Entirely bollocks. They ain’t paying a 40% interest rate whatever the actual sums outstanding might be.

At which point I got bored with the nonsense.

The actual lesson to take here – the euro is a shitty idea

Torsten Bell tells us of some new research:

EU inequality has declined post-financial crisis, but in the euro area inequality has been slightly increasing.

What’s going on? Fast-growing eastern Europe, largely in the EU but not the eurozone, has narrowed the gap with older and richer EU members. But incomes among southern eurozone members such as Greece and Italy have stagnated, falling further behind Germany. The main takeaway? Don’t take economic catch-up by poorer countries of their richer neighbours for granted.

No, that’s not the lesson to take. Rather, if poor folks not in the euro are growing faster than rich folks, and poor folks inside the euro are not, then our conclusion must be that the euro is bad for poor folks.

Or, as everyone but the most committed federast has been pointing out for 30 years now, the euro is a really shitty idea.

Economist doesn’t understand economics

In the first instance there is an economic concern. I explained recently that what economists invariably assume when undertaking their work is that the world always returns to what it calls ‘equilibrium’. You might as easily refer to that as ‘normal’. The assumption is that everything deviates from a mean, to which it returns.

No.

As in, Fuck No.

Equilibrium is balance. The entire point of Keynesian economics, for example, is the proof that there are multiple equilibria and that it is not – necessarily – true that the economy will stabilise at the previous, or indeed any specific, equilibrium.

It is true that there’s an assumption that an economy will return to balance. But absolutely not that it will return to the same balance as before, to normal. If this were so then the entire subject of macroeconomics wouldn’t be worth even thinking about now, would it? Because whatever the hell happens nothing need be done, eh?

It is entirely because there is the possibility of a move to an undesirable equilibrium that there’s even discussion of our having a macroeconomic policy set.

How is it that the P³ always, but always, manages to grasp the wrong end of the stick?

Isn’t this a surprise?

Most people feel, from time to time, that their work is meaningless. David Graeber, the late anthropologist, built an elaborate thesis out of this insight. He argued in a book in 2018 that society has been deliberately creating more and more “bullshit jobs” in professions such as financial services to fill the time of educated workers who need the money to pay off student debts but who suffer from depression because of their work. His thesis has been cited more than 800 times by academics, according to Google Scholar, and often repeated in the media.

When the book came out, this columnist was unimpressed, arguing that the thesis was a partial reworking of the insights of C. Northcote Parkinson, who argued that bureaucracy has an innate tendency to expand and make work for itself. Three academics—Magdalena Soffia, Alex Wood and Brendan Burchell—have undertaken a systematic analysis* of the claims behind Mr Graeber’s work and found that the data often show the exact opposite of what he predicted. The bullshit-jobs thesis, in other words, is largely bullshit.

David Graeber? Wrong?

Tsk.

Back to this old argument

Perhaps such Orwellian gymnastics reconcile the contradiction that Mosley himself struggled to explain – that in their youthful formation his own politics had been of the “left” even while “I agreed with my father’s ideas.”

Well, yes, but fascism was, in economic terms, rather of the left. National self-sufficiency and corporatism. The opposite, that is, of classical liberalism and to the extent that the left is in opposition to class lib then fascism is of that left.

You can certainly find fascist economics over on the left. As Colin Hines so protested about.

Why we might be buggered

Either way, serious inflationary pressures are now upon us. The Bank of England insists this situation is transitory and we should “look through” rising prices. So why raise ultra-low interest rates or rein in quantitative easing (QE), the extraordinary ongoing expansion of our central bank’s balance sheet?

That view is convenient – telling politicians and financial markets what they want to hear.

Well yes. The thing is though, it’s a standard assumption that monetary policy takes about 18 months to work. So if you want to head off inflation you’re got to tighten monetary policy 18 months before the inflation arrives. Not, as will likely happen, 6 months after it does.

No, the MMT solution of higher taxes doesn’t work any faster. Especially given that we generally only raise tax rates for next year, not the current one.

How evolution works

An intricate scientific process, evolved over many years, may be helping the small rodents escape when they’re caught, according to animal behaviour experts.

Mice produce a sweat chemical which confuses cats, giving them enough time to plot their route to freedom, suggests Prof Benjamin Hart, from the University of California’s School of Veterinary Medicine.

They secrete molecules, called lactones, which have a mesmerising effect on their feline captor similar to the effect of catnip, which contains a molecule called nepetalactone.

OK, but as always we need to get the logic and causality the right way around here:

Scientists suggest mice may have developed the ability to generate this sweat chemical due to evolutionary forces.

The physiological process may have developed over many years as a way of helping them survive when they find themselves in the clutches of a ferocious cat.

Prof Hart told The Telegraph: “Mice produce lactones in the skin, which are excreted when mice are stressed.

“I hypothesised that mice evolved an alteration in the lactone to resemble nepetalactone and evoke catnip reactions in cats. Because the catnip, nepetalactone, induces playful behaviour, this gives mice a chance to escape”.

We must make sure to remember that the emission of lactone didn’t evolve to do anything at all. That’s just random mutation. It’s that those that did this were more likely to escape cat attacks and thus live long enough to pass on the mutation.

OK, cool, but this is also how economies work. Sure, there’s conscious thought rather than random mutation going into the activities of many economic actors – although not all perhaps – but the end effect is much the same. It’s not that the system has been designed in order to achieve this or that, it’s that those actors – or systems – which do this or that survive. Which is a warning to planners – at the very minimum Chesterton’s Fence must be seriously considered.

Skidelsky is not, actually, an economist

We might call him an historian, a political economist possibly – as Spud calls himself – and even a biographer but:

Robert Skidelsky, in a chapter of a new book, The Return of the State, sketched out some ideas for what the UK government should do, including taking responsibility for all procurement affecting the health of the nation; a public sector job guarantee for the unemployed; ensuring sufficient demand through redistribution rather than relying on personal debt; and capital controls to reduce government dependence on international credit markets. In the current climate, none sound nearly as unfeasible as they would have done five years ago.

Food affects health – as we keep being told – so government is going to buy all the food? Worked well for the Soviets.

But it’s the capital thing that is lunatic. We run trade deficits. Therefore we import, not export, capital. So, we impose capital controls and we have less capital in the country. We also tax all the capital off the rich folks to redistribute to increase demand and – well, who in buggery has capital left to lend to the government?

There’s a solution to this you know

From the email inbox:

Labour market recovery masks fastest rise in long-term unemployment since 2010 – IES comment on Labour Market Statistics
Long-term unemployment up by 28% on last year – with long-term unemployment among over-50s at its highest since 2016
18 May 2021

Dear Tim Worstall,
Commenting on today’s Labour Market Statistics, IES Director Tony Wilson said:

“Today’s figures confirm that the labour market is turning the corner – with a sharp rise in employee jobs in April as the economy reopened, vacancies rising and unemployment now clearly trending down. However you don’t have to look too far to see the lasting damage caused by a year of lockdowns and disruption. Long-term unemployment rose by more than a quarter in the last year, its fastest rate of growth since the 2010 crisis. Older people in particular are now starting to see sharp rises, with long-term unemployment reaching its highest in five years. With many firms reporting difficulties in filling jobs as the economy reopens, government and employers will need to do more to bring the long-term unemployed back into work and help avoid this crisis leading to lasting scars.”

Yes, quite so. As Richard Layard pointed out the difference in US and UK unemployment is largely over the number of long term unemployed. It pretty much doesn’t exist in the US as benefits – normally – run out after 6 months. It does exist in the UK as benefits don’t run out. Short term unemployment in both countries seems to vary similarly with the business cycle. The long term doesn’t.

The solution is, as Layard also pointed out, to stop paying people to be long term unemployed. Set a time limit on benefits and they won’t be.

True, we can go all Denmark and offer lots of training in the – say – two years leading up to the cut off but a cut off would stop long term unemployment.

To test left wing and MMT economics

So, the lefty idea is that we should have stimulus. OK. And also that it’s better to go big. Inflation is less of a problem than poverty after all. That calculation rather depending upon how much inflation and how much poverty:

Yet the policy stimulus in the US is gargantuan. The fiscal expansion amounts to about 13pc of GDP this year after a similar amount last year, compared to likely spare capacity of only 2pc of GDP. US inflation has already risen to 4.2pc and before too long could easily breach 5pc.

So we’re going to get that idea tested. Then there’s MMT. Which says that if inflation turns up as a result of monetisation of fiscal policy then either the monetisation must stop, or taxes rise in order to curb the inflation. OK, it’s logically true. But does it work?

Do political incentives work that way? Having found the never ending chequebook will he politicians stop using it because inflation, will they increase taxes – a politically bruising at least thing to do – in order to stop inflation?

My bet is that they won’t and that therefore MMT ends up being one of these things that might be logically possible but just doesn’t work with the species homo sapiens.

Gonna be interesting to find out, eh?

Sigh

Trump was a super-spreader of this Anglo-Saxon variant of populism. He promised to help the poor but actually helped the rich. His actions were inseparable from the interests of his own businesses, party donors and a wider oligarchy. True, the US economy did well until the Covid pandemic hit, but there was no substantial economic or social “levelling up”.

Lowest poverty rate in two generations. Lowest unemployment rate since the 1970s. Lowest gap between black and white unemployment rate since whenever.

True, attributing all that to Trump alone would be more than a bit odd. But still….

So Opec doesn’t have any market power then

I am not sure I can recall anything quite as blatant as this since I was studying for my PhD and commentators talked at length about the Opec cartel supposedly controlling crude oil supplies. That view never had any legs, due to the emergence of other oil and other energy producers, as well as the behaviour of Saudi Arabia, but the establishment of the organisation in the early 1970s had the same audacity about it.

That PhD didn’t take then, eh?

That Opec doesn’t have complete and inviolable market power is true, but the idea that it doesn’t have any is idiocy.

Lord O’Neill is a former commercial secretary to the Treasury and the current chair of Chatham House.

Lord help us all.

We can see the problem here

After a decade of reinvention, Labour has again fallen short electorally. Thursday’s dramatic loss in Hartlepool and in councils across the country has raised the perennial question for parties on the left: “What is to be done?”

Much of the discussion of Labour’s woes concentrates on British particularities, its Brexit strategy and the relative merits of the Blairite and Corbynite reinventions. However, the dilemmas Labour faces are far from particular. The last decade has not been kind to social democratic parties across Europe. The centre-left parties that dominated European politics for the second half of the 20th century have suffered a string of losses.

In France, the Parti Socialiste fell to under 8% of the vote in the last legislative elections, with no signs of recovery. In 2017, the German SPD experienced its worst postwar performance, a showing likely to worsen in September’s election. Even where social democrats are in power, their position is tenuous. The Swedish Social Democrats, the most electorally successful socialist party in Europe, struggled to form a government after the 2018 election.

The moment you say that socialism, socialists, and social democracy are the same thing then you’ve lost the argument. For they’re not, they’re alternatives.

Socialism is the idiocy of trying to replace capitalism and markets with clipboardwielders. Social democracy is taxing the snot out of capitalism and markets to pay the clipboardwielders. As the Scandinavian experience shows – countries that are indeed higher tax than we are but also more capitalist and more market – one of these two works and the other doesn’t.

Of course, not taxing the snot out of people has its merits too. But baby steps, baby steps.

Post war growth wasn’t all that great you know


Using the economist Angus Maddison’s figures, the per annum (real GDP per capita) growth rate for the UK from 1947 – the post-war nadir – to 1976 when the wheels came off the model, was 2.9%. That is indeed better than the neoliberal years since of 2.3%. So, does that prove the conventional wisdom?

Well, not quite. The point here is that long-term growth rates are driven by advancing technology, which is closely allied but not exactly the same as advancing productivity. Growth from 1918 to 1947, by the same measure, was 0.7% a year. Case proven again we might think – except when we combine the two periods we get a proper long-term growth rate of 2.1%.

I’ve expressed this view before in Anglo-Saxon terms, but to do so more politely: some portion of that post-war growth was driven by the technological and productivity advances of the previous decades that were not, earlier, translated into actual economic growth.

It is indeed possible to argue that peace and the absence of a depression allowed that expression of the stored up growth, but it becomes a lot more difficult to argue that it was those golden years policies that were the cause. That 2.1% growth rate across the whole period is about what we think a mature economy is capable of over longish periods of time, after all. That it came as lean years and fat is interesting but not a proof of policy actions. That the neoliberalism since has matched or slightly beaten that long-run rate is another interesting point. Growth is more to do with technology and productivity than public policy perhaps.

Ah, yes, this is about right

Nor do I doubt that Scotland could become an admired, prosperous, and self-governing country along the lines of New Zealand. But to get there it has to behave like New Zealand, which restored viability with the shock therapy of “Rogernomics” in the 1980s after the country’s over-regulated and over-taxed economy ran aground.

Within a decade the country had turned itself from the closed interventionist state of the Muldoon model into the poster child of free market globalism, with a floating currency to take the strain.

Much of Murphynomics is indeed Muldoonism. At that level of regulation and direction – subsidy here and there etc – in detail it is at least. Equally something that doesn’t work…..

The Zimbabwe tobacco problem

At least The Guadian has the good grace to note the real problem:

The growers’ problems are not helped by the government’s insistence that only 60% of the sales are paid in US dollars. The remainder must be paid in local currency, at the prevailing exchange rate. The tobacco-selling season is one of the few times the government receives any foreign currency. But farmers complain they lose out because their input and labour costs are paid for in US dollars.

The farmers get screwed by the manipulation of that exchange rate……