Tuesday, 21 May 2019

George Soros’s Institute for New Economic Thinking – or is it “Old Economic Thinking”?

Frances Coppola sets out a nice description here of a conference organised by the so called “Institute for New Economic Thinking” which according to her, consisted mainly of old duffers setting out OLD ideas rather than new ideas. (Article title: “Beyond Disappointment”.)

So how come?

Well my explanation is that INET was set up by George Soros with a seriously large amount of money: $50million to be exact. And that sort of money is guaranteed to attract those who are skilled at attracting grant money from government departments, the Rowntree Foundation and so on. I mean if you are short of something to do, plus you could do with embellishing your CV with “gave keynote speech at the INET conference at XYZ” or something like that, plus you wouldn’t say no to an expenses paid trip to XYZ, then it’s obvious what you need to do.

In contrast, those who actually do have novel ideas but who aren’t so skilled at the “grant money attracting” business don’t stand a chance.

But if you don’t like my explanation for what’s going on, here is a slightly different, but equally cynical explanation. (Article title: “George Soros’ INET: A conspiracy theory assessment”, by Norbert Haering.)


P.S.  I am grateful to "Rethinking Economics" for reminding me (via Twitter) about that Coppola article.

Friday, 17 May 2019

Random charts - 70.

Headings in large pink text were added by me.

Tuesday, 14 May 2019

The UK school building heated entirely by solar.


That’s the extension to the St George’s School, Wallasey, Cheshire, designed in 1959.

The south wall of the building is nothing but glass, and the floors and walls of the building are made of very thick masonry and concrete which absorbs heat on sunny days and releases it on cold days.

Obviously the lighting and heat emitted by children in the building contribute to heating the building.

A book on solar heating, “Your Solar Energy Home” by D.Howell says (p.12), “When architect A.E.Morgan designed the building, higher authority insisted he include a boiler. Imagine what a delicious day it was for Mr Morgan when after four years occupancy and not a day of use from the boiler, he was allowed to remove it.”

Monday, 13 May 2019

Article in the Frankfurter Allgemeine by Dirk Ehnts on MMT.

The article title is “Die Lösung liegt in höheren Staatsausgaben.”

I only read part of the article (the part highlighted by Lars Syll). So I won’t pass judgement on the article as a whole. But there’s a mistake in it, as follows.

Incidentally, I don’t speak German very well: I just used on of those instant online translation services to translate the article into English.

Anyway, the paragraph starting “Solange Geld auf dem…” claims deficits (i.e. private sector surpluses) are needed because people want to save for retirement and businesses want a positive cash flow. The flaw in that idea is as follows.

In the simple case of where the number of pensioners is constant as a proportion of the population and there is zero economic growth and zero inflation, clearly it is true that people want to save cash plus government debt/bonds among other things for their retirement. But they run down that stock of assets during retirement: i.e. money and other assets flow from pensioners to younger people who themselves are saving for retirement. So in that scenario, there is no need for a government deficit.

As for businesses, it is reasonable to assume they want a stock of cash, but again, in the above “zero growth and zero inflation” scenario, there is no reason for that desired stock to expand every year.

I suggest the actual reason for more or less non-stop deficits is that the private sector (including those saving for pensions and businesses) want a more or less constant stock of cash and government debt. (The sum of those two is sometimes referred to by MMTers as “Private Sector Net Financial Assets” (PSNFA)).

However, inflation constantly eats away at the real value of that  stock. Ergo the stock has to be constantly replenished, and that can only be done via a deficit.

Thus (and reverting to pensioners) pensioners’ desire to save does explain the need for deficits, but it’s not the desire to save as such which is the explanation. It’s the “inflation eating away at the real value of PSNFA” which is the explanation.

Indeed, on the subject of PSNFA, note that when I referred to “cash” above, I should really have said “base money” (i.e. state issued money as opposed to commercial bank issued money). Reason for that is that base money is a net asset far as the private sector is concerned (i.e. it is PSNFA), whereas commercial bank issued cash is not: that is, for every dollar of commercial bank created cash, there is a dollar of debt owed to a commercial bank, thus commercial bank issued money nets to nothing.

Incidentally, I’ve been pointing to that “inflation explains deficits” point for several years now. I’ve never seen any other economist grasp or appreciate the point.

Sunday, 12 May 2019

Random charts - 69.

Headings in pink were inserted by me.

Wednesday, 8 May 2019

Should central banks target unemployment?

A problem with much of the political left is that they are keener on virtue signalling than thinking up policies that actually benefit those they claim to be concerned about, i.e. less well off. For politicians (left or right of centre) that virtue signalling does of course make electoral sense: it wins votes.

But it’s disappointing to see a non-politician getting involved in the latter nonsense. Ann Pettifor in this article claims that central banks should target unemployment as well as central banks’ traditional target, i.e. inflation. John McDonnell, the Labour Party finance spokesman advocates the same.

Well “targetting unemployment” sounds very caring and saintly, but what does it actually mean? After all, central banks already target unemployment in that they target inflation. That is, inflation and unemployment are inversely related, thus the inflation target, which consists of keeping inflation down to 2% actually amounts to targeting unemployment: that is, it consists of minimising unemployment in as far as that is consistent with acceptable inflation.

Moreover, if say inflation was at 2% and unemployment was above target, what’s the Bank of England supposed to do? Abandon the inflation target? Neither Ann Pettifor nor John McDonnell tell us.

McDonnell actually went even further down the “daft targets for central banks” road when he suggested the BoE should target productivity! Well I ask you: what’s the BoE supposed to do if productivity increases are below target? I’m all ears, but I don’t seriously expect to hear anything inspiring from McDonnell.

Tuesday, 7 May 2019

Hilarious hypocrisy at The Guardian.

Sri Lanka is expelling 200 Muslim clerics, which you’d think is a pretty big story, given that “Islamophobia” is allegedly the crime of the century. So you’d expect the UK’s most heroically anti-Islamophobia paper, The Guardian, to devote considerable space to this story. But not a bit of it: they are totally silent, just as I predicted they’d be a few days ago on Facebook. Google something like “Guardian, Sri Lanka, Muslim, cleric, expel”. You won’t find anything. Possibly they’ve devoted a square inch to the story at the bottom of  an inside page, but certainly I found nothing when Googling. 

Given that the Guardian claims to be ultra-concerned about “Islamophobia”, why would this be? Well the average tabloid reader has doubtless worked it out. But leftards, sociologists and similar forms of low-life will be baffled, so I’ll explain.

The people of Sri Lanka have brown faces, and according to the Neanderthals who write for the Guardian, people with brown faces are beyond reproach, while people with white faces are guilty until proven innocent (which as you may have noticed, unless you’re as thick as a Guardian journalist, is pure racism). So this “expel Muslim clerics” story doesn’t fit the leftie narrative does it? That is, people with brown faces are behaving in a grotesquely “Islamophobic” manner, which is a huge problem for the above mentioned Neanderthals.

So what do they do? Sweep the whole thing under that carpet, that’s what they do.

Hilarious, innit?

Sunday, 5 May 2019

Grotesque incompetence at the IMF.

The IMF is still obsessed with the absurd “fiscal space” concept. I’ve explained the flaws in the idea before on this blog (starting in 2012) but I’ll run through it again and I’ll concentrate in particular on this article published in 2018 by IMF authors. Article title: “Economic Preparedness: The Need for Fiscal Space.”

Note that this IMF article is not any sort of “one off”: that is, IMF authors turn out articles on astrology  - sorry I mean “fiscal space”  - regular as clockwork. Three more articles from 2018 alone are listed at the end below.

The “Economic Preparedness” article does have a warning to the effect that the article “does not necessarily represent the views of the IMF….”.  However it’s clear from the numerous articles published over the years by the IMF on fiscal space that the article does in fact represent the views of the IMF.

Anyway, the first two sentences read, “When a government looks to temporarily increase spending or reduce taxes, it needs to gauge whether it will be able to fund the resulting budget gap without risking an unfavorable reaction from financial markets or undermining the longer-term health of public finances. The more confident it can feel about this, the more fiscal space it has.”

In other words, the big question according to the IMF that faces a country wanting to run a deficit is: can the country borrow the necessary money without pushing up the rate of interest it pays on its government debt too far? Or as the article itself says later on, the degree of fiscal space is determined by, among other things, the “ease of borrowing”.  Or as the article says in the penultimate paragraph, “ease of access to markets” is important.

Well now, that idea flatly contradicts the point made by Keynes in the early 1930s, namely that in a recession, a country which issues its own currency should borrow or print more money and spend it. That is, “access to markets” is not needed at all, since the latter sort of country always has the “print” option!!!

Indeed, the print option is exactly what several large economies have gone for, and big time, during the recent recession. That is, they have borrowed large amounts, spent the sums borrowed, and then almost immediately had their central banks print money and buy back relevant government bonds (i.e. those countries have implemented QE) That nets out to the above Keynsian “print and spend” policy.

You really have to wonder whether the IMF has actually heard of QE, don’t you?

Of course, the print option is only available to countries which issue their own currencies. That is, that option is not available to individual countries in the Eurozone (though the option is available to the Eurozone as a whole).

As for any idea that  “markets” might lose confidence in the debt of a country that implements the latter “print and spend” policy, markets have no reason to lose confidence as long as print and spend is not taken so far that it causes excess inflation. After all, what bond holders are mainly concerned about is any possible loss in the real  value of their bonds caused by excess inflation.  And that responsible attitude to inflation is exactly the attitude adopted by the larger developed economies since the recession that started in 2008.  That is, the large economies that have implemented print and spend have actually kept inflation well under control.

Of course the above paragraphs are not intended to suggest there is no relationship at all between the amount of government borrowing and interest rates. That is, if a government issues more debt than the private sector is willing to hold at X%, then government will have to pay a higher rate. But if interest on the debt is significantly above zero, then there is no need to “access markets” so as to impart stimulus: that is, the relevant country can cut interest rates (by printing money and buying back government debt).

Indeed the latter is very much what the UK Labour Party’s new so called “fiscal rule” consists of: that is the rule is basically that if interest on the debt is significantly above zero, then interest rate cuts should be used to provide stimulus, and if interest on the debt is near zero, then fiscal stimulus (i.e. “borrow and spend”) should be used.

And the latter rule is not a hundred miles from the MMT idea that interest on the debt should be kept permanently at or near zero. 


The conclusion is that the IMF hasn’t the faintest idea whether it’s coming or going. It is totally and utterly incompetent. It is economically illiterate. 


Other IMF “fiscal space” articles from 2018.

1.  IMF Board Takes Stock of Work on Fiscal Space (published 2018).  https://www.imf.org/en/Publications/Policy-Papers/Issues/2018/06/15/pp041118assessing-fiscal-space

2. Boosting Fiscal Space : The Roles of GDP-Linked Debt and Longer Maturities

3.  IMF Fiscal Monitor: Capitalizing on Good Times, April 2018

Saturday, 4 May 2019

60 economists claim central banks should do more to combat climate change.

That’s in a letter from the 60 to the Financial Times published a few months ago. The letter is entitled “BoE itself must now take action on climate change.”

Now I’m all for dealing with global warming, but this isn't a good way to do it.

First, the letter argues that the BoE should take account of the climate change risks inherent to some of the bonds the BoE buys. Well the first problem with that idea is that bond buying by central banks, i.e. QE, was seen from the outset as being a temporary measure, and presumably that is what it will turn out to be. That hardly makes it a brilliant idea for combating climate change.

Among the reasons for it being a temporary measure is that it is not the job of central banks, or of government in general, to take commercial risks.

Next, the letter suggests that insurance companies (whose bonds central banks have bought) have not taken climate change risks into account to a sufficient extent.  Well the answer to that is that climate change, assuming the climate change experts are right, is coming relatively slowly. For example we all know that sea levels are rising: but not at meter per year! The rise is more like a millimeter a year. Plus (surprise surprise) insurance companies are well aware of the flooding risks that involves and have already denied insurance for thousands of houses because of that.

Then in the penultimate paragraph, the letter claims “The BoE’s collateral framework and asset purchases are extremely powerful and reverberate throughout the rest of the financial sector..”

Well frankly I doubt it. That is, on the above assumption that QE will turn out to be temporary, the ultimate risk in relation to bonds remains with the private sector: that is, shifting the risk to the public sector, which is what happens when a central bank buys bonds, is only a temporary shift. To that extent, the fact of a central bank temporarily buying bonds issued by corporation  X will have little effect on the price of those bonds in the long run, and thus equally little effect on the costs of funding that corporation.

Wednesday, 1 May 2019

Gavyn Davies tries to criticise MMT.

At the end of a Financial Times article entitled “What you need to know about MMT”, Davies says the following  - I’ve put his words in green italics.

“These arguments imply that investors should distinguish sharply between two states of the world in which the ideas of MMT might be implemented.
When economies are stuck at the zero lower bound, like Japan and the eurozone today, MMT could persuade governments and central banks to be less worried about debt constraints when considering expansionary fiscal policy, financed by money creation. Within limits and bolstered by institutional reforms to maintain confidence, this might restore healthy levels of demand more quickly.

 However, when an economy is operating normally, and especially when it is close to full employment, MMT should not be used to justify money financed deficit increases, such as those to finance the Green New Deal. In fact, the results could be highly inflationary and financially destabilising. These are the conditions that apply in the US and UK today."

Well, (and this has nothing to do with MMT) it’s a bit hard to see why there should be any “sharp distinction” between where an economy is “operating normally” and where it is in recession. That is, it is nothing more than a common sense observation that there are all degrees of recession, from serious 1930s type recessions to the situation where an economy is operating just a little below capacity.

I look forward to enjoying more incompetent attempts by supposedly authoritative economics commentators to criticise MMT....:-)