Saturday, 30 November 2013

Greek internal devaluation.

 This Levy Institute article says that Greece has cut costs in the last few years, but that that has no dramatically improved its current account balance. The article concludes by claiming that “Strategies to increase employment and income are urgently needed.”
Sounds great, but what will those “strategies” actually consist of?
Any increase in “employment and income” will just suck in imports, which makes Greece’s balance of payments worse, unless I’ve missed something. Plus if cutting costs under the existing “autsterity for the periphery” isn't working, then Greece reverting to its own currency and devaluing wouldn’t work either.
In that situation, there is only one option left for such a country, mass emigration (as Wynne Godley once pointed out in respect of the UK when the UK’s balance of payments was in dire straits a few decades ago).
And in fact Greece has exported people on a large scale over the last century, though I’m not sure how big that “export” has been relative to other countries. Certainly Ireland, another periphery country, has been exporting people on a large scale for well over a century.
H/t to Mike Norman.

Friday, 29 November 2013

Scottish monetary independence.

Tony Yates argues that if an independent Scotland wanted to use Sterling as its money, then the rest of the UK (RUK) would want to insist on prudent Scottish fiscal policy “to guard against a market run on Scottish bonds”.
Strikes me that RUK’s attitude to a profligate and independent Scotland that suffered a run on its bonds would be “Tough luck mate: you wanted independence and the right to your own fiscal policy. Now you’ll have to live with the consequences”.
That’s very much Germany’s attitude to Greece. Of course a Greek/Scottish bond problem is not entirely beneficial for Germany/RUK respectively. But the really big penalty in Europe is being paid by the periphery, not Germany. Likewise, the real penalty would be paid by Scotland, not RUK.
But of course Scotland would try to have its cake and eat it: in the event of problems, Scotland would get all emotional about Scotland and RUK’s shared history. Scottish politicians would be on the train to London, begging for free money.
Perhaps the solution is to spell out in very blunt terms in the independence agreement what the consequences of a run on Scottish bonds would be.

Wednesday, 27 November 2013

Economists with an “investment” complex.

Various economists have tumbled to a point that has long been obvious to advocates of Modern Monetary Theory, namely that escaping a recession is easy: just print money and spend it (and/or cut taxes). Or to cite Mosler’s law, “There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.” That’s set out in yellow at the top of Warren Mosler’s site. (And for the benefit of the ignoramuses who think that money printing always leads to inflation, it won’t if the economy has spare capacity.)
Howevever, the economists who have tumbled to the above point often claim that the extra spending, for some bizarre reason, has to come in the form of extra public INVESTMENT. Why?
Three examples of this “investment complex” are as follows. First this article by Mario Seccareccia, Professor of Economics, University of Ottawa. He wants to see “massive public investment” so as to “sustain aggregate demand in the long term”.
Complete nonsense! You don’t need “investment” to “sustain demand”: you simply need SPENDING (as implied by Mosler’s law). The question as to whether that spending should take the form of investment or consumption spending is an ENTIRELY SEPARATE ISSUE.
The moral is that if you produce a nice new simple law, the equivalent of E=MC2 in economics, no one wants to know you. In contrast, if you produce tens of thousands of words of hot air, you’ll be enthusiastically applauded by your fellow academics, plus you may even be nominated for a Nobel Prize. Well I'm exaggerating, but no by a huge amount.
The second example of the “investment complex” is an article by Tejvan Pettinger (search for the phrase “public sector investment”).
As to the third example, you shouldn’t be surprised to learn that Kenneth Rogoff (professional advocate of all forms of economic illiteracy) also subscribes to the above “investment” nonsense. Search for “high return infrastructure” in this Financial Times article.
This will be way above the head of Prof. Kenneth Rogoff (and other Harvard economics department academics) but if an investment is “high-return” is should be made ANYWAY: i.e. regardless of whether the economy is in recession or not. That of course is a repetition of a point already made above. But when dealing with dimwits, sometimes constant repetition is the only way of getting the message across.

Citizen’s income.

The idea that every citizen should get some sort of basic income is gaining popularity. What’s to be said for the idea?
Strikes me everyone already gets some sort of basic income. I.e. 99.9% of the population are, 1, in work, 2, on benefis, 3, on a pension, or 4, children living with their parents.
You could of course pass a law saying everyone is entitled to a basic  income paid by the state. Let’s say that income is whatever a single person gets on unemployment benefit (which, in turn might be about equal to the basic state pension).
But then there’d be a whole host of people on benefits entitled to more, e.g. because they have two or more kids. So the total amount of bureaucracy wouldn’t change much.
As to those in work, government would have to collect a huge additional amount of extra tax in order to pay the basic income to those in work. So for the sake of argument, government could collect that money via a tax on employers and employees. But there’s a problem there as follows.
Say government takes £Xbn off employers and employees and then gives it all back to them. Everyone is back where they started, except that about fifty thousand bureaucrats are needed to collect the extra tax and dole out the basic income to employees.
It could be argued that with our now being much better off than a hundred years ago, we can afford to let the work-shy not do any work. But we’ve actually made substantial moves in the latter direction over the last few decades. That is (at least in the UK) it’s been possible for for the work-shy to live for decades on end on invalidity benefit on account of fictitious invalidities. I know people who have done it.
So if we move from the latter “underhand” basic income system to a more open or official basic income system, nothing much would change in practice. Except that there’d be a reduced incentive to work, so GDP would decline. And is that what we want? Plus isn't there a basic obligation on able bodied fit people do something worthwhile, amongst other reasons so as to contribute to the upkeep of those who cannot work (pensioners, the genuinely disabled, etc)?

Tuesday, 26 November 2013

Irrational expectations.

There are several aspects of so called “rational expectations” I don’t like. One is that the expectations that economists often attribute to households and firms are in fact IRRATIONAL. I’ve expanded on that, and other aspects of supposedly “rational” expectations here.