Beware of Greek doctors bearing medicines.

Greece has an abnormally large number of doctors and an abnormally few nurses. Reason, it seems, it that there are big bucks to be made by doctors writing out fake prescriptions. See here.

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Islamic finance is nonsense, says Prof. Timur Kuran.

Timur Kuran had an article in the Financial Times a day or two ago in which he said amongst other things that "Islamic banking, in it's current form, will go down in history as a mighty deceit...".   He also says the main reason that British universities teach Islamic finance is that there given loads of money by the Saudis to do so. And on the question as to whether Islamic finance is actually practiced in the Muslim world, the article says "Not at all. The overwhelming majority of the Muslim world's business schools teach the economics taught at the world's leading business schools".

There is more about Timur Kuran here.

“Make work” is not the solution for Detroit.

Stephanie Kelton (associate professor at the University of Missouri-Kansas City) claims make work schemes are a solution for bankrupt cities like Detroit.

I doubt it.

There is certainly a place for schemes like the WPA that operated in the US in the 1930s, or “make work” or “temporary subsidised employment” or "workfare" (take your pick of descriptions). However the idea that WPA type schemes are the best solution for Detroit is bizarre.

What Detroit needs primarily is more REGULAR JOBS. Indeed in the UK for most of the time since WWII, governments have tried to shift jobs from low unemployment areas to high unemployment areas with a variety of measures like incentives for firms setting up in high unemployment areas and restrictions on factory or office building in low unemployment areas. And the US has similar fiscal transfers between richer and poorer regions. That’s the best solution for Detroit.

Having done that, there is of course no harm in Detroit having its fair share of WPA type employment.

But I don’t mean to criticise Stephanie Kelton in person. Far from it. : she advocates Modern Monetary Theory (like I do). Plus I agree that WPA schemes in some shape or form are desirable. So basically I agree with much of her thinking.

I’m treating her “Detroit” article as an unusual slip up.

The fatuous “Help to Buy” scheme.

Whenever there’s a problem, governments of almost any political persuasion think the solution is a new scheme dreamed up by government and costing the taxpayer millions. Almost invariably a better solution is for government to simply piss off and stop interfering in the market.

The British government’s recent “Help to Buy” scheme to help home buyers is a nice illustration of the point. It will cost taxpayers £1.3bn. And yes, it will help people buy houses.

But as is shown in this Policy Studies work, nearly 30% of the cost of housing in Britain is accounted for by artificial constraints on house building: specifically the difficulty in getting planning permission. And that difficulty boosts the price of land on which houses can be erected.

So to repeat, government could cut the cost of housing at no cost whatever to the taxpayer if government just pissed off – or to put it more politely, if government stopped putting such severe constraints on house building.

As to conservationists who want the countryside preserved, they need to understand that there’d be little difference in the amount of countryside covered with concrete. That is, relaxing planning regulations would obviously result in more countryside being covered with concrete, but “Help to Buy” absent such relaxation simply enables house buyers to BE ABLE TO AFFORD the higher land prices that non-relaxation brings.

And just in case you hadn’t realised that conservationists are deranged, most conservationists are in favour of mass immigration. They apparently can’t work out the connection between increased population and the need for more housing, roads, factories, etc.

(H/t to Mark Wadsworth)

QE money should be spent on general stimulatory measures, not on anything in particular.

Summary: If a central bank creates money out of thin air and buys securities (QE) the effect is distortionary. Therefor such money should be spent as far as possible on a broad range of stimulatory measures, e.g. cutting taxes and/or raising public spending.

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Under conventional QE, central banks create money out of thin air and buy securities. One of the drawbacks of that is widely appreciated, namely that the effect is distortionary. For example asset prices are boosted (or fall less in value than they’d otherwise have fallen) which benefits the wealthy. Meanwhile the less well-off reap little or no benefit. (Indeed the other main element of monetary policy, interest rate adjustments, is also distortionary.)

Another distortionary effect is that, assuming QE works, additional money is spent, at least initially, in investment goods. That distorts the economy in the direction of investment good production, a distortion that has to be unwound come the recovery.

What is claimed to be a solution the latter problem was recently published by the New Economics Foundation: their publication “Strategic Quantitative Easing.” The latter publication advocates spending freshly created money on housing, infrastructure and one or two other items.

The flaw in that idea is exactly the same as the flaw in conventional QE, namely that a distortion is introduced which subsequently has to be unwound.

In fact, “Strategic Quantitative Easing” contradicts an earlier and brilliant work produced by the NEF and co-authors which advocated that new money should be spent on GENERAL reflationary measures. I quite agree. The NEF was right first time.

The above is not to suggest that spending freshly created money on general reflationary measures is without problems. E.g. if the new money subsequently proves to be too inflationary, there are political problems involved in reversing the process, i.e. raising taxes, withdrawing money from the private sector and “unprinting” such money.

However, every effort should be made to go for general reflation rather than bond purchases because there is no question but that bond purchasing is distortionary.

Another problem which will confuse less imaginative folk, is that spending freshly created money on what might be called fiscal measures (tax cuts / public spending increases) makes a mockery of the traditional split of responsibilities taken on by central banks and governments/treasuries. The quick answer to that is that that split is a nonsense. There is more on that nonsense in the NEF & Co work mentioned above.