Sombreros have been banned at the University of East Anglia on the grounds that they are racist. Quite right.
Moreover all forms of national dress are racist: kilts, sporrans, lederhosen, turbans, burkas and so on. They are all henceforth banned. The only form of dress permitted are Chairman Chairperson Mau jackets. And the only colour permitted is blue.
Also please note that men’s ties are sexist, since they clearly represent a phallus. They are also banned henceforth.
Also all words in the English language shall henceforth be deemed to be racist unless the high priests of political correctness have deemed them non-racist.
You can obtain a list of permitted words from:
Ms Deranged Nutter,
Barking Mad Department,
The Grauniad,
Diversity House,
Loony Left St,
Londonistan.
The amazing discovery is that apparently we don’t need to save in order to make investments. Isn't that great? The UK can spend £30bn on the proposed HS2 rail project, plus the country can have oodles of new hospitals, motorways, houses etc, and according to Ann Pettifor no one needs to save or sacrifice consumption in order to do all that. I.e. no one needs to consume less beer, fuel for the car, etc.
Instant riches!!! Why Ann Pettifor hasn’t got a Nobel Prize for this discovery, I’ve no idea. Or rather I do have an idea: it’s all hogwash.
Her article (about 1,600 words and entitled "Savings and the Alchemy of Credit") comes in glossy brochure format, compete with lots of pictures of Ann Pettifor – one of them occupying the whole of one side of an A4 sheet (or whatever size the brochure is).
No doubt that’s partly vanity and self-promotion, but it’s actually a smart move on her part. Reason is that 90% of the human race are too dumb to read small print and get to grips with the ideas therein: but the above 90% do react positively to a human face (in the same way as babies do).
Pettifor’s basic argument.
Anyway, her basic argument is that commercial banks can simply create money out of thin air and lend it out to those wanting to invest (which is true). Thus apparently no one needs to save in order to fund investments. Indeed she could have gone further and pointed out that central banks and governments can do the same (as made clear by Keynes in the early 1930s). That is, government can just print money and spend it. In fact “print and spend” is what the latest fad, peoples’ QE consists of.
Now if the economy is NOT AT capacity, there’s no harm in the latter sort of money creation. I.e. it’s true that banks (central or commercial) can create money which is then spent. And CONSUMPTION can stay constant, while the investing is done by using the previously idle economic resources: under-employed labour, underemployed machinery, etc. So no one has to save in order to bring about investment.
However, if the economy IS AT CAPACITY, then there’s absolutely no way of enjoying that extra spending without causing excess inflation. That is, if the economy is at capacity, every extra £X pounds of investment requires £X of saving, if excess inflation is to be avoided. Or put another way, an extra £X of investment means £X less consumption. (The only exception to that is borrowing from abroad, but getting indebted to other countries isn't a brilliant idea.)
However, Pettifor unfortunately doesn’t get the latter “capacity” point. Thus her “too good to be true” Ponzi scheme doesn’t work.
If the economy is NOT at capacity.
Moreover, even if the economy IS NOT AT capacity, it is dodgy to say that investments can be made without any corresponding saving or sacrifice of consumption. Reason is that the stimulus or money printing used to get the economy up to capacity and do the investment could as an alternative be spent on consumption.
In that sense, investment cannot be done without saving or sacrificing consumption. Or to put it in economics jargon, the “opportunity cost” of the investment is the consumption forgone.
Incidentally, it could be argued that AP might have changed her mind since producing the glossy brochure work dealt with here, particularly since it was published in 2011. However, that does not seem to be the case to judge from this very recent tweet of hers.
Do commercial banks get us out of recessions?
Another weakness in Pettifor’s argument is thus. It is perfectly true (to repeat) that if the economy is not at capacity, the fact of commercial banks lending a lot more will help cure the recession and enable some “investment without saving”.
However, there is a big flaw in that idea, namely that commercial banks just DON’T LEND out “a lot more” in a recession. Far from it: they tend to cut lending in a recession. They exacerbate recessions, or to use the jargon, banks act in a “pro-cyclical” manner.
It would seem from the experience of the 1800s that economies do eventually escape recessions of their own accord . However what actually gets us out of recessions nowadays is the counter recessionary measures taken by governments and central banks. As to commercial banks, if the economy expands by X% as a result of government implemented stimulus, then commercial banks will follow suit and lend VERY ROUGHLY X% more, which of course helps. However, commercial bank lending is very erratic.
Thus if you’re interested in reducing unemployment and escaping recessions, then you need to concentrate on what central banks and governments do, which is exactly what about 95% of economists do concentrate on.
Coming up in a day or two.
The final item in this glossy brochure production which is asking to have the piss taken out of it is the box on the last page entitled "Action points".
It contains a number of very worthy sounding objectives, e.g. that banks should not lend for speculation. Well, nice idea. But the trouble is where exactly do you draw the line between speculative and non-speculative activity? Even buying a house is speculative: its value might rise or fall. Starting a small business is certainly speculative.
Also apparently lending should be "wise". Great idea! Why did no one think of that before?
And loans should go into "economically productive investments". Who’d er thunk it?
I’ll consider the latter weighty questions in a day or two.
This article published by Business Insider is the umpteenth to put the argument that immigrants increase GDP, ergo immigration is beneficial.
Like many idiot articles, this Business Insider article is backed by the deluded Jonathan Portes, head of the National Institute of Economic and Social Research.
As to the GDP point, it’s stark staring obvious that when immigrants move into a country, that country’s GDP will rise (unless every single immigrant refuses to work and just sits around doing nothing).
In contrast, the important question is: what’s the effect on GDP per head?
Seems the distinction between GDP and GDP per head is too difficult for half the elite.
The second moron argument put the Business Insider article is the idea that young immigrants help deal with the ageing population problem. I dealt with that argument here.
P.S. I’ve just decided to write to the NIESR and apply for a job. My letter is below.
Dear Sirs,
I’d like to apply for a job with the NIESR. My qualifications are, first, that I’m thick as two planks. Second I have no interest in economic or social matters. Third, I know nothing about economics. Fourth, I’m not interested in real work: I just want to sponge off the taxpayer.
Hope to have a positive response from you soon.
Yours etc.
Jonathan Portes is the director of the UK’s National Institute of Economic and Social Research. His first claim in this recent Huffington article (his second para) is that without immigration, Europe faces a declining population, which is supposedly a problem.
My answer to that is that given the damage the human race is doing to the environment, a steady decline in World population for the next fifty years would be positively beneficial! Maybe Portes hasn’t heard of global warming or the greenhouse effect.
Portes also trotts out the old myth that immigrants can help with our aging population. The flaw in that argument is that (surprise surprise) immigrants themselves eventually grow old. Thus immigration is NOT A LONG TERM solution to the aging problem. I dealt with that point in more detail here.
Do let’s “jump start” the economy.
Next, Portes quotes Thomas Piketty, as saying immigration is an "opportunity for Europeans to jump-start the continent's economy."
Gosh. Whoopee. Very important sounding phrase that: “jump-start”. It’s the sort of phrase used by the clueless (e.g. politicians) when trying to advocate X or Y while unable to think of any very specific or intelligent reasons for advocating X or Y.
Immigrants increase the number employed. Yer don’t say!
Third, Portes argues that immigration is beneficial because “it has resulted in a substantial increase in overall employment and hence GDP..”.
Well of course immigration increases “overall employment” (unless every single immigrant does no work and lives on benefits, and not even the BNP or UKIP make that absurd claim).
For the benefit of cerebrally challenged academics, I’ll illustrate that point. If a country accepts one thousand immigrants, the effect is absolutely bound to be an increase in “overall employment” even in the extreme case where only ten of that thousand is willing to work: employment would rise by about ten.
Ergo . . . . wait for it . . . . the fact that immigration increases “overall employment” is not a brilliant argument for immigration. In fact it’s a crass argument.
Economic benefits.
Next, Portes refers to the fact that immigration IN GENERAL to the UK has brought economic benefits in that immigrants’ pay is a bit more than natives, which means they pay more tax than natives. But the basic purpose of the article, to judge by the first two paras was to argue that the CURRENT and unprecedented flow of migrants (who are mainly from Africa and the Middle East) confers economic benefits on Europe.
But the big problem there is that migrants from those areas are the LEAST skilled and productive. (The most productive immigrants to the UK are from other mainly white / English speaking countries: Canada, Ireland, the US, Australia, etc. The second most productive are from continental Europe.)
In short, there is a sleight of hand there. To put it figuratively, Portes is arguing that because immigrants from the US working in the City of London earn a million a year, that therefor illiterate unskilled people from Africa or the Middle East will also be a bonanza for the UK economy.
And finally, even if immigration does bring a small increase in output per head, what proportion of the population wants the nearest bit of countryside to where they live covered in concrete and houses in exchange for a small increase in output per head? There’s strong opposition to ANY further development of green fields around Durham City, where I live.
What do I say by way of conclusion? The director of the NIESR ought to give us QUALITY stuff. To put it politely, Portes’s ideas on immigration fall a long way short of “quality stuff”.
I ask because it is entirely unclear from the small print on his site exactly what “Peoples’ QE” does consist of.
Of course the small print and the details are of no interest to the chattering classes. And the amount of chattering surrounding PQE is deafening. But for the small proportion of the population able to sus the difference between details which stand inspection and details which don’t, there’s a problem with PQE, as follows.
I always thought (as did others) that PQE consists of having the state print money and spend it on infrastructure, or at least mainly on infrastructure (and perhaps also housing). Incidentally that CAN BE DONE via the proposed National Investment Bank, or not. That’s just a technical detail, or at least a separate issue.
However, Richard Murphy in the comments after this article of his recently DENIED that PQE would be concentrated on infrastructure and similar. That is, in answer to the point that CONCENTRATING new money on a specific area like infrastructure is problematic, he said: “The work proposed has always been broadly based”.
So is PQE money concentrated on infrastructure (plus housing), or is it “broadly based”? Any chance of clarification on that point, or is Murphy too busy wagging his tongue to bother about inconsistencies like the above?
Why PQE money shouldn’t be concentrated on infrastructure.
The reasons why that concentration point is important are as follows.
First, while some infrastructure projects are “shovel ready”, a significant proportion take a year or two to get going, and more like ten years in the case of the HS2 rail project. So if you’re looking for a QUICK way of creating jobs in response to a recession, infrastructure should not be top of your list.
Second, printing and spending money is STIMULATORY (and if it’s taken too far, it’s inflationary). But in some years little or no stimulus is needed. Thus if stimulus spending is concentrated on any one area, like infrastructure, then the total spent on that area will gyrate far too much. To illustrate, it’s perfectly possible to start building a bridge or road, and then stop half way thru the project because no stimulus is needed in the year in question. But that sort of rapid change in spending is absurd.
Third, the skills needed for a large and sudden increase in infrastructure and house building just aren’t available, at least not at the drop of a hat.
If spending is broad based.
If in fact PQE money really is “broad based”, then PQE is not a very original idea. First, Keynes in 1933 proposed printing money and spending it in response to recessions. And more recently, advocates of Modern Monetary Theory (MMT), Positive Money and the New Economics Foundation have proposed “print and spend” as a solution to recessions.
And finally we’ve actually implemented “print and spend” on a big scale over the last three years or so in that we’ve implemented standard fiscal stimulus and followed that with QE, all of which nets out to “print and spend”. (Standard fiscal stimulus equals “government borrows £X, spends £X and gives £X of bonds to lenders. QE equals “the state prints £X and buys back the bonds”).
Conclusion.
If Richard Murphy (affectionately known as “Murphaloon” by Tim Worstall) wants to stick to concentrating PQE money on infrastructure then he’s talking nonsense.
Alternatively, if he’s saying PQE spending should be “broad based”, then all I can say to the Murphaloon is “welcome to the world of MMT, Positive Money and the NEF.
The popular answer is “yes”. However there’s a problem with that answer as follows.
QE (i.e. having the state print money and buy government debt) clearly tends to boost asset prices, since those in receipt of that freshly printed money will tend to spend it on purchasing other assets.
However, government debt would not exist if government had not first borrowed. That raises the obvious question as to whether it makes any sense to consider QE in isolation. Arguably to do so is a bit like talking about a human being with no lungs, heart or brain: such a “human being” just ain’t a functioning human being in the normal sense of the phrase.
The fact of government borrowing actually makes the rich poorer because it reduces spending on other assets. All QE does is to reverse that “impoverishment” effect.
So all in all, the enrichment of the rich caused by QE is nothing to shout about. I suggest a more important point here (one that I’ve been drawing attention to for years) is this. “Borrow and spend” is a daft method of imparting stimulus in that the borrow part of that exercise has a deflationary or impoverishing effect.
Put another way, if you’re trying to effect stimulus, what’s the point of doing something, part of which has an anti-stimulatory effect? You might as well throw dirt over your car before washing it.
Everyone likes weeping and wailing about economic and social problems. Everyone likes having a grievance to nurse. And social / economic problems enable sociologists and economists to witter on about and publish stuff about “neoliberalism” and whatever else is flavour of the month. But suggest a solution to those problems, and eyes glaze over.
Just for example, and on the emotional front there’s several thousand words from Bill Mitchell here (complete with pictures) about the decrepit state of Porto, Portugal’s second city.
And there’s more thousands of tear jerking words on Greece’s fishing industry, complete with videos, in the Wall Street Journal.
You’d think the WSJ of all newspapers would concentrate on the TECHNICALITIES of Greece’s problems. But the WSJ like any successful newspaper knows what sells copy: emotion. Relatively few people are interested in logic.
Well I hate to interrupt the orgy of emotional masterbation, but I’ve got a simple solution for Greece. It’s to let Greece deal with its external deficit and debts by having it impose import tariffs.
There is absolutely no question but that in principle or in theory tariffs would enable Greece to return to more or less full employment. Extra demand normally sucks in imports and worsens a country’s external debts, but that wouldn’t happen given import tariffs.
As distinct from “in principle”, there the practicalities of tariffs. I’m not an expert on that. But most European countries had import tariffs prior to joining the EU. Thus I don’t see anything impractical about them.
Plus if you regard Grexit as problematic there’s much to be said for tariffs: they would enable Greece to reap the benefits of Grexit (i.e. devaluation) without leaving the EZ.
Objections to tariffs.
One obvious objection to tariffs that they’re not in keeping with one of the basic ideas of the EU, namely free trade. My answer is “so what?” Which do you prefer: a temporary change in the rules governing imports to Greece, or second, continued disastrous levels of unemployment?
Another not bad objection to the above tariff idea is that ultimately Greece has to get its costs down, and doing that requires a period of deficient demand and relatively high unemployment. Well my answer to that is that (as Simon Wren-Lewis suggested), while getting costs down does require SOME UNEMPLOYMENT, it probably does not require the DRACONIAN levels of unemployment that currently afflict Greece.
I actually suggested the tariff idea here, and Heiner Flassbeck suggested the same. However there’s not been a glimmer of interest.
I can only apologies for attempting to remove grievances which people derive pleasure from nursing. And having made that apology, I expect the mass ranks of emotional masterbators to apologise for pretending to be concerned about problems which bring misery, when in fact they’re mainly out for emotional kicks. (Not that there's much chance of the latter apology actually being made).