Episoder
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Thereâs been a debate brewing post-pandemic about how much inflation has been elevated by companies increasing their margins. The evidence of that is the increased margins, not just in the tech sector, which has helped increase the share prices of these companies, evidenced by record levels across the US share market indices. This week Steve Keen says its clear that is happening. Even before the pandemic, when inflation was lower, companies were still increasing their margins more than the level of wages, so workers were increasingly worse off. Hence the pre-pandemic stagnation. But companies need to improve their efficiency to fend off competitors and provided the rising returns that investors are demanding. Isnât the constant drive for higher margins a function of capitalism?
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The UK is heading to the polls on July 4th and the Conservative Party is heading for annihilation. Yet, when it comes to espousing sensible ideas from textbooks, Rishi Sunak had the making of a good Prime Minister. For example, tackling productivity by building the necessary infrastructure, investing in education and building cities and regions where businesses could cross pollinate their expertise, facilitated by strong communication and transport links. He presented all of these ideas three years ago and since then productivity has fallen. Why? Steve says these are all great ideas, but there was no money there to support them. You canât facilitate growth whilst pulling money out of the economy through government spending cuts. Hence, Tory party economics has failed on delivery.
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Steve is on hols this week, so Phil takes a look back at a couple of Debunking Economics podcasts from just before Donald Trump took office. In many ways he stuck to his promises. He tried to cut immigration, he introduced protectionism with hefty tariffs on China and he cut taxes. Now heâs promising more of the same, although Biden might have beaten him to it when it comes to heftier taxes on Chinaâs EV exports.
The first time around Steve suggested some of Trumpâs thinking was right, although perhaps for the wrong reasons. Tax cuts to boost spending seems like a good idea, but he directed it at high income earners in the false belief that they would use this money to invest in jobs to grow the economy. Instead, tax receipts fell and the new jobs didnât materialise.
He is also hell bent on making America self-sufficient for energy. Americaâs domestic oil production has been steadily increasing since 2016. Can we expect this to accelerate, given he has repeatedly declared climate change is a hoax, and the likely funding support he is receiving from the fossil fuel industry?
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Should we tax wealth more? The UKâs Shadow Chancellor Rachel Reevs wouldnât be drawn o the question at an FT forum recently. She said the UK is already a high taxing country. But around the world the wealthy are getting wealthier. Is that a bad thing? Some would say that if they are making money creating growth for the economy, then why would you want to stop them. Jeff Bezos, for example, makes a small fraction of the wealth of the economic benefit he has created for broader society. But does it make sense that income from wealth â primarily capital gains â is taxed less than I come from work? No, says Steve Keen. It should be the other way round. Listen in for a discussion about taxing wealth, thatâs a little more nuanced than just saying tax the rich.
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UK Labour leader Keir Starmer has said if he wins the next general election, within 5 years he will have re-nationalised Britainâs railways. Phil asks Steve whether it naturally follows that this will lead to an improvement in services and lower fares? Steve reckons you any need to look at government run services elsewhere in Europe to answer that question â but Britainâs trains werenât so great even in the days of British Rail, when they were in government hands. This time thereâs a chance one of the key areas of investment will remain in private hands, negating the advantage of public ownership.
Railways are also an easy choice. Many franchise operators have fallen by the wayside, forcing the government to step in. Renationalisation was starting t happen by default. Ut what about water? Nd, more significantly, what about the power industry. How can an industry that relies on making more money from customers operate in an environment where climate change is demanding we use less?
Phil and Steve discuss how Labourâs plans only seem to scratch the surface. Th direction of travel is right, but they donât seem to be heading very far down the line.
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The new industry is struggling to survive, with far reaching consequences on public accountability and democracy. Steve says part of the problem could have been fixed with a suitable micropayments system, so readers could consume articles without subscribing to papers in full. Philâs not so sure, pointing to the fact that an increasingly large proportion of the population is not consuming news at all and what they do read or watch is on their feeds in social media. News media is having to resort to click bate on low-rent stories that will drive traffic and help drive advertising revenue. Thereâs little or no scope for investigative journalism unless it is funded by the public purse â but governments and reticent to fund such activities if they fear they will be caught out by it. So how do we fix the journalism deficit?
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There are two types of people who buy gold. Speculators who see it as a risk-adverse asset class to buy when other investments look a little shaky. There are also those who hold onto gold because they believe paper money has no intrinsic value and is therefore susceptible to collapse. Zimbabwe, whoâs paper currency has been undergoing decades of increasing worthlessness, is now being replaced by a new form of blockchain currency â the ZiG, completely backed by gold and foreign currencies. Phil and Steve discuss whether itâs a smart move for Zimbabwe, before looking at the broader global preoccupation with the stuff.
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Sadly for Donald Trump, America seems to have been doing quite well in his absence. It has weathered the pandemic and inflation better than most. GDP pr capita is rising faster than most places and consumer spending is on the up. In fact, the main reason the Federal Reserve isnât cutting rates is because the economy is doing so well they donât see the need for a sudden change. But there are lots of warts in the US too. Industrial production plateaued decades ago, crime is rampant, despite the high predisposition for putting people in prison, the rich-poor gap is as wide as ever and, even though America spends more than anyone on health, they have a comparatively low life expectancy. Has America lost its way, with China beating it on EVs and, possibly AI, with Boeing outstripping Boeing because their planes are less prone to falling apart? This week Phil and Steve talk about what needs to change, and what happens if more of the world decides not to conduct international trade in US dollars.
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For a while now Dr Edgar Feige has been a proponent of an automated transactional tax. The idea is that we get rid of all taxes â income tax, sales tax, corporate tax, excise, capital gains, import and export duties, inheritance â and replace it all with a tax on all transactions Every transaction, which can be easily identified through bank accounts, has a very small tax on it. Phil and Steve discuss the pros and cons this week. Itâs certain broad in its reach, but is there a danger that it could penalise those on lower incomes. Thereâs certainly a question mark on how it addresses the hoarding of money or long-term investment in asset classes that show strong capital gains. Perhaps it needs to work in conjunction with some means of taxing wealth â but that means, already, the simplicity of a transaction-only tax disappears.
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Thereâs been a lot of speculation lately about the role of immigration and its impact on inflation. Does a flood of foreign workers push down wages, which contains cost and keeps prices down? Conversely, did the low immigration levels post-COVID add to the wage pressures because, combined with sickness from COVID, there were a lot less people for every job vacancy. It sounds sensible, but Steve believes itâs only a small part of the issue. And if did have the potential to increase labour supply governments are often negating the benefits by failing to invest money into the economy, putting pressure on services and creating another inflation dynamic.
We also hear from Ben, who has a few words to say on the recent Elon Musk episode and all the talk of emigrating to Mars. Apparently we ignored the sex angle. Ad Ben set the task for next weekâs podcast. Feel free to add your own contribution by clicking on the mic logo at debunkingeconomics.com
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The Bank of Japan has just lifted interest rates for the first time in 17 tears. The central bank has kept rates in negative territory in the mistaken belief that it would encourage banks to lend an people to borrow, helping to boost their flagging economy. Steve Keen says itâs based on the mistaken belief that banks lend money from their reserve accounts. They believed that by charging to hold onto the money banks will prefer to lend it out. If that was the case, the policy has been a dismal failure, with bank lending falling over the years the policy has been in place. So what next for a country with a shrinking, ageing population and massive private debt.
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One analogy that economists like to use is that of the Capitol Hill Babysitting cooperative in Washington DC in the 1970s. Government workers set-up a babysitting group, where they to it in turns to babysit each otherâs children, so they could enjoy nights out without paying for childcare. There were quite a few on the group, so payment was formalised through the issuance of scrip. Economists like it because it mirrors a monetary system and suffers some of the pitfalls and problems faced in the economy at large. For example, the system quickly stopped functioning because some members would horde scrips, leaving others with none, and unable to go out for the night. The short-term fix was to issue more scrip, to get over this liquidity problem. Steve is concerned about drawing too many conclusions from such a microcosm, but it does seem curious how government workers are okay with issuing more Scrip for babysitters, but donât see the need to expand the money supply in the broader economy.
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The UK Chancellor Jeremy Hunt delivered what is almost certainly his last budget, promising the usual stuff â more investment, more jobs, better public services and lower taxes. And, miraculously, all of this will be achieved by lowering government spending. Despite the rubbery figures, Steve Keen argues that the budget ignores the key principle, that you canât increase GDP if the government is cutting back on money creation by trying to reduce its âdeficitâ. A get-out clause on that would be if the country was to see a sudden increase in the export/import ratio. That is in the budget figures, without any explanation as to how thatâll happen. So, what does a Steve Keen UK budget look like?
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The UK Debt Office has started selling bonds to retail investors through the primary market Previously the only way you could buy government bonds was through financial institutions, through ETFs, for example. The reason giving for opening it up to consumers is that it will allow them to âcontribute more significantly to meeting the overall financing requirementâ. Hat makes it sound like they are concerned that there wonât be sufficient demand from institutional investors, including the banks. Steve Keen says what they probably donât understand is this move will actually shrink the amount of money in circulation. Thatâs probably a bad move in a stagnant economy. To make matters worse, they ar ehell bent on selling off the governmentâs shareholding of the Nat West group, which will have a similar impact. Listen in to find out how and why.
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Elon Musk has his fingers in many pies. Social media, space travel, internet access, AI. Even tunnel drilling. Heâs grown from developing a modest series of online city guides, to being one of the richest men on the planet. Is he a genius, or simply a Trumpesque style wheeler and dealer? This week phil â not a big fan â asks Steve â massive fan â whether Elon Musk is actually good for humanity. Itâs a chance for Steve to expound his theory that whatever else he is doing he is preparing the way for mankind to leave the planet and live on Mars. Disturbing news for Phil, who quite like it here, mostly.
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The concept of American Exceptionalism has been talked about for decades, mainly by Americans. Now the term is back in vogue because the US has shown the fastest recovery from the pandemic and subsequent inflation. Itâs also a period of intense speculation in US shares, driven by phenomenal rises in the value of big tech stocks. Is this something the rest of the world should be worried about. Is American Exceptionalism real? To put things back in perspective Steve Keen reminds us that the share market is nothing more than a Ponzi scheme, and whilst the US might account for 70% of the market cap of global equities, it still only represents 11% of world trade. So it might just be exceptional at the wrong things.
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Rishi Sunak, like most politicians, is adamant that he can grow the economy by getting businesses to be more productive. But can businesses really grow the economy by themselves, if the government just gets out the way? You might think that by employing more people, or creating more widgets, you are helping the economy. But thereâs one big constraint, which is how much money you have to spend. Without taking out a loan you canât spend more money than you have in your own personal bank account. So, businesses that produce more will find thereâs no market for any extra products, unless the supply of money increases. There are caveats, which are basically covered in the formula for GDP â but, by and large, Rishi Sunak is trying to encourage more spending by limiting the amount of cash we have by reducing government borrowing.
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Have central banks waited too long before dropping interest rates. Over the last week or so weâve had Jerome Powell, the Governor of the Fed, saying inflation is coming down but they want to see more data before theyâre convinced enough to drop rates. The Bank of Englandâs Andrew bailey said pretty much the same thing. And the ECB. But, as Phil and Steve observe this week, whilst we wait bank loans to corporations are falling rapidly, and in the US corporate bound issuance is also well down. Delaying rate cuts is hurting businesses who canât grow and increase supplies to help reduce inflation. In fact, it is arguably making inflation worse. Steve argues this week that the main cause of inflation this time round has been margin profiteering by corporations, because demand is high and supply constrained. If companies canât borrow to extend production, to retain profits all they can do is keep pushing prices higher and enjoy greater margins. Itâs a long way from the monetarist philosophy which has been driving interest rates higher.
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Yanis Varoufakis joins Steve nd Phil this week to talk about the thinking behind his new book technofeudalism. The âcloudists, as he calls them, arenât operating in the market, they have replaced the market. They learn from us tell us what we want to buy and then sell it to us. Their capital is the algorithm they have developed, but also the information we provide in the records of our behaviour and the posts that we make. The result is a massive accumulation of wealth. But how sustainable is a model that sees so much money being made by so few people? Yanis says itâs not at all sustainable, and suggests a couple of ways that the governments of the world can respond, so that we benefit from the technology without destroying our respective economies.
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If Trump has one sensible policy its his drive to reindustrialise America. Since he left the Oval Office weâve had global supply chains challenged by the pandemic, wars and a downturn in economies we used to rely on for cheap goods. The financial advantage of outsourcing to Asia is losing some of its gloss, and the uncertainty of supply has to be a real concern. Add climate change to the equation, with haulage vessels mass emitters of pollution, there are even more reasons to produce more at home. But how realistic is it for a country like Britain to reindustrialise. Shouldnât it be a priority? Or are we still wedded to the Ricardian theory of comparative advantage?
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