John Quiggin

For USA-watchers, Paul Krugman discusses rising inequality here and All Together Now: Common Sense for a Fair Economy (by J.Bernstein of the Economic Policy Institute) is the subject of a summary post and discussion here . References to “the YOYO economy” are only understandable if you know at least something about Bernstein’s book.

Monetary policy and commodity prices.

The following article by Bret Swanson is spot on. Well worth a read. He homes in on the major cause of high petrol prices. And it has more to do with weak currencies than actual shortages.

http://www.discovery.org/scripts/viewDB/index.php?command=view&id=3700

Nigerian pipeline explosions, Chinese demand, Arab angst, Venezuelan volatility, peak oil and a Putin premium: These are the usual explanations for high petroleum prices. But our discussion of the “energy crisis” has ignored the elephant in the barrel — monetary policy.

…

Today, commodity prices across the board, from coffee to carbon fiber, remain near 25-year highs. High oil prices are not a unique phenomenon, but just another commodity whose price is determined primarily by the value of the dollar. Expensive oil isn’t exclusively a monetary event, of course: Risk and demand matter, too. But in comparing oil to other commodities, especially gold, we find that elevated risk and demand explains only $10-$15 of the higher oil price; $30 of the price is explained by a weak, inflationary dollar. The entity most responsible for expensive oil is thus the Fed.

JQ – looks like the Trade Deficit is starting to reduce.

What are you going to start complaining about if we go into a prolonged surplus?

Do you understand the meaning of the word ‘guest’, Razor?

David,

When you stand on a soap box in a public place and share your opinion to all that will listen, then I think some civility is due. However I am not quite sure that is the same as when you invite somebody into your home for coffee. Having said that I agree that Razors question was a bit terse.

Regards,
Terje.

Silly comment deleted. If you have a point to make, please do so without reference to Bushitler and similar.

I’m inclined to agree with Terje about the oil price/ money supply link. The remaining piece of the puzzle is how a more general inflation of consumer prices has been avoided for so long. I ventured an explanation in Monday Message Board for 1 May 2006 along the following lines:

“For years now, inflation as measured by the CPI has been kept low by heavy taxation and attacks on consumer wage-bargaining power. These strategies have been successful in cutting the disposable incomes of consumers, thereby achieving low CPI-inflation. At the same time, oodles of money has been pumped into the financial system, enabling enormous inflation of asset prices such as shares, houses and some aspects of infrastructure (Sydney motorways). The high-tax, anti-union strategy has been an effective barrier which has prevented this flood of money from spilling over into consumer prices. �

Angry Bear had a post on money supply and asset inflation back in February 2005 here.

Discussing carbon taxes and trading systems under Prof. Quiggin’s post of July 6th (The Nuclear Option), Prof. Quiggin commented that a carbon tax would substitute for other existing taxes. He said: “…I don’t see carbon taxes as inequitable when you compare them to the taxes for which they would most likely substitute, such as general consumption taxes or payroll taxes.”

News reports of the Premiers’ new carbon trading scheme don’t indicate any intention to remove or lower existing taxes. I wonder whether I’m missing something here?

The National Emissions Trading Taskforce now has the Discussion Paper: Possible Design for a National Greenhouse Gas Emissions Trading Scheme – August 2006 available for download here.