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Monday Message Board

November 27th, 2017

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

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  1. D
    November 28th, 2017 at 02:10 | #1

    For years now I have been wrong about the property bubble. About 15 years ago I was confident that it was unsustainable and had to collapse and re-adjust back to a more realistic level. Since then it has continued to inflate – irrationally. Fueled by unpayable debt.

    Similarly, the stock market bubble continues to irrationally inflate.

    Today bitcoin is at about $US9,300.

    Someone wrote a few years ago in 2015 about bitcoin (when it was $US250):

    “Fortunately, it’s unlikely that Bitcoin will survive long enough to generate the environmental disaster that would arise if it became a major part of the financial system. The same design feature that requires the use of so much electricity is the fatal flaw in Bitcoin as a currency.

    The creation of a Bitcoin requires costly calculations. But these calculations are of no use to anyone. If they were valuable, then they would be performed for their own sake, with Bitcoins as a free by-product. That would undermine the whole system.

    By contrast, all viable currencies are underpinned by the fact that the currency has a use outside its role as a medium of exchange. This is obvious in the case of metallic currencies such as gold and silver coins, and of paper currencies that are convertible into gold. But it is also true of ‘fiat’ currencies, not convertible into precious metals (the case with the US dollar since 1971).

    The external value of fiat money is more subtle than that of a metal coin. It is inherent in the fact that the government issuing the currency is willing to accept it in payment of taxes and other obligations. If the US government ceased to exist, people might choose to go on using US dollars as a medium of exchange for a while. Ultimately, however, all currencies without an external source of value must share the fate of the Confederate dollar and similar former currencies, becoming, at best, collectors’ items.”

    Who knows whether bitcoin will collapse before or after the $US fiat currency.

    But really neither is based on anything “real”.

  2. November 28th, 2017 at 02:11 | #2

    On an earlier comment thread, I (correctly) reported a news item about a record solar bid in Mexico’s latest renewables auction at $17.70 per Mwh from Enel. But GTM got it wrong: that bid was actually for a wind project (the auction was for both technologies, and many bidders proposed wind and solar). The lowest solar bid “was actually $19.70 per megawatt-hour, for an 80.3-megawatt plant from Mitsui and Trina.”
    Reference ****greentechmedia.com/articles/read/the-worlds-cheapest-solar-is-actually-wind-mexico#gs.gHolMBA

    Under 2c/kwh for a nearly unsubsidised solar project is still worth celebrating, as is 1.8c/kwh for wind. Recall that the strike price fixed for the Hinkley C nuclear power station is £92.50 per MWh in 2012 prices, a round £100 now, or US$133. At what point does the white elephant get slaughtered? Ten times as expensive? 750% doesn’t seem to be enough.

  3. Ikonoclast
    November 28th, 2017 at 07:53 | #3

    I also thought the Australian property market would correct before now. It has leveled off recently hasn’t it? However, I guess that a relatively small market like Australia can be propped up by international forces for a very long time. Does Chinese money have a bearing on this?

    Overall, I think the system (really existing capitalism supported by state actions) is operated deliberately to prop up R.E. and share prices and hence the wealth of the already rich. That seems to be the main purpose of the extant system these days, or rather these decades. Others can slipstream on this system. Homeowners established before the boom have slip-streamed on it. Those willing to take negative gearing risks on R.E. property have slip-streamed on it. Heck, even those willing to speculate on Bitcoin have slip-streamed on it.

    Little of this activity is productive. But then drinking, gambling, entertainment, sport, holidaying and making war (war on anything) are not productive either. Our enormously productive system (productive due to science and technology, not capitalism per se) can support an enormous amount of non-productive activity… until it breaks the benign Holocene climate.

  4. Jandra
    November 28th, 2017 at 11:12 | #4

    Well, D, you’re not alone in your thoughts about our property market – I just can’t comprehend how it continues to apparently defy (what I infer is) economic gravity. I suspect that if a property bubble bursts in one major city/country, the resulting implosion will dwarf the GFC. But, hey, given my awful forecasting track record…. @D

  5. may
  6. John Homan
    November 28th, 2017 at 12:34 | #6

    About 100 years ago Frederick Soddy stated that:
    As long as growth in claims on wealth outstrips the economy’s capacity to increase its wealth, market capitalism creates a niche for entrepreneurs who are all too willing to invent instruments of debt that will someday be repudiated. There will always be a Bernard Madoff or a subprime mortgage repackager willing to set us up for catastrophe. To stop them, we must balance claims on future wealth with the economy’s power to produce that wealth.
    I believe that this explains many of the financial/economic disasters we have encountered in recent years.

  7. may
    November 28th, 2017 at 12:35 | #7
  8. Ronald
    November 28th, 2017 at 12:38 | #8

    James, thanks for clearing that up, but I am surprised to see the lowest bid for solar was still only 1.97 US cents per kilowatt-hour. If that price includes all the usual costs of building a solar farm then it is most bodacious.

    Given the cost of solar will fall further, it is inevitable we will see similar prices in Australia. Given the massive falls in the cost of utility scale solar here over the past year it may not take that long.

  9. Ronald
    November 28th, 2017 at 12:39 | #9

    This PDF from the Reserve Bank of Australia goes into housing prices. It’s a couple of years old though:

    https://www.rba.gov.au/publications/bulletin/2015/sep/pdf/bu-0915-3.pdf

  10. Jim Birch
    November 28th, 2017 at 14:43 | #10

    I read an interesting paper recently on the subject of capital/ownership as a monopoly. It didn’t talk about ownership as a sin, but looked at the legal aspect and economically as inefficient allocation of resources. It proposed a tax on property of 5-10% of declared value. Which could be used for a basic income or to eliminate other taxes. To stop people shonking declared values they are published and anyone can purchase the property at the declared value.

    Interesting idea. A form of this could be used to dampen the housing bubble?

    Fuul text:

    https://academic.oup.com/jla/article/9/1/51/3572441/Property-Is-Only-Another-Name-for-Monopoly#

  11. J-D
    November 28th, 2017 at 18:53 | #11

    @Ikonoclast

    I’m not sure what you mean by ‘productive’. How is entertainment not productive? It produces good feelings! What could be more productive than that? Do you only count as productive those activities which produce physical objects? If so, activities like health care, education, transport, and telecommunications are not productive either, but so what?

  12. Ikonoclast
    November 28th, 2017 at 20:02 | #12

    @J-D

    Temporary good feelings are not enough to qualify an activity as productive. Otherwise crack use would qualify as productive. The production of lasting good feelings without negative side-effects and without over-offsetting negative externalities may well qualify as productive. The dividing line must be somewhere between monster-truck racing and endeavours with redeeming social, cultural or artistic value.

    What is meant by “productive” in the sense that I use it?

    The first thing we have to note is that production and consumption are really inseparable parts of complete processes. We cannot have production without consumption. A mechanical assembly line cannot run without consuming raw material inputs, or parts, or without wearing out the assembly line, or without energy obtained from perhaps a fossil fuel or a solar power generating plant. An actor cannot grow, train, rehearse and produce performances without consuming food. I don’t see products as dividing neatly into physical objects and intangibles. Almost by definition an intangible could not be a product because we could not detect, use or gain anything from it. Everything we detect with our senses and our physiology is tangible. It is either matter or energy or perhaps of the nature of matter, energy, fields or information (information being detectable, manipulable and potentially de-codable patterns in the other three).

    Equally, we cannot have consumption without production. Food must be produced before a person consumes it. A book must be produced before it can be read. Reading does consume the physical book over time. Every reading creates a little wear.

    In the sense I use it, a “productive” activity increases order in the system under question albeit always at the cost of increasing entropy outside the system in question. The term “productive” is thus relative to the system boundary in question. The system in question here is the economic system, or wider still, the entire socioeconomic system and all the persons in that system.

    Some of things I mentioned arguably do not increase order in the system. They don’t add value to the system. Hence they are not productive. Excessive consumption of the things I mentioned (I don’t want to get moderated again) and certainly wars on people and things lead to increasing disorder in the system. Hence, they are not “productive”.

  13. rog
    November 29th, 2017 at 03:36 | #13

    Art and entertainment are mutually dependant and perform a vital function in a productive society. A book is created by both artists and artisans, it is made of tangibles and intangibles, and is read (consumed) for many reasons incl for information, education and/or entertainment.

  14. Ikonoclast
    November 29th, 2017 at 06:11 | #14

    @rog

    I agree, in part. Not all entertainment passes the test of having redeeming cultural, social or artistic value. We have even banned some entertainments which do not pass these tests. I don’t imagine anyone wants to bring back cock fighting or bull baiting.

    The idea that “things” or “processes” (like a book or the book being read by a person) consist of tangibles and intangibles is nonsensical. Intangibles are by definition non-detectable. If you detect, and enjoy or utulise, artistic or educational values in a book there are changes (often beneficial, often productive) in your brain state. These things are very hard to detect but they are still, strictly speaking, real and tangible.

    I am a monist in philosophical terms. I reject ideas which implicitly assume dualism; ideas like the assumption that there are tangibles and intangibles.

  15. know teeth
    November 29th, 2017 at 08:21 | #15

    Is this productive? I’d love to hear your opinions. And who would you vote to have Prof John rap with? Enjoy.

    In Fear the Boom and Bust, John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there’s a “boom and bust” cycle in modern economies and good reason to fear it.
    “youtube.com/watch?v=d0nERTFo-Sk”

  16. rog
    November 29th, 2017 at 13:32 | #16

    “Intangibles are by definition non-detectable”

    Thats the definition you choose to employ.

    Oxford; Unable to be touched; not having physical presence.

  17. J-D
    November 29th, 2017 at 18:13 | #17

    @Ikonoclast

    The problem with defining ‘productive’ to mean ‘increasing order within the economic system’ or ‘increasing order within the socioeconomic system’ is that you have no way of measuring order within the system or of telling whether order within the system has increased, decreased, or remained steady. Your assertion that some activities are not productive is not based on measuring how much they have increased or decreased order within the system.

  18. Black cat
    November 29th, 2017 at 21:37 | #18

    @Jim Birch
    It is indeed an interesting idea. But first we must abolish negative gearing, which actively encourages pure speculation (i.e. buying investment property not for the income, nor as a bet on increasing demand in a particular area, but solely as a bet on a continue broad increase in house prices). Speculation is both a (the?) major cause of house price inflation and the first risk factor in Australia for house price collapse. Many such investors can only afford to pay their mortgages as long as house prices continue to go up. A dependence on continually increasing prices was the reason for the house price collapse in the US that triggered the financial crisis.

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