23 thoughts on “Monday Message Board

  1. Sovereign Wealth Funds – Do They Make Sense?

    The simple answer might be “it depends”. The case for any country having a sovereign wealth fund (SWF) probably has to be made individually. Let’s examine four countries; Norway, Australia, China and the USA. I hope this table lines up.

    WR Country SWF (US$ Billion) GDP Nom. (US$ Billion) Origin of SWF funds.

    1st China 1,461.7 10,982 Non-commodity
    3rd Norway 847.6 389 Oil
    11th USA 142.4 17,947 Mixed
    12th Australia 95.3 1,223 Non-commodity

    In Norway’s situation, the case can be made that a SWF is justified. A series of windfall gains (from oil) occured for a set historical period and then the gains decline. Norway’s oil fields are now in a production decline. The large size of the accumulated SWF compared to the GDP suggests that it would have been difficult to invest all of the monies in national development and infrastructure without overcapitalising. The large funds also suggest using them to greatly reduce taxes might generate accelerating inflation. In these circumstances, it made sense to create a SWF and invest a good proportion of it abroad. This should generate future income for Norway to replace oil income when the oil is exhausted.

    In the case of Australia, there appears to be little to no justification for assembling a SWF. Commodity windfalls or other surpluses, however engineered, have not been nearly so great proportionally speaking. A strong argument can be mounted that Australia is undercapitalised in terms of its need to upgrade and create national infrastructure. Roads, rail and internet are three areas where Australia is clearly deficient. In this case, putting money aside for a SWF, to be invested anywhere and everywhere else including overseas and in tobacco at one point (!), is next to pointless and indeed counter-productive. These monies from taxes and resource royalties would have been better used by being spent straight into national development, infrastructure and education.

    The USA is a large and rich economy. It does not really need a SWF and indeed the items which comprise its SWF are small compared to its GDP. Its small, composite SWF is somewhere from acceptable to not even necessary. The USA has huge wealth disparities (inequalities) but these are not tied to whether it has SWF or not. The USA would have many options for assisting the unemployed and working poor if it was politically minded to do so.

    China is an interesting case. A large SWF, though not massively large in proportion to its GDP as in Norway’s case, may be useful for a quasi-socialist party wishing to retain certain socialist elements in the economy while ostensibly (and in some considerable reality) playing the capitalist game. China can have the best of both worlds, being capitalist internationally and somewhat more socialist at home. Its SWF may also assist in securing resources ownership overseas thus helping to guarantee its resource supply.

    To sum up, for Australia our SWF is pointless and even a drawback economically speaking. It harms our economy and our development. When the national budget was in surplus, and unemployment was high (as always now), then the surplus should have been spent to generate fuller employment via national infrastructure projects. If it wasn’t going to be put to good national use, it need not have been taxed at all. Individuals could have been left to determine how to spend or save their “windfalls” of that era.

  2. I recently answered this question on Quora.

    What are the advantages of alternative currencies and timebanks?

    Using alternative currencies for special purposes can reduce the cost of long-term investing by at least 50%. This happens because it costs a lot to maintain fungible money (at least interest + inflation) Remove the need to make money fungible and costs tumble. We can buy and sell non-fungible money for low-cost and so have the ability to transfer value across investments.

  3. From Naked Capitalism:

    SNP ministers are set to reverse one of Theresa May’s key legacies by imposing a legal duty on public bodies to test their policies against their impact on reducing inequality.

    The new Prime Minister, shortly after she became Home Secretary, branded legislation passed by Labour in the dying days of Gordon Brown’s government “ridiculous” and refused to implement it, saying it would be scrapped “for good”.

    However, it is to be resurrected by the Scottish Government, with the administration confirming a commitment to reintroduce the so-called socio-economic duty north of the border during the current Holyrood term.

    The law, part of the Equality Act, sets out a legal duty on key public bodies, including government and local authorities, to ensure they consider the impact that their strategic decisions will have on narrowing class inequalities.

  4. So what happens when pulling all the levers doesn’t save capitalism?

    Just pour in more stimulus equal to 5% of GDP!!!!!

    Just crazy and pointless.

    Looks like Kamikaze Capitalism to me.

  5. Amid cute cat pix and celeb goss, there is a serious situation developing in the Philippines: the President Duterte is extolling the virtues of citizens killing citizens, summary executions, and other vigilante behaviour. The death toll since the election is over 500 people. It is a witch hunt, and now that the lit match has started the fire, who knows how far it will spread?

    What I would like to know is why our government hasn’t been publicly condemning an elected head of government from encouraging death squads to operate with impunity for their illegal acts of murder. And are any of the neighbouring countries condemning President Duterte for starting this witch hunt? What is his next step—will he militarise the law enforcement and escalate it further?

  6. The response by the 4 banks to the RBA cash rate cut should set bells ringing. Conspiracists suggest collusion however the simple answer might well be that foreigncash is getting expensive and they want to raise funds locally.

    This leaves the govt up the proverbial creek, monetary policy can no longer be relied on as an economic stimulus. Both the US and UK are talking about reinvigorating domestic industry through infrastructure projects, something that our govt should contemplate.

    I think that privatisation is just about finished.

  7. @rog
    It doesn’t quite leave the gov “up the proverbial creek” yet. There are still other levers at their disposal like fiscal stimulus or as last resort – call in the helicopters (re: Rudd)
    However, the problem as I see it, is any stimulus measure is very likely to positively impact on economic growth but not guaranteed to do much to inflation if the key driver of inflation (or lack of it) at the moment is this completely new paradigm we’re transitioning into that appears to be disrupting everything at the moment called the internet.

  8. @rog
    Indeed and I’m pretty sure most of the electorate buys it… so yeah, in a practical sense (given the political and ideological constraints) the levers are there, but there’s a locked guarding inhibiting access to them. The key to provide access to them would be a crisis.

  9. @Ivor

    Is Japan stagnating or is it making a transition to the necessary steady state economy?

    “Japan is ahead of the world by being forced to come to terms with the steady-state economy. A steady-state economy means that the economy can be dynamic while its size stays the same. Japan is facing major challenges before the rest of the world has to deal with them. I believe this country is saying goodbye to an era of continuous population growth and a constantly-growing economy. We must design our cities and communities, as well as our very economy and society, based on the idea that the population will decline.

    So far, politics has avoided the issue of redistribution by focusing on expanding the “pie.” When the economy grows, everybody’s share will grow. But when the economy is not steadily growing, the role of politics reverts to its original role of allocating wealth.” – Junko Edahiro

    What the writer refers to in the last paragraph is, essentially, “Piketty’s Law”. When growth was greater than returns on capital, redistribution politics was not so urgent. Now, returns on capital are higher than growth and growth itself (in many forms) will soon cease. Redistribution politics will again become urgent, so urgent perhaps that a new kind of economy will be required to accommodate the demands.

  10. @Ikonoclast

    Is Japan stagnating or is it making a transition to the necessary steady state economy?

    Do you have a link to that article, Ikon? I have been suggesting this for ages, but usually people tell me it’s nonsense when I raise the issue. I am very interested in reading the piece by Edahiro, if you can point me to it.

  11. @Ivor

    It depends on the definition of “stagnation”. Investopedia defines stagnation as follows;

    “Stagnation is a prolonged period of little or no growth in an economy. Economic growth of less than 2 to 3% annually is considered stagnation, and it is highlighted by periods of high unemployment and involuntary part-time employment.”

    By that definition, Japan has stagnated from 1991 to the present day albeit with some highs and lows. Basically, the Japanese economy has moved “sideways” despite some blips and dips. The EU has stagnated since the global financial crisis. So it seems capitalist economies can stagnate with these being examples. It then depends on one’s definition of capitalism.

    Whether Japan or Europe can stagnate indefinitely without a crisis is another issue. This also raises the issue of what is the difference between a stagnant economy and a steady-state economy? The former implies economic illness, the latter economic health. I think both are possible but maybe both are not possible within capitalism. A stagnant economy will very likely never deal properly with unemployment, inequality and other issues like deflation or inflation (stagflation) as the case may be, let alone environmental problems. Presumably, a healthy steady-state economy could resolve these issues and achieve qualititative growth of certain kinds (for a considerable time but not forever) without quantitative growth and within sustainable parameters. I don’t see capitalism as being able to create a healthy economy of this latter kind.

  12. Now, influential Rebublicans are tagging Trump as some sort of Fa$i$t and throwing money at Clinton.


    She revealed that Mrs. Clinton, the Democratic nominee, had reached out to her in a phone call about a month ago, one of the first indications that Mrs. Clinton is aggressively courting Republican leaders. While acknowledging she diverged from Mrs. Clinton on many policy issues, Ms. Whitman said it was time for Republicans “to put country first before party.”
    Using remarkably blunt language, she argued that the election of Mr. Trump, whom she called “a dishonest demagogue,” could lead the country “on a very dangerous journey.” She noted that democracies had seldom lasted longer than a few hundred years and warned that those who say that “it can’t happen here” are being naïve.
    Ms. Whitman also said she “absolutely” stood by her comments at a private gathering of Republican donors this year comparing Mr. Trump to Hitler and Mussolini, explaining that dictators often come to office through democratic means.

    See: http://archive.is/weehG#selection-2261.0-2281.74

  13. @Ikonoclast

    OK capitalism can stagnate as a short-term circumstance.

    But even here this is a artefact of

    a prolonged period of little or no growth in an economy. Economic growth of less than 2 to 3% annually is considered stagnation,

    NB – During this period, wages, debt and unemployment are not stagnate. These are part of a capitalist economy.

    So as a whole, capitalism can never stagnate or transition to a steady state. This would be market socialism.

  14. Newly elected Senator, Whitey McManbaby, apparently can’t talk about important issues because he can’t use hate-speech. I suggest we just place a box of rocks in his senate seat for better representation.

  15. That reminds me @David Allen of the law that tells me I can’t tell you how good my car is, because nowhere in the state can I take it over 100km/hr except on freeways, 110km/hr max. How can that be fair. The speedo says it can do 220km/hr, but can we have a real conversation about that?

  16. Apparently a few families are making trillions of dollars out of climate change lies; it’s a conspiracy, I tells ya! Gordon Bennett.

    Where in the 21st century did we take such a big U-turn, all they way back to the caves?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s