20 thoughts on “Monday Message Board

  1. Well, more economic history for my son at school this week. They’re doing the classical school. And because Smith always seems to get more attention than Ricardo, why not have a crack at Ricardo…

    David Ricardo (1772-1823) was arguably the most famous economist between Adam Smith in the eighteenth century and John Maynard Keynes in the twentieth. Though he was no bridge linking them. Ricardo was a classical economist in the mould of Smith.

    In fact, ‘Ricardian equivalence’ is completely at odds with the Keynesian approach. Equivalence is Ricardo’s theory that debt-financed government spending won’t stimulate demand. Because people will instead save, in anticipation of paying higher taxes later to clear that debt.

    Unfortunately, his equivalence is based on unrealistic assumptions (something Ricardo himself later acknowledged). First, that governments actually pay off debts. And second, that taxpayers even plan for that unlikely eventuality. As if you’d cancel your overseas holiday because of national debt! Otherwise known as Gen Next’s problem! 

    Ricardo was always thinking deeply about economics. To keep his mind occupied while strolling the expansive grounds of his Gloucestershire estate. He busted out a labour theory of value. Plus theories on rent, wages, profit, and comparative advantage.

    In an astonishing coincidence in 1815, Ricardo was one of four men to within weeks of each other independently propose a law of diminishing returns. Economists of the era were initially spellbound! But completely over diminishing returns by the time the fourth guy published on it.

    One of seventeen children, Ricardo quickly learned to play the numbers, initially working for his father at the London Stock Exchange. He then ran off with a Quaker and became a Unitarian. This caused his family, appalled at the prospect of his alcohol-free, oatmeal-rich, ruined future, to disown him.

    Even though Ricardo’s true love was economic theory, he couldn’t stop making money in the markets. He famously sent a scout to the Battle of Waterloo to report back in advance. Then sold British bonds to mislead people into thinking Napoleon had won. This caused a market panic, which he exploited by later re-purchasing the bonds at a much lower price. Making a killing in the process. 

    Having displayed such talent for deceit, Ricardo progressed seamlessly into politics. In parliament, he seems to have behaved quite ethically as an abolitionist and a free trader. Still, a man’s got to keep his vices. And in Ricardo’s case it became his signature: ‘Ricardian vice’ – a love of abstract theory divorced from gritty reality.

  2. @Ernestine Gross
    I especially liked You Can; “In a book titled “You Can” published by Appleby, readers can learn in detail how to set up, license and successfully run an online gaming company there.”
    And being full service you “don’t even need programming skills – there’s software for that.”
    A book, shop and services for a casino. I always thought they were bespoke.

  3. Apologies… missed the article to read for above “You Can” book.
    See article in Ernestine’s link “What a Gamble”.

  4. They have no shame, know teeth.

    IMHO, the topic “austerity” ought to be linked to the shameless and the revised topic should be “austerity for whom”. And then, we know, teeth are required to achieve roughly balanced budgets by making the shameless experience a bit of austerity.

  5. Queensland content:

    Over the weekend, I learned from the media that Annastacia Palaszczuk’s “partner” (sorry for the quotes, but that word makes a relationship sound like a law firm) works for the giant multinational accounting firm, PricewaterhouseCoopers. Judging by the edit history of her Wikipedia bio, this was not previously common knowledge, since as recently as a week ago, it only mentioned her two marriages.

    This has somehow come out in the context of Adani and the state election, but first I want to digest the bare fact of the relationship. Voters often complain that politicians are in bed with big business. I would have thought that was a metaphor, but perhaps it is literally true more often than I had imagined.

    Indeed, I just looked up Jackie Trad’s husband, Damien van Brunschot. He’s some sort of insurance lawyer, and he has a LinkedIn page from which one can learn that just last month, he ended ten years at the Indian multinational law firm Kaden Boriss, and took up a position with a British multinational, DWF.

    I wonder what fraction of the Queensland electorate would find these facts alone somewhat shocking. I do. I’m used to the idea (so brazenly broadcast in American politics) that big corporations, via their money and their lobbyists, write the laws that nominally govern them. But I didn’t realize that our premier and our deputy premier are so intimately entangled with foreign big business.

    To me, it just underlines that Australia is not run by Australians. And that explains a lot.

  6. Gabrial Zucman, a former PhD student of Thomas Piketty, elucidates the reasons for increasing wealth inequality within and across national juristictions in the light of the series of leaks (Swiss, Panama, Paradise) of international high finance.


    IMHO, the growing evidence renders macroeconomic discussions of budget deficits, printing money, and austerity meaningless because private and public net debt generation merely increases the size of the profits (including payments to individuals that do not fit the notion of ‘wage’ as I understand it) that can be transferred to tax havens or hidden, hence increasing the said inequality. ( I am excluding short term budget management for both, households and governments.)

    The issues raised are related to but not subsumed by the issues raised under the heading ‘financial capitalism’ (term used by JQ) in relation to financial crises. IMHO, the issues raised by Zucman are relevant in explaining why multinational corporations and high wealth individuals have recovered very quickly from the GFC.

    Zucman makes the point, among many others, that with increasing wealth inequality (concentration) leads to specialisation in production to cater for the wealth elite. There is already evidence of this, perhaps best captured by Joe Hockey when he said words to the effect that poor people don’t drive cars. (By implication, it is poor peoples’ job to reduce air pollution, including greenhouse gas emissions and keeping the PPI financed roads clear for the grand coaches, except for buses which, for the time being, still may drive on these roads.)

    The notion of ‘free markets’, which underlies this system, has little or nothing to do with the theoretical models of ‘competitive private ownership economies’ but everything to do with the legal (institutional framework). Using a broad brush with which I do not wish to taint all members of particular professions, the system in question is promoted by lawyers and implemented by lawyers and accountants. The rules of mathematics are complied with in the said theoretical models and the environment is not ignored. I refer to JQ’s post on the rules of mathematics in the empirically relevant area of law making.

    Transfer pricing (the generic term for profit shifting) is not a new topic in Economics. Locally,
    the late A. Prof Wheelright, former University of Sydney, has written about transfer pricing before neoliberalism became the dominant ideology of many governments. That is, he wrote in the 1970s about this topic.

  7. It looks like Labor MP Justine Keay might be in trouble over her British citizenship. Advised by Labor Party lawyers in February 2016 to get the process of renunciation started, she waited until the election was called in May, with the result that she was still a British citizen on election day.

    Why did she wait?

    “If I don’t get elected I can’t get my citizenship back and for me, it was a very personal thing.”

    What a dope. And she’s in a marginal seat.

  8. @Ernestine Gross
    Makes sense and is quite depressing. So, the levers a sovereign gov should ultilise for stimulus are (1) fiscal, and (2) monetary to a certain point (1.5% cash rate?) and failing that – the helicopters?

  9. @Smith
    Well, there’ll be plenty of Labor heavyweights (probably half the Shadow Cabinet) with plenty of egg of their face if she is found ineligible. I personally listened to Albo, Burke, Wong, Butler and Plibersek adamantly declare on local and national radio that the ALP will not have any MPs caught up in the citizenship saga with black and white clarity.

  10. @Troy Prideaux

    “So, the levers a sovereign gov should ultilise for stimulus are (1) fiscal, and (2) monetary to a certain point (1.5% cash rate?) and failing that – the helicopters?”

    I don’t think so.

    The notion of sovereign government (‘country’) is not unambiguous in a global economy with multinational firms (including trading and finance corporations), vastly different juristictions (legal framework), ‘free’ capital movements and ‘restricted’ labour movements across countries. This is also not a new idea – as you know, even during the Keynesian era the coordination of monetary and fiscal policies was a hot topic.

    The notion of ‘stimulating the economy’, while often talked about, isn’t a clear idea outside Keynesian textbook macro models for closed economies.

    It seems to me the crucial question is why is a ‘stimulus’ required – do the wrong people have the money? And what is ‘money’ anyway?

  11. From a CleanTechnica post on EVs in China (****cleantechnica.com/2017/11/09/didis-huge-role-quickly-developing-chinese-electric-car-ecosystem/):

    “Didi [Chuxing] has proclaimed it already has 260,000 EVs in its [ridesharing] network, out of the global total of 2 million EVs on the road […] with the CEO and co-founder Cheng Wei saying it will reach 1 million EVs by 2020.”
    “‘[Electric automaker] NEVS […] already signed in 2015 an agreement to supply 150,000 EVs to Panda New Energy, an electric vehicle leasing company in China.”

    That’s two Chinese fleet buyers claiming to be ordering EVs 100,000 at a time. Even if they are bragging, the signal is deafening.

  12. @Ernestine Gross

    It seems to me that while a leak on a boat is small then bailing out works. When the leak exceeds the maximum possible rate of bailing then the boat sinks. The leaking happens the other way round with tax havens of course. Money leaks out to tax havens. While the leak of money (and potential taxes) to havens is low relative to the economy of a country then the poor in said country can be “bailed out” with welfare, some of it from “stimulus” monies. When the leak gets too big then the size of the stimulus required gets too big. It will cause other problems and just “feed” the leaks.

    The real question is this. Why have governments of losing nations in this transfer (like Germany and the USA) not acted in a timely and effective way to stem the growth of this problem? My theory would be that that the high net worth individuals involved also have a high influence on governments, including on supposedly democratic governments. In other words, they buy the policies they want. Politicians are influenced by campaign funding to enact policies to suit those who fund their campaign.

    The current system is reliably generating these outcomes. The fundamental outcome being increasing inequality and ever-spreading corruption. We now have the Paradise Papers. There was a previous papers leak on this issue, I forget the name of those papers. We have seen manipulation of the LIBOR and other market prices. We have seen a number of business and corporate scandals in Australia recently. I would have to research to list them all. The failure to pay proper and legal wages in some sectors was a significant aspect.

    I come back to my statement. The current system is reliably generating these outcomes. Not to put too fine a point on it, the system has got to change. It has to be changed. You mention institutional arrangements. This is a prism through which the current system problem can be viewed. Fundamentally, the institutional arrangement of large, concentrated private ownership of productive apparatus has to be changed. We need a set of laws enacting higher wages (higher wages share of the economy) and, furthermore, enacting models of cooperative ownership and state ownership of enterprises on a case by case basis. State ownership is most appropriate for natural monopolies. With cooperative ownership must come cooperative and democratic running of enterprises.

    Until the majority of people say “We want socialism”, and make that demand effective and implemented, it’s the case the nothing will change. People who don’t like “ism” words can say, “We want new institutional arrangments to pay fair wages and to reduce the concentration of ownership and wealth. Same difference. 🙂

    same difference – 1. informal

    used to express the speaker’s belief that two or more things are essentially the same, in spite of apparent differences.

  13. @Ikonoclast

    The analogy in your first paragraph is as good as an analogy can get, IMHO.

    Regarding your second paragraph, perhaps the two countries you have mentioned are not as ‘sovereign’ as required. The leakages can occur only if there are linkages. The linkages and leakages are not identical for the two countries. Lets see what happens after the UK has left the EU.

    Nice try in your smiley paragraph. There is, however, a crucial difference. One statement makes the demands explicit and therefore encourages discussion. The other one relies on people having identical or very similar beliefs as to what a phrase means.

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