Inflationary Expectations

It seems that suddenly everybody is talking about inflation. Better late than never, I guess. In Australia, the inflation rate for the full year to 30 September 2021 was 3.1%. The September quarter price index rise was said to surprise economists and the bond market traders. Some Chief Executive Officers of large Australian companies have begone warning their consumers that price rises will be on-going. I know that in some industries, suppliers are giving notice of impending price rises closer to 10%. Producer prices are increasing rapidly and that will eventually feed its way into consumer prices. The Consumer Price Index is the favoured inflation measure of many people, but producer prices give a better lead indication. Continue reading

Targeted Risk Mitigation

I am unaware of any country other than Sweden that has taken a targeted risk mitigation strategy to deal with SARS-COV-2. It appears to me that the citizens of other countries have been treated as amorphous, to be pummelled towards the impossible goal of virus elimination. “We had to destroy the village in order to save it.” That cliched quotation, supposedly from a US army general in Vietnam, may be a myth, but it does describe the apparent attitude of most governments in response to COVID19.

Risk mitigation has costs. Therefore, mitigation techniques should be applied only where they are needed and only if they can be reasonably expected to work.

Using Europe as an example, here is the median age data by country:

Across the continent, the median age is less than 44. (It has created up to around 46 in some countries.) That means more than half the European population is aged less than 44.

With that in mind, consider the mortality experience of the last 5 years up to the end of 2020, plus year to date 2021. This comes from the European Mortality Monitoring study that collects data from 29 participating countries. The following chart shows excess deaths (ie different from normal, where normal is based on continuous mortality investigations) for ages up to 44. Each line represents a calendar year of data, split by weeks 1 to 52. I have deliberately withheld the legend so that the lines are not identifiable as any particular year. Your challenge is to guess which coloured lines represent 2020 and 2021.

This analysis ought to inform policy response and mitigation targets. More than half the population is being hammered financially, psychologically and socially unnecessarily.

Global hegemony

When it comes to global hegemony the main event is the US and China. This will remain the case for the foreseeable future. China has been making its objectives increasingly clear in recent years and I anticipate that pattern will continue and probably accelerate.

Demography is destiny, as the French chap Comte once said. The pattern of demography and wealth follows a well established path: as countries get richer, the fertility rate reduces, which results in an ageing shift in the country’s population structure until a new equilibrium is established. Of course, some countries adopt a high immigration policy to keep up the supply of younger to middle aged people. That works only if the country maintains that rate of immigration indefinitely. Australia and the US are immigrant nations. China, on the other hand is not. There are no queues at the immigration counters in China. Border security officers in China assigned to the immigration desk have one of the world’s most boring jobs.

So China’s population shape depends entirely on the fertility rate. And here lies the tricky issue. Take a look at the following chart of the US population structure, both historical and with UN projections to 2100.

The total population is growing. The workforce age cohort (25-64) is growing. The retiree cohort (age 65+ is growing but does not get too close to the workforce cohort numbers. Having a healthy surplus of workers to retirees, students and children is essential for economic vitality, growth and social cohesion.

Now look at the equivalent chart for China.

The workforce cohort (25-64) has already peaked and is now falling. That’s a big deal. Meanwhile, the retirees are growing in number. There is a rapid squeeze that will take a grip of the Chinese population structure over the next 40 years and generate really difficult economic constraints. A lot of China’s growth in the last 30 years has come from a transition of agricultural labour into industrial labour to support new manufacturing of goods that have been exported all over the world. That transition is largely complete. There is no easy source of new cheap labour still making its way to the industrial cities. Productivity gains and new investment will be the only sources of future growth. But a demographic structure as projected by the UN combined with a Communist state do not give me much hope that the Chinese people will be able to match the productivity gains of a liberal democracy.

China could well be the first country to grow old before it grows wealthy.

Now, I don’t expect the Chinese Communist Party to meekly roll over and say “Oh well, we tried.” Communist regimes fail – that much we know. But they don’t go quietly.

The panicked Australian political leaders and public health experts (sic)

Most of the population of Australia remains in a COVID19-related lockdown that is unjustifiable by any measure. I wonder if any of those people bring facts into their thinking process? To give an update, here are three charts. I have shown data for Australia, UK and US.

First, the number of new cases:

Next, the proportion of those new cases that are of the Delta variant:

Finally, the numbers of deaths:

The increase in new cases in the UK and US winter of 2020/21 also resulted in an increase in deaths. But the increase in the current northern hemisphere summer has resulted in no increase in US deaths and a marginal increase in UK deaths. What changed? Delta. Virtually 100% of the current new cases is Delta. Last northern winter, virtually none of the new cases were Delta. Delta is more transmissible (apparently) but dramatically less deadly.

Meanwhile, Australia locks everyone up.

A back of the envelope guide to the physics of electric vehicles

Is Australia on the way to an electric vehicle future? Some people would like to think so, but is it feasible? It is time to scribble on the back of an envelope about watts.

According to the Australian Bureau of Statistics there are currently (as at January 2021) 19.8 million registered vehicles in Australia, including passenger cars, vans, trucks and motorcycles. Cars and light commercial vans make up the vast bulk of the registrations. If we assume that if those vehicles were electric, they would have a 75kwh battery that would require a full charge once per week, then the extra demand for electricity across the country for a full year would be 74,250 Mwh.

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The 2020 US Presidential election

The enduring victory is with the Trump voters. It disappointed me that Trump did not win a second term. However, there is much to be pleased about the outcome for those of us who prefer freer markets and smaller Government. The election proved that there is no left wing majority vote in America. It was a relatively tiny number of votes by which Biden succeeded. There was no blue wave, no sweeping green new deal, no momentum, no feeling of a new direction, no change in the Senate numbers. This is not a new beginning as the changing of control of the White House usually signals. For evidence, see the internal infighting that has already broken out with ferocity within the Democrat party. They too know this was not a victory. Biden is to begin his Presidency in the weakest state that any presidency has ever started.

It is worth noting that Trump is challenging the election tally in some states and I expect he won’t give in easily. There is enough suspicion and doubt over the results to make the challenge interesting. How exactly did so many ballot papers get discovered in the middle of the night almost all of which had voted for Biden? In any event, there is enough public awareness about the potential fraud that electorate voting methods will have to be cleaned up and tightened for future elections. Another win for the Trump voters.

This election was not all about removing Trump. It was about the confirmation of the 2016 result. It was about Trump showing the way for the Republican party to capture votes – give the people a genuine alternative approach. Drain the swamp was a message that resonated. For decades, the Republican and Democrat parties looked like each other. Under Obama, that changed as he started dragging the Democrats left and it would have accelerated under a significant Biden victory. The voters put a stop to that. Ever increasing taxes, regulations, wealth redistribution, porous borders, constraints on personal liberties and critical race theory are not as popular as the extremists in the Democratic party thought. Get woke, go broke. The Democrats have just found out what a number of virtue signalling corporations discovered recently.

The socialist state is not coming to America yet. The significance of Donald Trump to American politics, and indeed to centre right parties around the world if they care to take note, will become better understood over time. He may not yet be gone, but his legacy has already begun.

Modern Monetary Theory part 3 – underutilized resources

Continuing this critique of Modern Monetary Theory, I now come to the standard explanation of the MMTers as to why inflation will not break out when the Government prints money – they refer to the excess capacity in the economy. According to the theory, if an economy is suffering unemployment, then there is not enough demand to fully use the resources. Printing money is a costless way to increase demand, get the unemployed into work and increase wealth. Inflation will be a risk only if there is no excess capacity, no underutilized resources in the economy.

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Modern Monetary Theory Part 2: inflationary experience

In Part 1 of my criticism of Modern Monetary Theory, I explained currency debasement was a fundamental part of it. In this Part 2, I will explain why the whataboutery that is used by the MMTers can be dismissed.

Whataboutery. A useful noun. It is frequently heard coming from MMTers when a critic of MMT says printing money will lead to inflation – but what about Japan? they say. Over the last 25 years, Japan’s money supply has more than doubled. Yet inflation has not broken out much at all. See?

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Modern Monetary Theory part 1: currency debasement

MMT advocates currency debasement. Proof of this is given by the MMT proponents (the ‘MMTers’) themselves by their proposing the use of taxation to then control inflation.

That is the very first point about MMT that should be grasped. Currency debasement occurs by ‘printing money’. The MMTers say that the Government monopoly on the currency issue means it can print money to finance its own expenditure. Then tax can be used to control inflation.

You may have seen this written as the breakthrough idea – that Governments actually are not bound by the need to finance expenditure via borrowing and/or taxation. The deficit doesn’t matter, they say. This is meant to be the whole new (hence ‘modern’ nomenclature) understanding. I hate to pour cold water on the naming of the theory, but currency debasement is not new or modern. It is as old as currency itself. From shaving off the outer thin layer of the coinage in Roman times to melt down the silver while the coin retained its face value, to printing counterfeit bank notes, to quantitative easing – currency debasement has been a problem ever since day 1.

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