Economics

Modern Monetary Theory part 1: currency debasement

AustralianActuary Economics

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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Renewable energy – a futile decades long experiment with other peoples’ money

AustralianActuary Economics

Reliable energy generation from renewable sources (solar, wind and hydro) has proven unattainable. Despite decades of trying, decades of subsidizing renewable energy projects using other peoples’ money, they can never work. Australia has one of the world’s largest supplies of cheap reliable proven energy: coal. Yet Government action is actively killing the coal industry to give a leg up to renewable projects. It may well end up killing the coal industry and smashing the standard of living of Australians. But we can say with certainty, that reliable energy cannot be generated by solar, wind or hydro facilities.

The serious situation of the Three Gorges Dam

AustralianActuary Economics, Life

In case things were not bad enough already in China, there is a serious situation rapidly turning into the risk of a catastrophe with the Three Gorges Dam. In brief, its structural integrity appears to be compromised. Combined with very high rainfall in the catchment area of the Yangtze River, the Dam is buckling and the authorities are releasing as much water as is possible to take the pressure off. But it might not be enough. Should the dam fail, it would cause a catastrophe in China.

The first impact would be humanitarian. Millions of people live and work downstream of the dam. Casualties would be large in number. The second impact would be local economic wipe out. The third would be international economic consequences. The fourth impact would be political reprisal. This is not looking good.

COVID-19, the economics teacher

AustralianActuary Economics

COVID-19 is both a virus and a teacher. The virus bit, you know about. The teaching angle is the subject of this post.

We earn a living only by serving somebody else. Everyone in a market economy has a boss, from Company directors to the newly hired casual in the basement, from the small business owner to the freelancer. To do their job, they must organise inputs in some way to deliver outputs to the satisfaction of the end user. COVID-19 restrictions have disrupted those inputs, the production process and sales, drastically so in some cases. It makes not a jot of difference to the principle at stake whether you are the CEO of the world’s largest corporation, or just starting out in the basement on a casual contract. All that varies is the complexity of the process to be restored.

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COVID-19 update

AustralianActuary Economics, Life

The total number of people that die in any one year across the whole world is currently around 56 million. Of those, around 28 million were over age 70.

The current total number of deaths due to COVID-19 is 56,000 globally. Of those, the proportion aged over 70 appears to be very high, at least 80% based on what scant data is available.

The global workforce is almost entirely aged less than 70 years. Thus COVID-19 has killed around 11,200 people of potential workforce age. In any typical year, the number of deaths globally of potential workers is 28 m. Thus the increase in workforce deaths, so far, is 0.04%.

Source: ourworldindata.org

That’s not a knife

AustralianActuary Economics

Does anyone remember Crocodile Dundee?

Mick

“That’s not a knife!” Mick said dismissively at the New York punks trying to hold him and his girlfriend up with a small folding penknife. “This is a knife!”

Stop me if I told you this before but COVID-19 is not a pandemic. COVID-19 is a penknife. Spanish flu in 1918-19 was a pandemic. It killed more than 20 million people in the space of 18 months. COVID-19 is entering the northern hemisphere spring with fewer than 10,000 deaths globally, having killed the first in November, ie 4 months ago. The virus will be stopped by the sunshine of the northern summer.

COVID-19 kills those who catch it and who are weak for other reasons – age, infirmity, respiratory weakness etc. But not all who are exposed catch it. Not all who catch it die. This panic is misplaced. In fact the cure, as imagined by panicked politicians, is worse than the virus. This is no reason to kill small businesses and strangle taxpayers to support the barely surviving business.

Then the clueless central bankers add to our misery with their incredibly stupid policy response – “whatever it takes, there are no limits to what we will do” said the pathetic creature Philip Lowe, so-called governor of Australia’s central bank. He is willing to trash the Australian currency for this? He obviously never recovered from his university education.

 

Events, dear boy, events!

AustralianActuary Economics, Life

Events are happening. It was the UK prime minister Harold McMillan who reportedly replied to the journalist’s question about what he feared for the times “Events, dear boy, events.” The modern day political leaders with a tendency to fear events have had plenty of material to work with in the last month. Let’s name a few, in no particular order or importance: the south-east Australian bushfires; the assassination of Iranian Republican Guard major-general Soleimani; Brexit; coronavirus; Tesla’s stock price. I will add one more: the impeachment of President DJ Trump, although this is less of an event and more of a political process.

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The great political realignment

AustralianActuary Economics

Regardless of cause, it has arrived. The great political realignment is here. The left parties of Australia (Labor), UK (Labour), US (Democrats) and Canada (Liberals) no longer represent the people that they were originally formed to represent, that is, the wage earners. Instead, the wage earners now support the right of centre parties. There was a hint of this during the premiership of John Howard in Australia over a decade ago – Howard’s battlers were the trades workers in particular. This realignment has emerged in spectacular fashion with the election of Donald Trump, Scott Morrison, Boris Johnson and the recent chastisement of Justin Trudeau, all in the space of three short years. Add to that the allied cause of Brexit and it has been a magnificent three years. Jacinda Ardern in New Zealand should heed the warning signs, but I doubt that she will.

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