Economics

Oil price caps

AustralianActuary Economics

Carlo Cipolla was an Italian economic historian. He wrote a book about the theory of human stupidity. His theory was based on five fundamental laws, one of which is that stupid people are defined as taking actions that hurt both themselves and others. I was reminded of his work when I heard about the latest announcement from the EU, G7 and Australia to impose a cap on the price of Russian sourced oil of US$60 per barrel.

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The Laffer Curve arrives in UK

AustralianActuary Economics

The new Truss executive in the UK is setting out to restore a little faith in conservative politics economics. First, removal of the fracking ban. Now a tax reduction package described by most commentators as the biggest cut in taxes for decades. That’s excellent news. Yes, it needs to be followed up by expenditure cuts since the real measure of tax in an economy is the level of Government expenditure rather than the tax take. But, a tax cut will help even in the absence of an expenditure cut.

The reasons are well known. Arthur Laffer is the US economist credited with the naming rights of the Laffer Curve. In simple terms, Art’s point was that at a zero rate of tax, the total tax take would be zero. Likewise for a tax rate of 100%. In other words, the tax rate that would maximize the tax take was between 0% and 100%. What’s more, at higher rates of tax, a tax rate reduction would actually increase the tax take. That can only happen if economic growth increases. President Reagan understood the concept and the Reagan tax cuts were a huge success.

Now, 40 years later, the Truss government is following the same path. Well done Liz, this is a great start.

The imminent de-industrialisation of Europe

AustralianActuary Economics, Life

The de-industrialisation of Europe is now inevitable and imminent. With it will probably come political regime change. It will be rapid and dramatic, and most likely occur in the northern spring of 2023.

The seeds of this looming crisis have been sown over the last decade.

Firstly, European political power structures have done what they always do – become ever tightened; ever divergent from the wants, needs, values and expectations of the citizenry; increasingly reliant on the state controlled forces of the police, military and more recently media, technology and finance companies to censor and crush domestic political dissent; and never able to admit error or change policies.

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Mr Market is never wrong

AustralianActuary Economics ,

I am one of the strongest advocates of free markets among people that I know. When I hear of the left, the cronies, the globalists and the common or garden rent seeker claiming the need for state coercive intervention owing to ‘market failure’, my response is invariably “there is no such thing as market failure, but there are outcomes that you don’t like: don’t get those two confused.”

Really?

In this case, without proclaiming the market is wrong, I can’t see how it can be right. Ordinarily, higher interest rates will not curb inflation until the real interest rate is positive. So, we’ll see if Mr Market is merely sorting cards on the table and still making up his mind.