Debunking Economics - the podcast

A couple of years ago, when warning of the need to fight inflation, Jerome Powell, Governor of the US Federal Reserve says interest rate would rise and jobs might disappear. Yet, interest rates have risen, and unemployment hasn’t fallen anywhere near as much as expected. So, what’s going on? Does it mean, thankfully, that monetary policy isn’t working as well as expected? Now the talk is of a soft landing, where jobs have been protected and inflation has come down. The work of fine tuning by the central bank, or just a coincidence. Phil Dobbie and Steve Keen talk about the interplay between jobs, wages, inflation and central bank policy.

Some call it the silver tsunami. The wave of old people putting pressure on government budgets. And, as baby boomers retire and young people produce less and less children, western populations will continue to age. That means less productive capacity and more people dependent on welfare. On today’s podcasts Phil & Steve talk through the three options open to governments: flood the country with younger migrants to pay more tax, pay less and create a cohort of elderly poor, or rethink the idea that budgets have to balance. The last one is always quickly dismissed.

The last time interest rates were this high they came down rather fast. This time central bankers are determined to manage a slow unwind and deliver a return to growth without wreaking havoc on the economy. Will they be successful? This week Steve Keen argues the high interest rates are inflicting damage without treating the problem. Inflation is being caused by businesses increasing their mark-ups. But, Phil asks, surely they are only able to do that because demand is outstripping supply. And what should interest rates return to? Central bakers call it the R* - is there a danger if they assume it’s too high we could drive ourselves towards debt deflation?

Complex systems don’t have to be complicated to provided deep insights into the real world. That’s the view of Doyne Farmer, special guest on this week’s podcast. It’s an approach he shares to economics with Steve Keen. Steve develops systems from the top-down, whereas Doyne’s work focuses on agent-driven bottom-up modelling. But they arrive at similar conclusions. Phil Dobbie talks to them both about how we could arrive at a more accurate understanding of the economy and financial systems, which could result in better regulatory and planning behaviour by central banks and governments. Doyne also describes how he started down the road of complex modelling, using science to beat the casino tables in Vegas. Or more, get a copy of Doyne’s new book: Making Sense of Chaos– A Better Economics for a Better World.

It’s curious isn’t it how we talk about household savings, rather than net debt. Many people do have money squirreled away in savings accounts, for a rainy day. That rainy day comes when hey lose a job and need that cash to pay their mortgage. So we are saving to help pay off an existing debt at a later date. How cockeyed it that? A lot of that money tied up in savings, including funds we’ve put away for our pension, ultimately become the source for investment. That’s supposedly a good thing. More money for investment means businesses can borrow more, and the bigger the availability of funds the lower the interest that will be charged to these businesses. But the more we save the less money we spend, therefore the less demand businesses will have and the less the appetite for borrowing for investment. Phil discusses all of this with Steve Keen, who challenges a lot of the conventional logic around savings, debt and investments. 

So, if economics is all about the allocation of scarce resources, isn’t energy the most scarce resource? And yet its not really included in any economic models. We look at labour and capital as the drivers of growth, but energy is just a contributor to those factors, not a key factor in itself. Yet without energy humans wouldn’t survive and machines would lie dormant. This week Phil talks to Steve about the need to give energy the dominant position it deserves in economic models. As you’ll discover, it doesn’t have to be that complicated. Then, once we have a clear model we can use them to ensure that we deliver economic growth without destroying the planet. Simples.

We are obsessed with the need to own things, not least, our homes. But for younger people that is increasingly becoming a pipedream, unless they are lucky enough to gain a healthy inheritance. Even then it’s going to come later in life. In the meantime, we save like crazy, and even when we do get a house, we spend decades paying it off though a hefty loan form the bank. The finance sector are the big winners. But should we do away with this unhealthy obsession and rent our homes. A d should the government be the landlord most of us turn to, rather than a private property owner borrowing from their bank? 

The global share market has always been dominated by the US, now we’re seeing a number share of very large tech companies claiming a larger slice of that pie. Even though they are trading with price to earnings ratios well beyond the historic average, these companies won’t fail. They dominate the market, with billions of customers, low production costs, a low number of workers and the spare cash to vest in growth without the expense of extra capital. Phil asks Steve, what damage are these companies doing – to the share market, to the global economy and to investors. So we need to knock these companies down to size? Steve thinks not, but has another way of tackling the issue.

Labour has romped to victory in the UK and they need to get cracking on all their election promises. One of those is the creation of Great British Energy. Keir Starmer points to the number of foreign interests owning energy generation in the UK. But, as Phil highlights this week, foreign companies are also heavily invested in energy distribution and retailing. The National Grid is suffering from a lack of investment. Doesn’t that also need to be brought into public hands. And what about all the energy retailers who dd nothing to the picture apart from extra marketing costs, confusing plans and the risk of collapse. Phil asks Steve whether, if you add all of this together, isn’t there a strong case to put the entire energy delivery chain into public hands, from creation to delivery. But that’s not what Keir Starmer is planning., even though its accepted wisdom in most parts of the world.