Debunking Economics - the podcast

It’s clear to just about everyone that we won’t reach the climate targets set out in the Paris agreement. It was a pipe dream even before President Trump  v2.0 came along. The various COP summits, which rely on agreement from everyone, are nothing more than gabfests. They are a COP-out. This was recognised in a paper this month from the Tony Blair Institute for Global Change, entitled ‘The Climate Paradox: Why We Need to Reset Action on Climate Change’.There are some sound observations, says Steve, but it doesn’t go far enough. It doesn’t recognise is the mismatch between climate scientists and economists. Climate scientists believe global warming could ultimately be an extinction level event, he says, whereas economics see it having a relatively minor impact on GDP.  The more we listen to the economists the more likely the climate scientists will be right.There’s one positive takeout from the paper though. It recognises that we need breakthrough solutions. But that’s likely to come from high cost, high risk investment. Who is going to pay for that?

A key policy area of Modern Monetary Theory is the idea of a job guarantee. There might be a limit to available resources, but the labour force should always be employed. It helps the economy and it’s good for the individuals and for society. But Phil wonders how practical it is. If there’s an economic downturn can the government miraculously conjure up worthwhile jobs? Steve says it was less of an issue in the 50s and 60s when a higher proportion of the population worked for the government. Perhaps a return to those days would mean less extremes in the ups and downs of the economy and less need for a job guarantee.

Why is it, that whilst there are an increasing number of billionaires on the planet, the rest of us are no better than we were decades ago? Young people can’t get on the housing ladder, there’s an increasing waiting list for health services, schools are short of money and tertiary education, once free, leaves students with a lifetime of debt. Except for the very rich, of course. Cahal Moran says more economics students are questioning what they are being taught in lectures and examines what’s really happening in his Unlearning Economics You Tube channel. He joins Steve and Phil to talk about his new book ‘Why We’re Getting Poorer’.

The standard excuse for why states fail is the rampant printing of money. That certainly doesn’t help, but it’s often the symptom not the cause. In most cases states fail simply because the government isn’t in control. Take, for example, Syria, Yemen, Afghanistan, Somalia, South Sudan. Burt Phil asks Steve whether recent warnings on bond markets show that government debt can place the economy in a precarious position. Take the Liz Truss disaster budget. Or Trump’s swift reversal on tariffs in response to a rising cost of government debt driven by fears of a severe economic slowdown. Are there warning signs of states that are close to economic collapse? And is Trump creating many more of them in small dollar-dependent nations who relied on a trade surplus they can no longer achieve without starving the population?

In 1944, at Bretton Woods, 44 countries agreed to make the US dollar the world's reserve currency. This decision inflated the dollar's value, making American exports expensive and imports cheaper. Donald Trump is now addressing this imbalance with tariffs on countries with high trade surpluses. Steve suggests that adopting Keynes's proposal for a neutral Bancor currency might have been better, while Phil wonders if it's time to reintroduce it, perhaps calling it “Trump” to appeal to the President’s ego.

It’s clear that President Trump lied to the American people about his reciprocal tariffs. Many of the countries he is imposing tariffs do not impose anywhere near those numbers on imports from America. As Phil points out, some countries, like Cambodia, that sell cheap goods to the US don’t buy from the US because they can’t afford to on their low wages. You can only have trade equalisation if you have similar income levels.Steve takes us through the formula that was sued to calculate these ‘reciprocal’ tariffs. The only resolution to the issue, says Steve, is a new currency for international trade. An idea the Americans knocked back at Bretton Woods.

It’s often the easy excuse on how to fix the problems of wealth inequality - just tax the rich more. Former trader turned YouTuber economist Gary Stevenson argues regularly that it’ll fix a lot of the problem. He’s right that the wealthy own assets and the richer they become the more the price of those assets increases. Take land as an example. The government is on a push to build more houses to benefit lower income earners. But who owns the land those houses will be built on? The rich? So, who wins from the demand for more land? Gary’s argument is if you tax hard enough the rich  will be forced to sell assets which will bring the price down. Steve’s less convinced, simply because the uber-wealthy have always found a way to avoid taxation. But he thinks the argument also ignores (or isn’t aware of) the fact that government deficits create money. Perhaps the focus should be ore on where that deficit spending ends up. Maybe we should get Gary on the podcast.

It’s likely that many countries around the world will face import tariffs in retaliation for imposing a value-added-tax on American goods sold in their own country -  alongside other goods, taxed equally, that are not from America. As Steve outs it this week, “What tortured brain cells have communicated to other tortured brain cells to make a proposition that VAT on imports from America is discriminatory”.Still, it looks like it might happen. And how do you resolve that situation. Do you get rid of a value added tax? Phil asks whether that could be a good thing. It’s unfair, complicated, bureaucratic and easily avoided. Would we all be better off with a transaction tax?

Are we kidding ourselves when we talk about an energy transition? Sure, we are using more renewables than ever before, but the planet is also using more fossil fuels than ever before. Phil asks Steve whether part of the problem is that we pout faith in incumbent energy companies managing that transition. The way BP and others have switched focus back on fossil fuel exploration shows how ill-conceived that expectation was. But, irrespective of who drives the transition, is it too much to expect that we will leave energy untapped. If renewables provide a new source of energy, won’t we just use up more energy, because the more there is the greater the productivity, the better off we are.Watch the video of the podcast here: https://www.youtube.com/watch?v=ArfsehlKMo8&t=2s