Debunking Economics - the podcast

Imagine if Keir Starmer, the UK Labour leader, had said, let’s not get too obsessed with government debt. If we go down that road we won‘t be able to provide the public services we need, our infrastructure will crumble further and we’ll simply see the country’s productivity erode further by the day. Unfortunately, he didn’t say that. Instead, he has pledged himself to the temple of fiscal responsibility, just like the Conservatives. That means, whichever party is in power the UK can expect something akin to the austerity that plagued the last 2010s. Phil asks Steve just ow much extra spending the government can get away with, though, when the Liz Truss experience suggests governments are answerable to the financial markets.

There’s been a debate brewing post-pandemic about how much inflation has been elevated by companies increasing their margins. The evidence of that is the increased profits, not just in the tech sector, which has helped increase the share prices of these companies, evidenced by record levels across the US share market indices. This week Steve Keen says its clear that is happening. Even before the pandemic, when inflation was lower, companies were still increasing their margins more than the level of wages, so workers were increasingly worse off. Hence the pre-pandemic stagnation. But companies need to improve their efficiency to fend off competitors and provided the rising returns that investors are demanding. So, isn’t the constant drive for higher margins simply an acceptable and necessary function of capitalism?

The UK is heading to the polls on July 4th and the Conservative Party is heading for annihilation. Yet, when it comes to espousing sensible ideas from textbooks, Rishi Sunak had the making of a good Prime Minister. For example, tackling productivity by building the necessary infrastructure, investing in education and building cities and regions where businesses could cross pollinate their expertise, facilitated by strong communication and transport links. He presented all of these ideas three years ago and since then productivity has fallen. Why? Steve says these are all great ideas, but there was no money there to support them. You can’t facilitate growth whilst pulling money out of the economy through government spending cuts. Hence, Tory party economics has failed on delivery. 

Steve is on hols this week, so Phil takes a look back at a couple of Debunking Economics podcasts from just before Donald Trump took office. In many ways he stuck to his promises. He tried to cut immigration, he introduced protectionism with hefty tariffs on China and he cut taxes. Now he’s promising more of the same, although Biden might have beaten him to it when it comes to heftier taxes on China’s EV exports. The first time around Steve suggested some of Trump’s thinking was right, although perhaps for the wrong reasons. Tax cuts to boost spending seems like a good idea, but he directed it at high income earners in the false belief that they would use this money to invest in jobs to grow the economy. Instead, tax receipts fell and the new jobs didn’t materialise.He is also hell bent on making America self-sufficient for energy. America’s domestic oil production has been steadily increasing since 2016. Can we expect this to accelerate, given he has repeatedly declared climate change is a hoax, and the likely funding support he is receiving from the fossil fuel industry?

Should we tax wealth more? The UK’s Shadow Chancellor Rachel Reevs wouldn’t be drawn o the question at an FT forum recently. She said the UK is already a high taxing country. But around the world the wealthy are getting wealthier. Is that a bad thing? Some would say that if they are making money creating growth for the economy, then why would you want to stop them. Jeff Bezos, for example, makes a small fraction of the wealth of the economic benefit he has created for broader society.  But does it make sense that income from wealth – primarily capital gains – is taxed less than I come from work? No, says Steve Keen. It should be the other way round. Listen in for a discussion about taxing wealth, that’s a little more nuanced than just saying tax the rich.

UK Labour leader Keir Starmer has said if he wins the next general election, within 5 years he will have re-nationalised Britain’s railways. Phil asks Steve whether it naturally follows that this will lead to an improvement in services and lower fares? Steve reckons you any need to look at government run services elsewhere in Europe to answer that question – but Britain’s trains weren’t so great even in the days of British Rail, when they were in government hands. This time there’s a chance one of the key areas of investment will remain in private hands, negating the advantage of public ownership.Railways are also an easy choice. Many franchise operators have fallen by the wayside, forcing the government to step in. Renationalisation was starting t happen by default. Ut what about water?  Nd, more significantly, what about the power industry. How can an industry that relies on making more money from customers operate in an environment where climate change is demanding we use less?Phil and Steve discuss how Labour’s plans only seem to scratch the surface.  Th direction of travel is right, but they don’t seem to be heading very far down the line.

The new industry is struggling to survive, with far reaching consequences on public accountability and democracy. Steve says part of the problem could have been fixed with a suitable micropayments system, so readers could consume articles without subscribing to papers in full. Phil’s not so sure, pointing to the fact that an increasingly large proportion of the population is not consuming news at all and what they do read or watch is on their feeds in social media. News media is having to resort to click bate on low-rent stories that will drive traffic and help drive advertising revenue. There’s little or no scope for investigative journalism unless it is funded by the public purse – but governments and reticent to fund such activities if they fear they will be caught out by it. So how do we fix the journalism deficit?

There are two types of people who buy gold. Speculators who see it as a risk-adverse asset class to buy when other investments look a little shaky. There are also those who hold onto gold because they believe paper money has no intrinsic value and is therefore susceptible to collapse. Zimbabwe, who’s paper currency has been undergoing decades of increasing worthlessness, is now being replaced by a new form of blockchain currency – the ZiG, completely backed by gold and foreign currencies. Phil and Steve discuss whether it’s a smart move for Zimbabwe, before looking at the broader global preoccupation with the stuff. 

Sadly for Donald Trump, America seems to have been doing quite well in his absence. It has weathered the pandemic and inflation better than most. GDP pr capita is rising faster than most places and consumer spending is on the up. In fact, the main reason the Federal Reserve isn’t cutting rates is because the economy is doing so well they don’t see the need for a sudden change. But there are lots of warts in the US too. Industrial production plateaued decades ago, crime is rampant, despite the high predisposition for putting people in prison, the rich-poor gap is as wide as ever and, even though America spends more than anyone on health, they have a comparatively low life expectancy. Has America lost its way, with China beating it on EVs and, possibly AI, with Boeing outstripping Boeing because their planes are less prone to falling apart? This week Phil and Steve talk about what needs to change, and what happens if more of the world decides not to conduct international trade in US dollars.