Debunking Economics - the podcast

After the war the European economy was humming along, with growth rates of 5 percent or more. Now Germany’s forecast to grow by just 0.1 percent. Allowing for population growth and inflation and it’s an economy in decline. Steve says part of the problem is the assumption that rising government debt is bad for the economy – the old neoclassical belief that if the government spends, it crowds out the private sector. They’ve been testing that theory in Europe for a while now, and it isn’t working for them. Yet, politicians have convinced enough people of the principle such that populist right-wing governments are taking more political control across the continent. All the while, Europe has lost its innovation, and its manufacturing capability is in decline. Hence, Phil asks, how can it get its mojo back?

Copyright and IP rights has always been notoriously difficult to protect. Does it become impossible with the rise of AI? The ideas presented to you through your favourite AI engine come from somewhere whose ideas are being used to support an argument. Or, if you create an artwork that is analysed and used to create other artworks, has copyright been infringed, or is what we would have traditionally called inspiration? Phil asks, is it time to just admit defeat and accept that copyright is an outdated notion and find other ways of compensating the artist and creator? Then there’s the social cost of intellectual property rights. A question that existed before. If Statins had been available as cheaply as they are now before their patent lapsed thousands - possibly hundreds of thousands -of lives would have been saved. Does the same apply to Mounjaro? How do you balance the commercial imperative from big pharma against the social benefits?

We keep hearing about the productivity gains from AI. This week Phil asks Steve about the difference between productivity for a company versus the societal benefits. For example, AI and robots might do a job more efficiently than a human, but it’ll chew up energy in the process, and the human will still be consuming energy as well, unless robots start killing us off. So, this revolution might make some companies more efficient, but as a society as a whole what is the price we are paying? Or is Phil just an old-fashioned laggard?

The small number of technologists who increasingly control the planet’s wealth and political and social agenda are, it seems, big supporters of UBI. Elon Musk is at the forefront of this push. And why wouldn’t he be? His vision is a future of unbounding economic growth, in which the work of humans is almost completely replaced by robots, leaving us all plenty of time to pursue interests, engage in deep philosophical thought or, more likely, get fat watching daytime TV with no sense of purpose. This week Phil and Steve look at the consequences of Musk’s vision and discuss the one factor Musk has yet to answer – where does the money come from? Steve says the tech bros don’t seem to grasp the workings of fiat money creation, which h might be part of the answer. But Phil is more concern ed about the power that Musk and his brethren wield. Do we need to redefine capitalism, so the power of these feudal tech lords is diluted by working cooperatives, to ensure technology is used for the betterment of society and not leading to a hunger games future?

18th century economist Richard Cantillon theorised that new money added to the economy always reaches the wealthiest people first. If there’s a lot of it, the extra supply will push up prices, but the rich won’t feel it, they’ll just create it. The impact down the track is that the poor, surviving with the same money as before, get hit with the higher prices. Phil suggests that wouldn’t be the case if extra money was created through government spending. It would be the workers and those on welfare getting the first touch of the new money. But, as Steve explains, most money created through government deficits is counteracted by the private sector buying up the government’s bonds. Most of the new money is created through private debt - bank loans, for example. So Cantillon was right.The way to fix the problem s to put in place policies that would see more of a balance between public and private sector money creation.

Phil and Steve pick up from last week’s discussion about the merits of central planning. Last time they talked about how big companies, like Walmart in the US, plan centrally, yet free marketeers have a problem with that sort of coordination being applied to the free market. This week Phil asks how you can ensure that government planning can ensure resources are allocated effectively. For example, isn’t there a risk that you’ll use raw materials and labour to satisfy the wants of the very rich, before you have met the needs of the very poor? How do we arrive at a hybrid approach that works?

In one of his many walks around his neighbourhood Phil has been listening to a book, The People's Republic of Walmart, by Leigh Phillips & Michal Rozworski. Basically, a contrarian economist and a journalist teaming up together. Could such a combination ever really work?The book highlights how part of Walmart’s success story was its meticulous central planning, in contrast to Sears, a business decimated by an adherence to a market based internal structure. 30 internal division competed for resources, including shelf space.Clearly, Walmart’s focus on delivery helped it succeed. So, shouldn’t the same approach be used in the broader economy? When should we choose planning over open market competition?  

Lesotho (pronounced ,li-su-tu0 is a small African nature that President Trump  threatened with 50% tariffs, describing as a country nobody had ever heard of. Maybe that’s enough for his disciples to dismiss the hardship tariffs will place on the country, where youth unemployment is rife and the minimum wage is US$100 per month. Phil says twenty years ago America was trying to help countries like Lesotho, with tariff free trade to help the economy grow. Why? Because as Steve points out, if developing countries grow, they will buy more American goods. Cut their trade off at source and people suffer. Or Lesotho, and other developing nations, develop closer ties with China and expedites its path to being the largest economy in the world.

There is a huge reliance on data to aid decision making – whether it’s Investors wanting to know where to move money, central banks pretending to understand the economy, governments making policy decisions or companies planning for their future. Sadly, data collection faces two challenges. One is a lack of sufficient government spending. As Steve points out, perhaps Texas would be more prepared for the horrendous flooding of the last few weeks, if they hadn’t sacked so many meteorologists. The other problem is the increasing unwillingness of the public and businesses to complete surveys. Fortunately, as Phil points out, data is now being collective more from primary sources -like bank records or store transactions. That’s a big step forward, but a lot of data is based on answering traditional questions, like what’s our GDP? It’s base don conventional thinking. Phil asks whether we should be paying more attention to money supply whilst Steve says understanding company mark-ups would also be a good predictive indicator. What data sets do you think are missing?