So, that's greedflation dealt with then - nonsense
The profitability of non-financial companies in Britain edged slightly higher in the first three months of this year, running counter to claims that “greedflation” is fuelling price rises.
Official figures from the Office for National Statistics (ONS) showed that companies made a net return of 9.9 per cent on production in the first quarter, up from 9.8 per cent in the final quarter of last year.
Profitability is lower than its pre-pandemic level. In the three months to December 2019, UK non-finance firms made net returns of 10.3 per cent.
The ONS numbers are here. Yes, they are broken out into manufacturing, services, oil and gas offshore and so on. No, there is no empirical support for the idea that increases in corporate profits drove inflation. On the basic grounds that corporate profits did not rise by the amount necessary to be driving inflation.
So, that idea’s dead then. Well, OK, that idea’s dead in a rational reality but clearly not in politics.
Which leads to two further issues. One is, clearly, we should not be using politics as a way to run the world. Because politics has been infested with the idea - the untrue one, the one that just is not, you know, true - that it is profit margins which have been causing the recent inflation. A system that can end up so misinformed about reality is not a useful manner of making decisions about reality now, is it? We’ll just have to return to markets then given the corruption of the information flow into political decision making.
The other one is much more fun. Which is that those who were pushing this idea, so, how do we get to punish them? Misinformation, disinformation, after all these are the modern crimes, right? Deliberately lying to the body politic should carry some punishment?
Even if it’s only not believing a word these people ever say again. Sadly, that then runs into another problem. Other than those working in politics who ever has believed the comment pages in The Guardian?
Isn't it wonderful that wealth inequality is falling?
Given that bien pensant thinking insists that wealth inequality is the very terror of our times this looks like good news:
More than 3.5m people were stripped of their millionaire status last year as soaring inflation and a collapse in global currencies hit the value of private wealth.
The number of people with assets totalling $1m (£790,000) fell from 62.9m to 59.4m during 2022, a report by UBS and Credit Suisse found.
Britain suffered the third largest fall globally, with the number of millionaires dropping by 440,000 to 2.6m.
The decline is the result of global wealth falling for the first time since the 2008 financial crisis.
So society is better off then, isn’t it? That appalling burden that so oppresses all has been lightened and now kittens gambol in sunbeams.
Except, of course, we’ve seen no celebrations. The Guardian’s comment pages have carried nary the one celebratory piece. Which is odd, very odd - for if wealth inequality were the problem those same pages insist then there should be encomiums to the new revelations. Also, life should be markedly better given the claimed problems the former inequality were said to have caused.
It does occur that possibly, just maybe, the effects of this reduction have simply not been noted. Which does rather mean that the wealth inequality isn’t a problem in the first place if a reduction in it makes no difference.
The thought that the whole idea was just tosh cooked up to justify excessive taxation is just too horrible to contemplate of course.
Could a Gold-Backed Cryptocurrency Replace the US Dollar?
The potential for a serious rival to the US dollar as the world’s reserve currency is stronger now than at any time since the Bretton Woods agreement first gave the dollar its preeminent role in global finance. Talks are currently underway between the BRICS countries about creating a new currency that will be backed by gold.
While exact details about this proposed new currency are unknown, arguably the simplest and most likely form that it could take is that of a gold-backed cryptocurrency. Such an innovation promises the benefits of intrinsic value, stability, and international trust.
However, despite its allure, numerous challenges stand in the way of this prospect becoming a reality. In this article, I will explore the potential of a gold-backed cryptocurrency as a replacement for the US dollar and examine the various obstacles that make its widespread adoption unlikely – at least for the time being.
The global advantages of a gold-backed cryptocurrency
The concept of a gold-backed cryptocurrency revolves around combining the historical allure and stability of gold with the efficiency and accessibility of blockchain technology. Unlike traditional fiat currencies, which are not backed by any physical assets, a gold-backed cryptocurrency would be intrinsically linked to a reserve of physical gold held in secure vaults.
Blockchain technology, the backbone of cryptocurrencies, offers transparency and accountability. Each transaction recorded on the blockchain is immutable, ensuring trust and reducing the risk of fraudulent activities. Each digital coin issued would represent a specified amount of gold, making it a uniquely stable store of value that offers protection against the future inflation/debasement of fiat currencies (to say nothing of the geopolitical uncertainties surrounding the dollar and its recent weaponisation).
This stability would also come in stark contrast to the extreme volatility of other cryptocurrencies like Bitcoin, thereby attracting investors who seek a reliable and secure store of wealth. Moreover, as gold has historically retained its value during economic crises, a gold-backed cryptocurrency would provide a hedge against market fluctuations and safeguard against fiat currency devaluation – something that a growing number of economists are increasingly wary of.
A universally accepted gold-backed cryptocurrency could also simplify international trade and financial transactions. Its borderless nature would facilitate cross-border payments and promote financial inclusion, benefiting businesses and individuals worldwide.
Finally, the current dominance of the US dollar as the global reserve currency gives the United States significant influence over the global financial system. Transitioning to a gold-backed cryptocurrency would reduce reliance on the US dollar, potentially leading to a more diversified and balanced international monetary system.
The challenges & why it probably won't happen anytime soon
While the vision of a gold-backed cryptocurrency is enticing to many people, numerous challenges make its widespread adoption improbable in the near term. These obstacles encompass technical, political, economic, and regulatory aspects.
Technical Complexity
Implementing a global gold-backed cryptocurrency would require advanced technical expertise in blockchain, cryptography, and cybersecurity. The process of securely storing and managing the gold reserves, as well as ensuring the efficient functioning of the cryptocurrency's network, presents significant technical challenges.
The current global financial system, anchored by the US Dollar, is deeply entrenched. Established financial institutions, including central banks and commercial banks, may resist the adoption of a new reserve currency that disrupts their existing roles and interests.
Political and Economic Considerations
The replacement of the dollar is a matter of immense geopolitical significance. It would require the consensus and cooperation of nations with varying interests, ideologies, and levels of influence on the world stage.
While there is growing international distrust in the US Dollar, there remains a great deal of distrust in any of the alternatives to it. While gold holds historical significance as a store of value, the idea of a gold-backed cryptocurrency might be unfamiliar to investors. Building trust and educating the global population on its benefits would require time.
The transition from the dollar to a gold-backed cryptocurrency would have economic implications. Countries holding significant US dollar reserves may face disruptions, potentially causing economic instability during the adjustment period.
Most importantly, in a Keynesian run global monetary system anchored to the dollar, the US enjoys enormous power via its ability to print-money. The loss of such exorbitant privilege would massively reduce the influence of US foreign policy, and for this reason alone the current monetary system will likely be vigorously defended.
Regulatory Challenges
A global gold-backed cryptocurrency would necessitate a robust regulatory framework. However, reaching a consensus on international regulations and ensuring compliance across jurisdictions would be a complex and time-consuming process.
Determining how to allocate gold reserves among participating countries would be a delicate negotiation. Disparities in gold reserves could lead to disagreements and hinder progress.
Final Thoughts
The vision of a gold-backed cryptocurrency replacing the US dollar as the global reserve currency holds considerable potential. It promises intrinsic value, stability, and reduced dependence on the US dollar. However, several formidable challenges stand in the way of this transformative vision becoming a reality.
The technical complexities, resistance from established financial institutions, political considerations, economic disruptions, regulatory hurdles, lack of trust and familiarity, and the challenge of gold reserves allocation are all significant barriers.
While it is unlikely that a gold-backed cryptocurrency will replace the US Dollar at the current time, things might look very different in the not-too-distant future. The Keynesian experiment does indeed appear to be failing, and when its end finally arrives it will likely come with the need for a new global monetary system.
Without a convincing national currency to anchor other currencies to, gold has always been the preferred medium of exchange, and in the modern world blockchain technology offers us the ability to trade it in tiny denominations. These advantages might quickly become irresistible once fiat has failed.
(photo credit: Quantum Trading) (Steve Bain writes at dyingeconomy.com)
A sensible approach to childcare
Childcare in the UK is very expensive, with only the Czech Republic and Cyprus coming ahead of the UK in costs. Part of the reason is that the ratio of adults required per child is very high. Currently in nurseries and pre-schools, there has to be one adult to three children for under two-year-olds, one adult to four children for two to three-years-olds and one adult to eight children for three to seven-year-olds.
The most recent Family and Childcare Trust’s annual report found many parents are spending more on childcare than their mortgage, with average fees for part-time childcare for children under two reaching £7,134 per year. Full-time childcare costs for a family with a two-year-old and a five-year-old child are estimated at £11,700 a year.
This is a strong disincentive for young mothers to return to the workforce and contribute to economic expansion. In some countries childcare is heavily subsidized, meaning that a large part of the cost is borne by the taxpayer, rather than by the parents. The tax implications make this an unlikely prospect for the UK, but there are promising alternatives.
Three players that could increase the availability of childcare in the UK and reduce its cost are the government, business and the informal sector of relatives, friends and neighbours.
Government could look at the adult to child ratios in other countries, and bring our own rules into line with those which seem to work successfully elsewhere. It could work in partnership with business to increase the provision of workplace nurseries by providing tax incentives that encourage firms to do so.
There is scope for flexible working arrangements to help parents juggle work and childcare responsibilities.
Schools could play a role in providing shared facilities, joint training programs, and coordination of services.
A huge contribution could be made by supporting and expanding informal child- care. Grandparents and relatives could be encouraged to provide childcare through access to resources and some financial assistance. Neighbours could be encouraged to provide childcare as they looked after their own children. Neighbourhood childcare groups could share the burden of childcare between groups of parents who took turns to share the responsibilities.
And the government could take steps that made it easier for entrepreneurs to set up chains of childcare businesses on a for-profit basis by making the regulatory and tax environment attractive to would-be investors, such as tax credits for crèches in their office buildings.
A combination of such measures could revolutionize childcare in the UK, and bring it within reach of most of those who needed it and at affordable costs.
Wages aren't even growing, let alone at a record rate
The standards of modern journalism:
Wages in the United Kingdom grew 7.8% in the three months to June, the fastest annual rate since records began, the Office for National Statistics said Tuesday.
“Coupled with lower inflation, this means the position on people’s real pay is recovering,” said ONS director of economic statistics Darren Morgan.
UK consumer prices rose 7.9% in June compared with June 2022.
Sigh. If wages are rising slower than inflation then real wages are falling, not growing at all. Given that we have had real wage rises within living memory this also isn’t the fastest wages have grown since records began, either.
As to why wages aren’t growing as we’d hope and expect them to this is not, sadly, some aberration of macroeconomics and the fiscal stance. Instead it’s because the country is beclowned with people insisting that they’re creating jobs. With solar and boilers and wind mills and low traffic zones and ULEZs and all the rest.
All of these things - and many more - could be good things to do. We don’t think so but that’s us not some insistence of the universe. What is absolutely true though is that the benefits of these things, even by the definitions of those promoting them, are not in hard cash numbers. They’re in things we do not include in GDP, they’re about externalities to market prices and processes.
OK, but that means that the benefits of them do not arrive in wages, one of those hard cash numbers which are market prices. We’re deliberately spending our wealth and effort on things which even if they have benefits do not, by definition, benefit real wages. Because, by definition again, those externalities are not things that we spend our wages upon. Then people wonder why wages aren’t rising.
It’s not just journalism that gets wages wrong. Sadly, it’s the entire body politic. Everyone shouting that solar provides more jobs than nuclear - something which is both true and which many people do say - and therefore we must have more solar is pushing down labour productivity and thus all the wages in the entire country. That’s just the way reality works.
Not that Argentine politics is really for us to comment upon
There are all sorts of things it is possible to say about Argentina and its politics. Most of which we’ll not say because far too many of them descend into a jingoistic - but most enjoyable - prodding of the anthill. You know, this is what a century of corporatist politics looks like and all that. There is one thing though. On this laddie who has just won a plurality of the votes in the primary elections:
Far-right candidate who wants to legalize organ selling wins Argentina's presidential primary
So far we’ve not investigated and we’ve no idea whether the gentleman, Sr Milei, is far right, right or even centrist. But organ selling?
The only place we know of that actively encourages “organ selling” in this sense is Iran. Which does not allow organ selling of course. It is not possible to turn up at a hospital with a bleeding heart, or half a liver, or a kidney, and bargain over the price to be paid.
What is possible is that those who are willing to provide one of their two kidneys to someone who will die without one - Iran has a shortage of dialysis machines, even they don’t work forever even if they had a sufficiency - can be compensated. There is a state fund which does such compensating - of the order of a year or two’s median income plus free healthcare for life - and it is also possible for larger, private, arrangements to be made.
Many other places in the world allow live kidney donation. On the grounds that there simply never are enough usable cadaver ones to solve the problem of people dying of kidney failure. But those donors must be donors, not compensated providers.
Iran is the one place in the world where people do not die while waiting for a kidney. Everywhere else some do, each and every year. This is not a coincidence, it is not mere correlation. People who elsewhere would die gain a continuation of life simply because the Iranian Mullahs are not precious about incentives. They may be all sorts of things (one of us has had significant links with the place) on other subjects but upon this one they’re being wholly pragmatic. If offering healthy folk who will remain healthy some cash to save the lives of others saves those other lives then why not?
Incentives matter, after all.
We don’t see compensated organ provision - assuming a controlled market, not that turning up with a fresh piece of offal and asking for bids - as being far right in the least. Simply a sensible policy that saves lives.
A rational drugs policy
Many people take drugs because they like the feeling they experience by doing so. This is a more extreme version of why some people smoke cigarettes or drink alcohol. Most do so because they like it and most don’t become addicts.
Because most drugs are illegal, they are traded on the black market, setting their users and suppliers at odds with the law. Because they are illicit and underground, there is little to no quality control, leading to deaths from adulterated or over-strength supplies.
Their illegality makes them expensive as suppliers risk prosecution and punishment, as well as considerable price gouging. The profits to be had from their sale leads to violent turf wars, as gangs fight for control of the trade. It echoes what happened in the United States during the prohibition era. People in the UK, especially young people, are killed in the street by members of rival gangs fighting for control of a very lucrative business.
Several US states and Canada have joined the growing list of countries that have legalized the recreational use of cannabis. If the UK were to do the same, it would lead to better quality control and enable age checks to be made as the illegal market would dry up if the legal market were allowed to prosper through light regulations and licensing. It would free up much of the logjam on courts and prisons, and end the conflict between recreational users and the police. The Treasury, rather than the criminals, would gain revenue.
The legalization of cannabis would take one widely used recreational drug off the black market. The same could be done with cocaine (8.7% of the population) and MDMA (Ecstasy), (1.9% of the population) both in quite widespread use. Their legalization would free up large numbers of police to deal with more serious crimes in which other people are victims.
Heroin was once available on prescription to registered addicts to consume at home, and it was seen as a problem that it could circulate to others. This could be resolved by setting up clinics manned by medical personnel, in which hard drugs such as heroin could be obtained for consumption on the premises, after medical inspection and advice. This would treat addiction as a medical, rather than a criminal, problem, and address it by medical personnel instead of with law enforcement officers. It would bring quality control and safety to the fore, and remove the current illicit drugs trade that underlies so much crime.
It could be argued that legalization would lead to increased use, just as the ending of prohibition led to increased alcohol consumption. US voters went for repeal because the alternative was Al Capone and his ilk. The UK is in an Al Capone situation with illegal drugs, and could similarly end it by repealing the prohibition of them.
The IFS proves that Scott Sumner is, in fact, correct
One of Scott Sumner’s assertions is that government doesn’t really have control over the overall expansionary or contractionary stance of economic policy. This is, at the very least, shared with the independent central bank. Or, in Sumner’s insistence, it entirely offset by the decisions of that central bank.
One proof of this might be the Truss/Kwarteng adventure where the low tax dash for growth was indeed derailed by the Bank of England (well, according to some tellings of that story at least).
Another and more detailed proof could be this from Paul Johnson at the IFS:
Tax cuts would put ‘scary’ UK finances in greater danger, warns top economist
That’s not quite what is said, that’s the headline writers. Rather:
Rishi Sunak and his chancellor Jeremy Hunt remain under intense pressure from their own MPs to cut taxes in March, in the run-up to the next election. While the prime minister has been clear that cutting inflation is his only economic priority for now, officials have privately hinted he is interested in making a cut, such as reducing income tax by up to 2p.
However, Johnson said such a cut would be a “political and not an economic decision” that came with risks. “Two pence off income tax is quite a big change,” he said. “That’s something like £15bn. The big question for the chancellor then would be, how’s the Bank of England going to respond?
“The nightmare scenario will be a nasty market reaction, a la Truss. But an almost equal nightmare reaction would be the Bank saying, ‘We were effectively saying that we were keeping interest rates steady, but now you’ve just injected an extra £15bn into the economy. We’re still worried about inflation and we’re going to put them up’. That should weigh very heavily in any decision on tax cuts.
“A £15bn cut in tax this side of March - without concrete tax rises or spending cuts proposed to offset it - it would be a political and not an economic decision.”
Something being a political, not economic, decision should not be a total disproof of the decision itself. We do have elections so that we can choose between different political visions after all.
However, that more technical point there. If the current government cuts taxes by £15 billion, without also cutting spending to match, then the expansionary effect will - likely enough - be offset by the Bank of England changing interest rates.
The expansionary - or contractionary - stance of fiscal policy is offset by the equal and opposite effects of monetary policy. Therefore the overall stance is not something in the power of the government. That is the Sumner point. It’s something that is so embedded in serious thinking on the subject that here we’ve the IFS warning about it.
What this means is that if the current government wants to cut taxes by £15 billion then they should also cut spending by £15 billion. A thoroughly good idea of course. Indeed, give us a free hand and we’ll find £150 billion in spending to cut. Certainly £100 billion because O’Rourke’s Principle of Circumcision is correct - you can take 10% off the top of absolutely anything.
But the Sumner point stands - government is not in control of the stance of policy because the fiscal stance is and will be offset by the monetary stance. Which is fine of course. This leaves government in charge of fiscal policy. How much is to be taken off the populace to be spent upon what?
Less, obviously.
This is how markets work, yes
Savers pull £80bn out of Britain’s four biggest banks in protest of dismal rates
Savers are either switching to rival savings providers or paying off rising mortgage bills
We’d not say in protest ourselves. Rather, someone’s offering them a better deal elsewhere. Either a better interest rate on their savings or perhaps zeroing out some of their debt is that better offer.
But this is how markets work. No one at all looks at the price they’re paying for supplies - which is what our deposits into a bank are to a bank - and works out what is fair. They pay the least they think they can get away with. The thing which limits that minimal getting away with it price is what other people are willing to pay for that same thing.
This is true of everything in a market. Wages are not - contrary to belief - determined by what your employer thinks is fair to pay you. Rather, by what the next, alternative, employer is willing to pay you. Your actual employer must at least match that number (plus conditions) to retain your efforts. And so too of steel - the steel price is not set by what Ford is willing to pay, the price to Ford is set by what Stellantis, Aston and GM are willing to offer.
The interest rate offered on your savings is not determined by Lloyds deciding what is fair. But how much Lloyds has to pay to get you to deposit there. Something determined by the interest available on other deposit accounts and, even, the negative return you’re getting on your borrowings.
Banks must have deposits of course - no, MMT is wrong on this. Look at the bank’s financial accounts sometime. Deposits plus capital always equals loans out. Banks must balance their books in this manner each and every day (at 4.30 pm in fact). Thus, if Lloyds (to continue with the one named example) suffers an outflow of deposits it must find some from somewhere else. By, say, changing the price it is willing to offer for them - the interest rate.
It is true that banks have not increased the interest they pay on deposits as fast as they’ve been raising what they charge for loans. Fortunately we also have a system to deal with this - the market. Leave it be and she’ll be fine.
The Emis Group proof of why UK GDP growth is slow
Now, whether Emis Group should be taken over by United Health isn’t an interesting point for us. We’re not sure what they actually do, either of them and care rather less. For our example here is not about the specific companies it’s about why economic growth in Britain is so damn slow. We’re even willing to run with the idea that the proposed takeover here should be denied - it isn’t being - and yet our criticism and explanation would still stand.
Here’s the story from the Stock Exchange announcement:
On 17 June 2022, the Boards of Bordeaux UK Holdings II Limited ("Bidco"), an affiliate of Optum Health Solutions (UK) Limited ("Optum UK") and a wholly-owned subsidiary of UnitedHealth Group Incorporated and EMIS Group plc ("EMIS") announced that they had reached agreement on the terms of a recommended all cash offer pursuant to which Bidco would acquire the entire issued and to be issued ordinary share capital of EMIS (the "Acquisition"). The Acquisition is being implemented by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006 (the "Scheme").
On 9 August 2022, EMIS announced that at the Court Meeting to consider the Scheme and the General Meeting to consider the Special Resolution relating to the Acquisition, all resolutions were approved by the requisite majorities. EMIS further announced that a notification had been made and accepted under the NS&I Act and that the Secretary of State had confirmed that no further action will be taken in relation to the Acquisition.
On 31 March 2023, the United Kingdom's Competition and Markets Authority (the "CMA") announced that it had referred the Acquisition for a Phase 2 investigation. On 6 April 2023, EMIS and Bidco announced that they would be proceeding with the Phase 2 CMA investigation and would engage constructively and collaboratively with the CMA throughout the process.
The CMA has today published a summary of its provisional findings from its Phase 2 investigation into the Merger (the "Provisional Findings").
Bidco and EMIS are pleased to announce that the CMA has provisionally cleared the Acquisition. The CMA will now publicly consult on the Provisional Findings before reaching a final decision by 5 October 2023.
As we say, whether the bid should go through or not is not our point. That this started in June 2022 and won’t even get to the beginning of the end until Oct 2023 is.
The economy is the aggregate of our collective and individual actions. GDP is the measure of those actions but restricted to those monetised and measure at market prices. Changes in GDP are - therefore and obviously - changes in the amount we do and the things we do. The speed of GDP changes - the rate of economic growth - will be determined by both how quickly we work out how to do new things, plus old things in a new way and also the speed at which we are allowed to do new things and things differently.
If we’ve a bureaucracy placing a 16 month delay upon doing things differently then economic growth will be slower than in the absence of such a bureaucracy.
Therefore speed GDP growth by abolishing the Competition and Markets Authority.
It’s even possible that every decision made by the CMA is perfectly, rigorously and justifiably correct. But either they need to make decisions promptly - say, 5 working days - or they need to go. For we hold it to be self-evident that more wrong decisions would be better for economic growth than a 16 month delay on anyone doing anything at all.