Debunking Economics - the podcast

You would assume that government spending is largely designed to help those on lower incomes. The NHS was designed to ensure free healthcare for all. The same for public education. And for welfare payments. So, I theory, the more the government spends, the more wealth is transferred to lower incomes.This week Phil and Steve explore the idea that rising government deficits actually help the rich. That’s because the so-called debt is financed by the issuance of bonds, much of which is nought on the secondary market to add to the wealth funds of the richer end of society. They receive dividend payments funded from the government. That’s a case of government money supporting the wealthy.So, is there a way of government money being used to support the less well-off, without helping the rich to get richer? Hosted on Acast. See acast.com/privacy for more information.

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? Hosted on Acast. See acast.com/privacy for more information.

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 Phil asks, is it time to just admit defeat and accept that copyright is an outdated notion and find other ways of compensating the artist and creator?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? Hosted on Acast. See acast.com/privacy for more information.

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? Hosted on Acast. See acast.com/privacy for more information.

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? Hosted on Acast. See acast.com/privacy for more information.

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. Hosted on Acast. See acast.com/privacy for more information.

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? Hosted on Acast. See acast.com/privacy for more information.

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?   Hosted on Acast. See acast.com/privacy for more information.

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. Hosted on Acast. See acast.com/privacy for more information.

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? Hosted on Acast. See acast.com/privacy for more information.

In real terms the amount the UK spends on healthcare has risen from £500 in 1970 to £3,000 per person today. That’s a massive increase, but the payback has been that we are living 10 years longer. Ask people if they would be prepared to spend 10% of their income to live ten years longer, most would say yes. Yet we have a real problem in having the government spending more on healthcare.As always, it gets back to the question of where is the money coming from? A government provided healthcare system is funded with government created money. A privatised system is vying for a share of your pay packet, using money that is already in circulation.Phil and Steve discuss how our approach to healthcare is based on the standard question of, ‘where does the money come from?’, rather than ‘what can we be doing to make everyone’s life that much better?’ Hosted on Acast. See acast.com/privacy for more information.

Financial markets don’t like it when governments announce plans to spend more money. That’s why there’s concern over Donald Trump’s Big Beautiful Bill, which will add, by some accounts, $4 trillion to the US budget deficit over the next decade. Steve Keen says it’s not a problem. Banks buy up the bonds and the central bank ensures they have the liquidity to do so.  In which case, why are people ditching US bonds in favour of other sovereign debt elsewhere? And isn’t there a risk that higher treasury yields will reduce the differential with corporate bonds, which could discourage investment in the real economy? As Phil and Steve nut it out, they both agree, Trump’s bill is a bad one when it comes to income distribution. It assumes trickle down economics. When has that ever worked? Hosted on Acast. See acast.com/privacy for more information.

There’s been a lot of talk lately about de-dollarisation. In other words, global investors are parking less of their money in US dollars (in the form of US treasuries/bonds). What was once considered a safe choice, is now seen as having more risk, and that’s being accentuated right now by the falling value of the US dollar. If, as an overseas investor, you bought US government bonds a t the start of the year, they’d be worth 10 percent less now, simply because that’s how much the dollar has fallen by. Steve says it’s not a big issue for the US government, because the Fed will always ensure there’s enough liquidity for primary dealers to buy up what the government is selling. But it’s the falling interest in the secondary market, particularly from overseas investors, which is contributing to the fall in the dollar.But the other part of the equation is, does the dollar losing its dominance as the world’s trading currency. It used to offer stability. Not any more it seems. So, want replaces it? Hosted on Acast. See acast.com/privacy for more information.

There was an article in The Economist last week, shared widely in press around the globe, about the apparent fixation with manufacturing. Aussie economist Saul Eslake calls it Manufacturing Fetishism, with government support focused more on that sector than anything else. President Trump wants to bring home everything from steelmaking to drug production and is putting up tariff barriers to do so. Britain is considering subsidising manufacturers’ energy bills; Narendra Modi, India’s prime minister, is offering incentives for electric-vehicle-makers. But of everyone subsidises the same products, does anyone come out ahead? And isn’t the manufacturing focus based on the simple notion that they are better paying jobs than hospitality and retail? Steve thinks manufacturing is important for a while variety of reasons, including building the skillset to make economies more self-sufficient. That requires well-funded education, which is not one of the central pillars for Trump’s strategy of bringing jobs back home. Perhaps he hasn’t thought it through enough. Hosted on Acast. See acast.com/privacy for more information.

There’s an irony that the UK Chancellor Rachel Reeves has imposed an inheritance tax on farmers, whilst a trade agreement with the US could see Britain selling-the-farm on a farm grander scale.Phil argues that some sort of tax on the inheritance of farms makes sense kif its only used as a tax dodge. Jeremy Clarkson bought his farm (reportedly for £6 million) and had a farm manager run it for 10 years before he started making his TV series. If we he died before the new tax rules the £6 million would have been passed on exempt from the rules of inheritance tax. A nice little tax dodge. So, surely, the government was right to close a loophole.The broader question, though, is what the government does about farm productivity more generally. As Steve points out, 40 percent of UK food is imported. Just over the channel France is 80% self-sufficient. Rather than talking about buying stuff from over the Atlantic shouldn’t the UK be working out how to be more reliant on its own food sources, in the same way it is pushing to be more self-reliance on energy and defence? Hosted on Acast. See acast.com/privacy for more information.

Bill Gates has predicted that within 10 years we’ll be working a two-day week, thanks to advances in AI. He says it’ll mean a vast rethinking of the workplace. It’s not too dissimilar to Keynes's prediction in the 1930s that wed al be working 15-hour weeks, with more time to enjoy the good things in life.Of course, Keynes was wrong. We are working longer hours with loads more stress. Tools to aid productivity have freed up time for us to take new jobs and add to the economic output. Steve says a lot of this extra income has been used to increase the price of assets, particularly housing. This time, though, who is to say the replacement jobs will exist. AI and robots could replace us in almost every job. So then what do we do? A universal basic income, perhaps, which Phil says will not be too dissimilar to unemployment benefit. But that’s going to take more government money. If we ignore the MMT arguments about governments’ ability to create money the only way to pay for the unemployed is through higher taxes on those businesses doing the work. But the focus today is on less regulation, so these companies can complete their cycle of job destruction unhindered. As a society have we really thought this through? Hosted on Acast. See acast.com/privacy for more information.

There are challenges that the insurance industry faces, even though it can look like a licence to print money, Since the Big Bang of the nineties, when deregulation allowed the industry to flourish, insurance now accounts for 2.5% of UK GDP. Not bad money for an industry that is a cost to society, rather than a benefit. Until now the business model has been simple; charge a premium based on the risk profile of the customer, avoid high risk customers altogether and invest the payments you receive in the markets to make even more money. And, unfortunately, payout when someone makes a claim, but keep the legal profession gainfully employed to ensure that doesn’t happen too often.If you find claims are rising, imply put up th premiums next year. Which is why we’ve had several years were premiums have grown significantly faster than inflation. The consequence of that is people from lower- and middle-income households simply can’t afford the insurance, so they avoid it altogether or under-insure.Phil and Steve discuss the merits of government-run insurance. We already have it in health, of course. The problem with having it applied more broadly is that it won’t alert us to the impact of climate change. As insurance moves from covering us for episodic events, to systematic change, the business model folds. Steve’s hope is that, as this happens, the industry starts to squeal and wakes us all up to the profound impact of climate change. It acts as the canary in the coal mine and becomes the first industry to lobby for us to take it seriously. Although, with them still enjoying healthy profit margins, it’s not happening yet. Hosted on Acast. See acast.com/privacy for more information.

The pandemic killed 200 thousand people in the UK. Are we ready for the next time? Experts reckon will be even less prepared should we see another pandemic in the near future. Prof Tom Koch from the University of British Columbia reckons we don’t have long to wait - the next one could strike in the next five to eight years.If you were a virus with an understanding of how economics is taught, this is exactly how you would have planned it. Yet governments to spend a fortune on the first blow, knowing they would spend the intervening years trying to pay back the debt, rather than spending new money on the preventative measures to dampen the impact of the second blow.If we had a clearer understanding of how fiat currencies function, maybe we would be better prepared. Meanwhile Steve has a mask he can sell you. Hosted on Acast. See acast.com/privacy for more information.

Economists seem conditioned to think that we need to suffer before an economy can get back on track. They argue an economy can’t grow if there is a large amount of accrued government debt. That the economy needs confidence to grow, and the confidence won’t exist the government owes a lot of money. Phil suggests to Steve that confidence and the private sector’s a willingness to invest are two staple requirements for economic growth. A government deficit will also help, but does it really help in terms of the growth in the money supply as much as private borrowing? And isn’t a growth in the money supply essential to growth? Hosted on Acast. See acast.com/privacy for more information.

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? Hosted on Acast. See acast.com/privacy for more information.