Friday, 5 December 2014

'Sanctions': a shot in the arm for Russian Economy?

Since I posted the comment the Rouble has taken a beating but this only supports my argument that Russia will be forced to produce more of the goods that its citizens desire. In addition countries like Turkey, India and China are more than capable to supply imports that the Sanctions bloc refuses to supply. Shooting oneself in the foot is the appropriate word for what the 'Elites' in Nato, EU etc are pursuing.

Comment 25 July 2014
Contrary to ill-informed media speculation the proposed 'Western' sanctions (imposed in an undemocratic knee-jerk reaction, like a toddler throwing his toys out of a pram) may well do a lot of good for the Russian economy.
Trade is always based on exchange. So the Daimlers, Apples, Burberrys of the West will lose a customer as it would not make sense for Russia to accept sanctions that hit their industries while selected and favored Western exporters are supposed to carry on as if nothing had happened.
But a reduced level of the Rouble and imports of Western capital and consumer goods may be a spur to develop domestic substitutes. No one can deny that Russia has a lot of qualified and highly educated engineers and with the targeted hiring of Western experts any number of industries could be made highly competitive. Levels of income tax are attractive and engineers in the West that live in the shadow of overrated financial experts would jump at the opportunity to double their after-tax pay, especially if they are young or have already grown-up children.

What comes first - Supply or Demand?

Interesting controversy - is there a demand deficiency in Europe, and if so what can or should be done to boost demand? I tend to support Frank Shostak's argument that supply comes first. Demand is never 'sufficient' and we all have 'demands' that are larger than our incomes can support. Microeconomic arguments (The Baker producing bread in this case) are severely neglected by the economics and policy tribes - including the media commentators. Maybe Shostak's example is a bit simplistic and needs refining but I think he is on the right track. Just pumping money out of thin air (Martin Wolf, FT, The curse of weak demand) just papers over the cracks in the economy.

Wednesday, 23 July 2014

100 Billionaires control half the World's Wealth?

Depending on who you believe this statement may or may not reflect the truth. But it is beyond doubt that a tiny number of Super Rich control a vastly disproportionate share of global wealth. It does not matter whether they number 100, 400 or 1000. The sad story is that beyond the establishment Economists focus so little on the issue of inequality in incomes and wealth. Maybe this is due to the fact that most of them are just little cogs in the system that seems to be designed to create these disparities. They work in safe jobs in Universities - usually taxpayer-funded jobs for life - or in 'independent' think tanks or research institutes that are either taxpayer-funded or funded by rich individual that act as 'sponsors' or 'trustees'. Employer organisations and Financial Institutions also keep a stable of Economist but these can also hardly be expected to bit the hand that feeds them.

Wednesday, 11 June 2014

The European Central Bank’s House of Cards

"Europe is a runaway train with a certain crash in its future." (Frank Hollenbeck, Mises Daily)

Friday, 30 May 2014

How to protect US subsidiaries

As the excesses of the US legal and regulatory process become more and more extreme it is time that companies - especially large ones with deep pockets - start thinking about protecting themselves against compensation claims and punitive damages that are in a direct line from the infamous McDonald's coffee scalding case.
In the run up to WWII certain large companies protected their overseas assets, in particular their US assets, from a potential takeover by Nazi Germany in the event their country was invaded and occupied. All these assets were put into a separate company that would have been out of reach for the occupiers.
Maybe it is time that major companies isolate their US assets in a similar fashion by setting up legal entities that shelter the parent company against any US claims. Special care should be put into designing a capital structure that would make it easy to cut loose this entity.
Of course, it would be helpful it the EU in particular could take a tougher line against the US overreach but at present that seems to be no more than a vain dream. The wet rags in Brussels and the major EU capitals are all in the pocket of the 'International' (i.e. Washington-inspired) consensus.

Monday, 26 May 2014

Inequality - Facts and Causes

The recent debate about rising inequality is welcome. But even more welcome would be substantive suggestions about possible solutions. The old ideological divide (should taxes be higher or should there be more 'free market' economics) will not do. What is really needed is an investigation of many policy measures that set the rules for the way business is conducted under the present economic framework. To mention just the most obvious ones: ownership of businesses, inheritance taxes, copyright protection, fair taxation, access to education, design of welfare system.

Tuesday, 20 May 2014

Times Rich List, Piketty and Inequality

At a time when there is heightened awareness about inequality it is astounding that serious (?) media commentators suggest that the (Times) Rich List 'should be taught as a set text to inspire the next generation of risk takers'.
Quite how this inspiration should work in detail the author leaves to our imagination. It certainly is not possible to become the next Duke of Westminster, one of the rare true British members of the top ten entrants in this year's list.
And how one should emulate the various oligarchs and tax exiles - some of feature only because they chose the right parents - could also be of great interest to those lucky or unlucky enough to be given the benefit of these lectures.
It would also be interesting during which class these lectures would be held. Religion, Philosophy, Politics or Economics?
The really sad thing with this sort of fawning at the superrich 0.01% is the fact that there is very little reporting about the reasons such extreme wealth can be accumulated and what should be done to prevent it. Not a word about fairer tax laws, more effective inheritance taxes, better regulation, less generous copyright protection or a wider spread of ownership of productive assets.

Wednesday, 16 April 2014

Socially useless Economists?

Starting a discussion about which economic activities are or are not 'socially' useful opens a can of worms. Is Opera - or Music in general - socially useful? or hairdressing beyond simply chopping off surplus hair? Opinions will differ widely and the last thing we want is to leave the answer to this question to authorities, be they religious (we had enough of that for 2000+ years), political or - academics. The discussion about the merits (or lack thereof) of High Frequency Trading (HFT) illustrates this very well. While I have often argued that the rules of the stock exchange should be adjusted so that the rules of 'priority and precedence' are brought up-to-date for the internet age it is means overkill when economists or regulators attack the activity per-se claiming that it is socially useless. That may well be the case. Participants may see it as just another form of gambling (Casinos are also a negative sum game for the punters) and should be free to enjoy their long as they are collectively willing to accept the net negative costs associated with this activity. And I am gentleman enough not to question Mr. Stiglitz' social usefulness.

Tuesday, 15 April 2014

Higher taxes no solution for Income Inequality

Robert Shiller is too much focused on the simple expedient of higher taxes for the rich (however defined) as a tool to stop rising inequality. It may well paper over the underlying malaise but does little to change the reasons behind the increase in differences between income (and even more importantly, wealth) disparities in the USA and many other countries. Only a thorough review of policies concerning the way the capitalist system works (ownership of productive assets, capital gains and inheritance taxes, intellectual property rights, educational policies to name just a few) will lead to a substantial reduction in inequality.

Tuesday, 8 April 2014

Sanctions on Russia may backfire

Sanctions seem to have replaced actual warfare as the preferred weapon these days. But are sanctions imposed on Russia in the wake of the annexation of Crimea going to have the intended effect? More than in other cases of (usually futile) sanctions the latest version of sanctions will have little effect - or even backfire on the sponsors in the 'West'. A look at the map makes it clear that Russia is not just any country that can be bossed around 'gunship style'. It is a whole continent! So self-sufficiency should not be a problem. And looking at economic history a period of isolation from the world markets, esp the main economies, should actually do wonders for the development of a competitive domestic industry. Do Russians - the broad mass of people, not the oligarchs - really need to buy BMW's or other high-end luxuries from the West? The USA and Germany have expanded their domestic industries behind tariff walls, and the English navigation act has contributed substantially to the rise of British sea power. Cutting off access to international financial markets will not lead to the default by Russian borrowers as predicted in some places. Russia can simply declare 'Force majeure' and refuse to pay back the loans if they are not rolled over at the behest of unaccountable political lobbies. The USA have only minor trade relationships with Russia, but therefore Russia is not much exposed to any lost trade with that country either. And the EU may be a substantial partner, but the world is large enough, there is China, India, Brazil etc. And if Russia really gets needled too much it can make overtures to Iran and other states therefore setting the cat among the pigeons.

Monday, 3 February 2014

Economists - just Idiot Savants?

It makes the blood boil when one reads about highly (overpaid?) economists sitting in tenured positions in Academia suggesting outright thievery as their preferred solutions to our economic problems. Debt repudiation and wealth taxes are not the only solution to the problems that indebted nations face. The debt mountain can be reduced the same way it has been built up - by small incremental changes over a long period of time, decades, not years. Deficit spending really came into fashion during the 1970s - on the advice of an earlier generation of  Idiot Savants. That the Nobel prize is now being awarded for what in many cases is only a thinly-disguised for of quackery devalues the prizes given to those for 'hard' science. And let's not even remember the Peace Nobel prize awarded to Obama!