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John Aziz

John Aziz

I am interested in global trade dynamics, debt dynamics and the flow of credit, moneyness and currencies, unclearing markets, futurology, civil libertarianism, drone warfare, market democracy, solar technology, ecology, the psychology of bubbles, behaviourism, Bayesian statistics, subjectivism and a whole load of other stuff.

Articles by John Aziz

My Thoughts On Brexit

27 days ago

I haven’t written a post in a long time. My blog was mostly an attempt to piece together and understand the 2008 financial crisis, and the various consequences of it.
One pretty big consequence, at least in my home country, the United Kingdom, has been Brexit.
I didn’t vote in the 2016 referendum. Mostly because I was at that time I was living abroad in the United States with my father, having moved there the previous year, and I had trouble applying for an overseas postal vote.
I probably would have voted remain, but I’m not hugely committed to either side. I see huge problems with the European Union. Look at what has happened to the euro area countries such as Greece, Spain, Portugal, and Italy who got into trouble in the financial crisis. They ended up going through years of grinding

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Bitcoin Is Failing As Money—But Bitcoin Cash Isn’t

December 25, 2017

Money has three principal functions: as a medium of exchange, as a store of value, and as a unit of account.
Secondary attributes that have aided the adoption of various forms of money include interestingness (“Ooh! Look how shiny that gold is!”), uniform divisibility, portability, resistance to counterfeit, and imposeability. That last one is important, because it is what makes state-backed fiat currency the dominant form of money in the world. The U.S. government is territorially and militarily powerful. That allows it to print green paper unbacked by any commodity and tell people both within and without its jurisdiction to accept it. For almost fifty years, that model of money has prevailed.
Bitcoin, in the last few weeks, has made me want to add another attribute to this list: low

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Don’t Tolerate The Trumpists

August 10, 2017

Armed with his famously short temper, and the kind of weapons of mass destruction that America once went to war to prevent men like him from obtaining Trump is quite possibly the man that will end civilization as we know it.
His supporters are an unfortunate mix of three groups. (All three groups, of course, have some overlap).
First, wealthy people, who care mostly for tax cuts and whether the president is deferential to big business.
Second, not-so-wealthy suckers suckered by Trump’s false promises, faulty logic, and confidence tricks.
Third, the deplorables. The racists, and xenophobes, the nativists, the Bannonistas, the neoreactionaries, the actual Nazis, the antifeminists, and all the other assorted bigots. The people who call liberals “not even people”. The people who argue

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Yellen: “There Will Be No New Crisis In My Lifetime”

July 28, 2017

Via Reuters:
U.S. Federal Reserve Chair Janet Yellen said on Tuesday that she does not believe that there will be another financial crisis for at least as long as she lives, thanks largely to reforms of the banking system since the 2007-09 crash.
“Would I say there will never, ever be another financial crisis?” Yellen said at a question-and-answer event in London.
“You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” she said.
Sounds good, right?
Not really. Perhaps she is being extremely modest in projecting her future lifespan. But regardless of whether she means 5, 10, 20 or 50 years, Yellen sounds hubristic. It’s the kind of off-the-cuff prognosticating that gets you into

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March 15, 2017

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Trump’s Awful Tariff Plans Will Hurt America

December 4, 2016

He plans a 35% tariff on goods manufactured by American firms abroad:

The U.S. is going to substantialy reduce taxes and regulations on businesses, but any business that leaves our country for another country,
— Donald J. Trump (@realDonaldTrump) December 4, 2016

fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. ……
— Donald J. Trump (@realDonaldTrump) December 4, 2016

without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies ……
— Donald J. Trump (@realDonaldTrump) December 4, 2016

these companies are able to move between all 50 states, with no tax or tariff being charged. Please be forewarned prior to making a very …
— Donald J. Trump (@realDonaldTrump) December 4, 2016

— Donald J. Trump (@realDonaldTrump) December 4, 2016
This is less coherent economic doctrine and more puffed-up pseudo-alpha male posturing. Unfortunately, given that the man is about to become President, it will also be executive policy. Things, in other words, are about to get an awful lot more expensive for the American consumer.
Because it will be the consumer who pays the price to subsidize American manufacturing.

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Immigration Makes Us More Prosperous

December 1, 2016

This is a really important fact that people don’t talk about enough:

McK & IMF: #immigrants (living not where born) account for 3.4% of world pop but produce 9.4% of world output/$6.7tn
— Linda Yueh (@lindayueh) December 1, 2016
That is a huge gap. Immigrants’ economic output is almost three times their weight as a proportion of the population, a difference that adds up to $3 trillion annually.
Why would this be the case? Well, immigrants are typically pretty motivated people. Packing everything up and moving out of the country and into a completely new environment is a very motivated and committed thing to do. It is a signal that says “I want to do something really worthwhile with my life.”
Migration also takes lots of different skills such as the ability to navigate bureaucracy and different legal and cultural frameworks, the ability to learn a foreign language, and the ability to do in-demand work in the destination country.
And while there may be bad apples who go abroad to commit crimes, or leech off welfare, or engage in terrorism—just as there are some native individuals who engage in crime, and terrorism, and welfare fraud—the bigger picture detailed in the McKinsey/IMF study is one of migrants making the world much richer.
Indeed, immigrants commit a disproportionately low amount of crime per person.

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Trump’s Election Win Shows That The Bank Bailouts And Quantitative Easing Have Failed

November 13, 2016

To all who argued the financial world would’ve collapsed without the bailouts: The political world is collapsing now because of the bailouts
— Emanuel Derman (@EmanuelDerman) June 25, 2016
The bigger picture of the early 21st century follows: Western nations experienced a massive blowout bubble of leverage, irrational exuberance, and Hayekian pseudo-money creation.
Yet this money was not going to overwhelmingly productive causes. The real output of the Western world did not follow anything close to the ebullience of the financial markets. Without the growth and jobs needed to service the debt load, many of the debtors—including most famously subprime mortgage borrowers—defaulted.  And thus the securitized debt bubble burst when—in the midst of two large and expensive American wars—the animal spirits of the market turned to panic over debt defaults.
What followed was not, it turns out, enough to right the ship. In theory, when markets are frightened of the future and productive human and financial capital lies idle, government borrowing can re-employ these resources until the animal spirits of the market emerge from their slump. In my view, there are two key measures of this: unemployment, and interest rates on government borrowing. High unemployment rates signify idle human capital. Low interest rates signify idle financial capital.
But this balancing did not occur.

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Why will people colonize space?

August 15, 2016

Noah Smith over at Noahpinion does a rundown on why Firefly doesn’t really resonate with him. I agree with his take:
But in Firefly, why do we – meaning the crew of Serenity – go to space? It’s not for a higher purpose. There’s no science being done, no galaxy being saved. The show’s theme song may be about freedom, but unlike many of the people around them, Mal and his crew aren’t colonists. They aren’t going to found a new, more liberal republic on the virgin soil of a distant world. They aren’t going to build a city on a hill. They have no quest, they seek no knowledge, they fight for no cause, they meet no aliens. Their existence is simply a big fat middle finger to the government in the distance.
And for the same reason, it doesn’t resonate with me much, either.
But neither Noah and I are space colonists. I can’t speak for Noah, but I am above all else a science fiction fan, wedded to romantic notions of human expansion into the wider universe as a higher calling. A secular religion, if you will. Being human feels good, mostly (and I say that as someone who has experienced plenty of strife and difficulty, as well as physical disabilty and mental illness).

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Beyond Good And Evil

August 1, 2016

It is tiring to hear voters complain about having to stump for a lesser evil.
The whole notion of purity in life — but especially in politics — is Manichean at best, and sophomoric at worst. Every choice in life and politics is a shade of grey. Pretending that any political candidate is anything other than a mesh of good and ill — much of it unintentional — is facile. Bernie Sanders and Jill Stein and Gary Johnson are shades of grey. Policies that appear to be unadulteratedly pure and progressive can have negative consequences for many people. Ban fracking? Lose jobs, reduce economic activity. Never intervene militarily in a foreign country again? Fail to prevent another Rwanda or Nazi Germany. Turn away from free trade agreements such as NAFTA and TPP? Lose cheap imports, reduce economic activity globally, and risk expensive and damaging trade wars.  Overturn Citizens United? Quieten wealthy campaigners you agree with, as well as those you disagree with.
That’s not to say that those policies would not also have some positive effects, too, for some people. The reality is that the outcome of these supposedly pure and progressive policies is a patchwork quilt of good and ill, just as it is for any policies. Politics is an art of trying to counterbalance to maximize the positives against the negatives. This is tough.

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Britain Is Finished

June 24, 2016

On the 23rd of June, Nigel Farage says we got our country back.
This couldn’t be any further from the truth. The UK’s decision to leave the EU is the UK’s death knell.
I don’t mean to speak in cliches, but goodbye Great Britain, and hello Little England.
Every region in Scotland voted to stay in the EU. If the UK leaves, this is a direct violation of the will of Scottish voters. Scottish independence — and possibly Irish reunification, given that a majority of Northern Irish voted to stay — is only a matter of time.
The case for Brexit was essentially a xenophobic one, built around malcontents simplistically blaming various external groups — foreigners, establishment politicians, unelected Brussels bureaucrats, etc, etc — for large, complex problems like Western deindustrialization, the arrival of cheaper migrant labour, the Syrian refugee crisis.
Now, I don’t think that the European elites have really done themselves any favours. The European economy is in a depression of the Eurocrats’ making, as they forced rounds and rounds of punitive austerity and deflation on depressed economies like Spain, Greece and Portugal that badly needed stimulus and inflation. If their project of ever-closer union is unravelling, it is at least partially their fault for not making a success of the union that they already had.

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Automation, Space Colonization & The Post-Transactional Economy

May 30, 2016

Image: NASA

“How is this even a business?” my late father asked when I described a notional model for human space colonization. “How are you going to make money? What product are you going to sell?”
Admittedly the model — developing a swarm of self-replicating , self-repairing decentralized, solar-powered construction automata and using them to mine asteroids and produce more such automata as well as habitable colonies— is not monetizable in the same fashion that building a picture-sharing smartphone app, or social network, or web search engine is.
And although there are ways to monetize space colonization — it is, essentially, a very extreme kind of full-stack real estate development — I think my father hit upon the fact that this kind of venture is of a fundamentally different nature to the modern economy as it exists on Earth today.
And the more I think about this kind of economic development, the more fascinating I find it.
I would never have started thinking about this process if it wasn’t for the Moore’s Law-style cheapening of solar energy and the accelerating development of robotics and AI. We are heading toward a world where plentiful solar energy is very cheap to capture, cheap to store thanks to breakthrough in batteries, and where advanced computing and robotics technologies give us very many options in terms of what to do with that energy.

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Political Correctness And The Extreme Fragmentation Of Society In Modernity

May 28, 2016

One of the defining cultural events of the 2016 election season so far has been the overwhelming rejection of the notion of political correctness expressed in the Republican selection of Donald Trump as presidential nominee. Here is Trump expounding his view on political correctness:

What is the political correctness that the Trump supporters are rejecting?
Trump-supporting website gives the following definition:

In his novel 1984, George Orwell imagined a future world where speech was greatly restricted.
He called that the language that the totalitarian state in his novel created “Newspeak”, and it bears a striking resemblance to the political correctness that we see in America right now.
According to Wikipedia, Newspeak is “a reduced language created by the totalitarian state as a tool to limit free thought, and concepts that pose a threat to the regime such as freedom, self-expression, individuality, peace, etc. Any form of thought alternative to the party’s construct is classified as ‘thoughtcrime.

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The Economics of Building That Wall

May 1, 2016

Photo by: Matt Clark.

First things first: the U.S. already has a border wall with Mexico. This is a widely-documented fact, illustrated in detail by National Geographic. If Trump supporters had bothered to do so much as a Google search, they would realize that — whatever one might think of illegal immigration — it isn’t going to be stopped by a border wall. A border wall already exists, and illegal immigration continues.
But what about replacing the current border wall with a bigger one? Surely that will stop migrants from coming across the border? Well, not really. Israel has some pretty high and deep barriers with Gaza, and that hasn’t prevented Gazan militants from burrowing under them and getting in. What is going to stop Mexicans — including and perhaps especially the extremely well-financed drug gangs who surely could gain access to advanced tunnelling equipment — from doing the same thing?
So building a wall to prevent undocumented migration is really dodgy from a practical perspective.
From an economic perspective, it’s much worse than that. Getting Mexico to pay for it by confiscating it from money sent to Mexico by Mexicans in America — as Trump contends he can — would simply incentivize the use of internationalized and decentralized technologies such as Bitcoin, which could evade Trump’s confiscations.

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Universal Basic Income Is Inevitable, Unavoidable, and Incoming

April 29, 2016

The last time I saw universal basic income discussed on television, it was laughed away by a Conservative MP as an absurd idea. The government giving away wads of cash responsibility-free to the entire population sounds entirely fantastical in this austerity-bound age, where “we just don’t have the money” is repeated endlessly as a mantra. Money, they say, does not grow on trees. (Only as figures on the screen of a computer).
In this world, universal basic income seems like a rather distant prospect. Yes, there are some proposals, like Switzerland and Finland, which are holding referenda on two proposals. But I expect neither of them to pass. The current political climate is just too patriarchal. We live in a world where free choice is unfashionable. The mass media demonizes the poor as feckless and too lazy and ignorant to make good choices about how to spend their income. Better that the government spend huge chunks of GDP employing bureaucrats to administer tests, to moralize on the virtues of work, and sanction the profligate.
And yes, I know that tax credits — which funnel money to low-wage workers to make up for their low wages — function as a negative rate of income tax, a form of basic income which Friedman and Hayek advocated. The insights of economics are, it turns out, not entirely ignored by politicians.

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Drone Strikes Against Alleged Terrorists Are An Abandonment Of The Rule Of Law

September 8, 2015

I have no doubt that the vast majority of British people will support David Cameron’s decision to blow to smithereens two British jihadis fighting with the self-proclaimed Islamic State who were allegedly involved in planning and directing terrorist attacks on the UK, just as the vast majority of Americans support Obama doing similar things. I don’t think the Conservative government will harm its popularity in assassinating these people. The opposite, in fact, or as The Sun put it “Wham! Bam! Thank You Cam”
Going to Syria to fight with the Islamic State is seen as a form of treason: by aligning with a group directly and specifically hostile to the UK, these people (it is being argued) have effectively redesignated themselves as enemy combatants. In those terms, this was simply a mundane act of counterterrorism: the British state suspected an enemy force of plotting death and destruction upon the British people, and neutralized the threat.
At the same time, and while I am no legal expert, I see these killings as an abandonment of the rule of law, which I see as an essential and foundational component of Western civilization tracing back to Aristotle who wrote that: “law should govern”.
The UK government is not trying to argue that this was an act of war, per se. After all, the UK is not at present at war in Syria. Parliament voted against it in 2013.

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Correction or Crisis?

August 24, 2015

After almost seven years of relative calm and stability, a stock market crash is finally upon us.
This is a very predictable crash stemming from a very widely known cause. Hundreds of analysts including myself — following the trail illuminated by Michael Pettis — have for a long time been banging on about a Chinese slowdown gathering an uncontrollable momentum, sending China into a panic, and infecting global markets.
What’s less clear yet is whether this is a correction or a crisis. My view is toward the latter, simply because confidence is fragile.  Once the animal spirits of the market turn negative, it takes a heck of a lot to soothe them. And the markets look increasingly spooked. The fear is rising. Last week I tweeted that I felt the risks of a new financial crisis are greater than ever.
The reasons why are simple: Western central banks have gone a bit nuts, and are trying to hike rates even though inflation is close to zero even after interest rates being at zero for seven years. And Western governments have gone a bit nuts (especially in the eurozone and Britain but also to a lesser extent in the United States) and are trying to encourage growth with austerity even though all the evidence illustrates that austerity is only a helpful policy in a booming economy, not in a slack one.

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Is Jeremy Corbyn The Answer?

August 20, 2015

Labour’s defeat in the 2015 election may have been as much of a function of demographics as anything much else. As I wrote earlier this week: “Britain is greying, and older people tend to be more conservative.”
If that’s the case, then the deck will be stacked against Labour in 2020, and even more so after constituency boundary changes that will help the Tories and hurt Labour.
Still, the question that Labour members and supporters should be asking themselves is: which one of the candidates can beat the Tories in 2020?
As a political movement, only in power can you wield power. In opposition, you — and your supporters — are the earth in front of the steamroller of power.
That’s not necessarily a call to reject Jeremy Corbyn, though. There are legitimate reasons to think that he might be the best choice on these terms.
My doubts about Corbyn begin with his portrayal as overly leftish. If Ed Miliband was perceived as too left wing for the British electorate in 2015, why would Corbyn — who is a good few swathes of territory to the left of Miliband — be right for an even greyer and more conservative Britain in 2020?
A second factor is that Corbyn is already on the defensive over alleged associations with anti-Semitic figures.

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On the Dehumanization of Immigrants

July 30, 2015

Britain is in the grip of a worrying trend.
Our own Prime Minister compared migrants in Calais to insects when he called them a “swarm”.
Meanwhile, internet comment sections relating to the refugees are filled with hatred and venom. Asylum seekers are referred to as “invaders”, and the trolls encourage the British authorities to shoot them, to machine gun them, and hang them on meat hooks.
This dehumanization of immigrants frightens me. Not simply because dehumanization of large groups of people often foreshadows violence. It frightens me because this is just the tip of the iceberg. There is a lot more of this hateful stuff bubbling beneath the surface of our society. Anti-immigrant sentiment has been swelling in Britain for the last two decades, gently encouraged by tabloid journalists and other intellectually lazy people looking for an easy scapegoat for the economic and social problems of the age. As Richard Seymour noted last year in The Guardian, “77% of people in the UK want immigration reduced, and 56% want it ‘reduced a lot‘”.
Britain has been subject to soaring inflows of immigration in the past twenty years. This has meant large-scale changes to the fabric of society, some of which people may like, but many of which they may not. And there is an additional burden on public services.

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Don’t Mention The War

July 12, 2015

It is wrong to suggest that people should be held accountable for the actions of their ancestors. Blaming each other for the deeds of our ancestors is the cause of vast tracts of human suffering and conflict. Tribes and nations have fought each others for centuries — and, in some places, continue to do so — based on the actions of that tribe or nation’s forefathers. This is irrational. We cannot change the actions of our ancestors. That is perhaps one reason why John Cleese’s portrayal of an idiot hotelier beating down his German guests with a spiel of cringe-inducing World War 2 and Nazi clichés is so absurdly funny.
That being said, we do have a responsibility to learn from and not repeat the mistakes of our ancestors. Failure to learn from the mistakes of one’s ancestors is the point at which the actions of past generations become relevant in a discussion of the present.
There is a line of reasoning that suggests that the first person to compare their opponent to Adolf Hitler or Nazism in an argument on the internet just lost the argument. I tend to see this view as generally correct. The acts and beliefs of the Nazis were unusually horrific, and comparing your opponent or the person or group you are criticizing to the Nazis is often an act of rhetorical desperation, and often a symptom of a lack of imagination. However, what is generally correct is often locally wrong.

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Deflation is Here — And The Government is Poised to Make it Worse

May 20, 2015

Consumer prices may not be deflating as quickly as Labour’s electoral chances did earlier this month, but — even after £300 billion of quantitative easing — price deflation for the first time in more than half a century is finally here. The Bank of England continues to throw everything at keeping prices rising at close to their 2 percent target. Yet it’s not working. And this is not just about cheaper oil. Core inflation has also been dropping like a rock.
I argued that “deflation was looming” for Britain last year, and feel a little vindicated that it has come to pass. But I don’t feel at all gratified about the thing itself.
In a highly indebted economy such as Britain’s — where private debt dwarfs government debt — deflation is a dangerous thing. Past debts — and the interest rates paid on those debts — are nominally rigid. Unless specifically stipulated as being inflation-adjusted (like TIPS) they don’t scale to price changes in the broader economy.
Under positive rates of inflation, inflation assists in keeping debt under control, by shrinking the present amount of goods and services and labour that equate to a nominal amount of currency. Under deflation, the opposite process occurs, and the nominal value of currency — as well as that of historical debt — rises, making the debt harder to service and pay down, especially with the ongoing accumulation of interest.

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Confessions of a 21st Century Lionel Robbins

May 13, 2015

Marx said that history does not repeat itself.
But sometimes, history does. This may be particularly true in the domain of economics and economic knowledge.
Economics is a complex subject. It is the study of a series of abstractions (markets, firms, governments) built upon abstractions (money) built upon abstractions (value), a great metaphysical muddle stacked up to the sky like a wobbly Jenga tower.
At a simpler level, economics is the study of human behaviour, or as von Mises put it, human action. Business cycles from the boom to the bust are a great cavalcade of individual human action and individual decisions. The sum of individual decisions manifests itself as the market. And the behaviour of the market informs future individual decisions, in a great self-reinforcing spiral of feedback.
The question of what the government should do in a bust is one particular realm where little progress has been made since the Great Depression. Indeed, perhaps future historians will refer to the current economic malaise as Great Depression II, given that in various polities including Britain and the eurozone the depth of the slump in gross domestic product has been greater and longer than that in the 1930s.
Why? Well, the urge to purge is strong. And I say that as a former austerian — someone who has done a good deal of urging for purging.

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Tesla & The New Economics Of The Coming Renewable Energy Boom

May 5, 2015

I don’t need to tell anyone of the importance of Tesla’s expansion into home battery technology. A home battery lets you store solar energy to use when the sun isn’t shining, which is a really, really major thing in terms of power distribution. As I’ve been pointing out for years, this is the crucial missing link between photovoltaic cells being a rapidly, rapidly cheapening technology with a lot of rollout potential, and photovoltaic cells being the major source for the world’s power. As I predicted in The Week in 2013:

The promising trends in technology and cost suggest much more than renewable energy becoming the fastest growing energy source in the next 30 years. They suggest that renewables will grow to be the number one energy source in the United States and the world in the next 30 or 40 years.

I’d say that that was actually an overly conservative projection. I now foresee solar to be number one in the next twenty, if not the next ten years.
It’s nice to live in the knowledge that renewable energy will overcome problems posed by diminishing oil reserves and (at least) mitigate anthropogenic climate change. It’s nice to know that as solar efficiencies continue to increase and solar manufacturing costs continue to fall that the long term trend for energy costs is down.

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I Don’t Understand the Apple Watch

April 24, 2015

In 2006, I was telling anyone who would listen — which, given that I was a nerdy 19-year old, wasn’t many people — to buy Apple stock. Back then Apple seemed to be on the verge of something amazing. I had had an iPod since 2003, and had just bought a Macbook Pro, and was blown away by OS X. The operating system and interface had a crispness and an attention to detail that made Windows PCs seem like a muddled mess.
Turns out I was right about Apple. The past decade has seen Apple blow up bigger than I dreamed they might. The iPhone and iPad have been stunning successes that have allowed Apple to redefine what personal computing is. And now Apple is the biggest company in the world.
And the Apple Watch — their first new product line since the iPad — seems like a step in the wrong direction. Admittedly, I haven’t used an Apple Watch yet. But why bring out a watch when other elements of your product line have made watches obsolete?
I’m happy to have my wrists free. A smartphone already does what a watch used to do — tell the time — plus so, so, so much more. I don’t want another screen, especially not a tiny and hard-to-click one strapped to my wrist that actually requires tethering to a smartphone to work. Interface design has been the key difference between Apple and Apple’s competitors in the past 10 years and to hear complaints about the interface seems pretty damning.

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On Trade Unions & Inequality

April 22, 2015

This chart is pretty wow:

Florence Jaumotte and Carolina Osorio Buitron of the International Monetary Fund have some ideas about how the correlation may have been caused:

The main channels through which labor market institutions affect income inequality are the following:
Wage dispersion: Unionization and minimum wages are usually thought to reduce inequality by helping equalize the distribution of wages, and economic research confirms this.
Unemployment: Some economists argue that while stronger unions and a higher minimum wage reduce wage inequality, they may also increase unemployment by maintaining wages above “market-clearing” levels, leading to higher gross income inequality. But the empirical support for this hypothesis is not very strong, at least within the range of institutional arrangements observed in advanced economies (see Betcherman, 2012; Baker and others, 2004; Freeman, 2000; Howell and others, 2007; OECD, 2006). For instance, in an Organisation for Economic Co-operation and Development review of 17 studies, only 3 found a robust association between union density (or bargaining coverage) and higher overall unemployment.
Redistribution: Strong unions can induce policymakers to engage in more redistribution by mobilizing workers to vote for parties that promise to redistribute income or by leading all political parties to do so.

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How To Euthanize Rentiers (Wonkish)

April 16, 2015

In my last post, I established that the “rentier’s share” of interest — resulting from as Keynes put it the “power of the capitalist to exploit the scarcity-value of capital” — can be calculated as the real-interest rate on lending to the monetary sovereign, typically known as the real risk free interest rate. That is because it is the rate that is left over after deducting for credit risk and inflation risk.
However, I have been convinced that my conclusion — that euthanizing rentiers should be an objective of monetary policy — is either wrong or impractical.
It would at very least require a dramatic shift in monetary policy orthodoxy. My initial thought was thus: the real risk-free interest rate (r) can be expressed as the nominal risk free interest rate minus the rate of inflation (r=n-i). To eliminate the rentier’s share, simply substitute 0 for r so that 0=n-i and n=i. In other words, have the central bank target a rate of inflation that offsets the expected future nominal risk free interest rate, resulting in a future real risk free interest rate as close to zero as possible.
There are some major problems with this. Presently, most major central banks target inflation. But they target a fixed rate of inflation of around 2 percent.

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The Subtle Tyranny of Interest Rates

April 15, 2015

Interest rates are the price of credit. They are the price of access to capital.
Now, it is obvious that pricing credit is not tyrannical in and of itself. Interest compensates a lender for default risk and the risk of inflation eroding the purchasing power of the money that they lend.
The tyranny I am getting at is subtle. It is the tyranny that Keynes pointed to when he proposed a euthanasia of the rentier. Keynes proposed that low interest rates would:

mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.

Keynes pointed to an important feature of interest rates: the fact that capital has a cost is not just the result of default risk and the risk of inflation. It is also a result of the scarcity of capital.
Now, that is inevitable in a world where financial capital consists of metal that you dig up out of the ground.
But in our brave new state-backed fiat monetary system, why should capital be so scarce that those who have it can profit from its scarcity?
Obviously, central banks should not print money to the extent that it becomes worthless. But capital availability is absolutely critical to the advancement of society: the investment of capital is how societies become productive. It is how technology improves, and it is the key to wealth accumulation.

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What The UK’s Low Productivity Is Really Telling Us

April 14, 2015

This, I would argue, is one of the scariest charts in the world today. The green line is output per hour worked, and the dotted green line is the pre-crisis trend:

It’s what the Bank of England calls the “UK productivity puzzle.” As the BBC’s Linda Yueh notes: “output per hour is around 16 percentage points lower than it should be if productivity had grown at its pre-crisis pace.”
I don’t think it should be called a “productivity puzzle”. That would imply that we don’t really understand the phenomenon. That the phenomenon is a puzzle. But it’s really a simple phenomenon. The phenomenon is that people are producing less output per hour than they were before the financial crisis. Work is getting done. But the quality of the work is not improving.
The Bank of England points to “reduced investment in both physical and intangible capital, such as innovation, and impaired resource allocation from low to high productive uses” as a cause. In other words, the work is crap because firms aren’t deploying the resources to do good work. And this is a trend that predates the election of the Coalition government in 2010. As the Bank of England notes, the UK has lagged in investment as a percentage of GDP behind its fellow G8 economies since even the 1990s.
But things got really bad under the Coalition. And that shouldn’t really be news.

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