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The Bank of England just cut interest rates to 0.25%, announced it will buy 60bn government bonds and 10bn corporate bonds, and reduced its growth predictions (for what they are worth) from 2.3% to 0.8%. There is talk of reducing the rate of VAT. There is talk of reducing corporation tax, which incidentally worries Northern Ireland pundits because a plan to do the same thing there might lose some of its advantage.
I am not sure whether to be happy or sad. I will stick to happy for now, because I am an unrelenting optimist. Could Brexit panic the establishment into turning Britain into Chris Patten’s Hong Kong to save the economy?
Edit: I should have said John Copperthwaite, not Chris Patten.
“The advocates of the minimum wage and its periodic boosting reply that all this is scare talk and that minimum wage rates do not and never have caused any unemployment. The proper riposte is to raise them one better; all right, if the minimum wage is such a wonderful anti-poverty measure, and can have no unemployment-raising effects, why are you such pikers? Why you are helping the working poor by such piddling amounts? Why stop at $4.55 an hour? Why not $10 an hour? $100? $1,000?”
– Murray Rothbard.
Has the Bank of England finished its campaign of driving down UK base rates and forcibly impoverishing savers ? On the evidence of last week’s Radio 4 programme ‘How low can rates go ?’ hosted by my dear and highly valued friend Martin Wolf, the answer is unclear. But a host of government-appointed technocrats from around the world, including Mr. Kuroda, were wheeled out in defence of a monetary policy that severed any ties it might once have had with the real world quite some time ago. (Victor Hill, reviewing the programme, calls it ‘Alice in Wonderland’ economics.)
– Tim Price writing about Monetary Terrorism.
In June, the Sun newspaper in the UK claimed that a factory in Sri Lanka that produces a line of clothing for a popular singer Beyonce is using sweatshop “slaves.” The report attracted little interest in Sri Lanka, partly because attention was more focused on the devastating floods that hit the island. But perhaps the report also failed to make waves because it simply did not ring true; the mainstream apparel factories in Sri Lanka are seen as responsible and respected employers in the formal sector.
– Ravi Ratnasabapathy, writing an article called Why Sri Lankans want to work in Beyonce’s “sweatshop”
However I think Ratnasabapathy might overestimate both the wits and honesty of the people who criticise such forms of employment in the Third World.
Attempts to stabilise the economy have frustrated capitalism’s creative-destructive tendencies. Depressed economies need disrupting, not preserving
– Phil Mullan
Via the Marginal Revolution blog, which has lots of useful and eye-catching facts, as well as more high-minded economics stuff, is this bar-chart from “Ninja Economics” showing that, according to presumably US figures, working behind a bar carries more risk of death than being a police officer.
The most dangerous occupation is that of a logger, followed by a fisher and then pilot/flight engineer.
Many of the jobs involve working outdoors with heavy machinery, in areas such as mining, or in occupations such as roofing, maintenance, agriculture and ranching. Somehow, I don’t think the “snowflake” generation is interested, but those who are interested in Mike Rowe’s “dirty jobs” might be.
Misreporting Venezuela’s economy – Mark Weisbrot, writing for the Guardian in September 2010
Venezuela’s devaluation doom-mongers – Mark Weisbrot, writing for the Guardian in March 2013
Sorry, Venezuela haters: this economy is not the Greece of Latin America – Mark Weisbrot, writing for the Guardian in November 2013
For some reason Mr Weisbrot has not written much for the Guardian comment pages on the subject of Venezuela recently, but to its credit the Guardian has covered developments in that country in the news pages:
‘At least 35,000’ Venezuelans cross border to Colombia to buy food and medicine – a story from the Associated Press appearing in the Guardian on 17 July 2016.
Tens of thousands of Venezuelans poured into neighbouring Colombia to buy food and medicine on Saturday after authorities briefly opened the border that has been closed for almost a year.
A similar measure last week led to dramatic scenes of the elderly and mothers storming Colombian supermarkets and highlighted how daily life has deteriorated for millions in Venezuela, where the economy has been in a freefall since the 2014 crash in oil prices.
I have been banging on for weeks to anyone who will listen that all this talk about the importance of getting good trade deals is nonsense. All that is needed is unilateral free trade.
Just now I stumbled upon an article in the Guardian, of all places, discussing just that. Even talking about “the unilateral free trade option”.
A group called Economists for Brexit seem to have got it in the paper. Jolly good work!
When I started writing this posting, the invaluable Guido Fawkes had, at the top of his invaluable ongoing list of “seen elsewhere” items, a link to a Conservative Home piece by David Davis MP, with a long title on top of it which includes the words A Brexit economic strategy for Britain.
It deserves to be quoted at length, so I will now do that:
… [L]eaving the EU gives us back control of our trade policy, and gives us the opportunity to maximise returns from free trade.
Because any deals currently settled are obtained by finding a 28 nation compromise, the EU is clumsy at negotiating free trade deals. That is why we currently only have trade deals with two of our top ten non-EU trading partners. This is incredibly important to us, as about 60 per cent of our trade is with the non-EU world. In fact, we sell as much to non-EU countries with which we have no trade agreements as we do to the EU.
The first order of business is to put that right. As the amicable statements coming from the US, Australia, China and India show, these countries are as keen to knock down trade barriers as we are.
Single countries, with the ability to be flexible and focussed, negotiate trade deals far more quickly than large trade blocs. For example, South Korea negotiated a deal with the US in a single year, and with India, which is notoriously difficult, within three years. Chile was even faster, negotiating trade deals with China, Australia and Canada in under a year.
The EU, by comparison, takes more than six years to negotiate trade deals; the deals which would most benefit us, such as those with Canada or the US, take even longer. And without the often conflicting requirements of 28 different countries to consider, deals negotiated by single countries tend to be broader and have more favourable terms on matters that are important to us, such as services.
So be under no doubt: we can do deals with our trading partners, and we can do them quickly. I would expect the new Prime Minister on September 9th to immediately trigger a large round of global trade deals with all our most favoured trade partners. I would expect that the negotiation phase of most of them to be concluded within between 12 and 24 months.
So within two years, before the negotiation with the EU is likely to be complete, and therefore before anything material has changed, we can negotiate a free trade area massively larger than the EU. Trade deals with the US and China alone will give us a trade area almost twice the size of the EU, and of course we will also be seeking deals with Hong Kong, Canada, Australia, India, Japan, the UAE, Indonesia – and many others.
So much for the “jump-start” bit. Now for my own additional argument that this could well happen very quickly.
→ Continue reading: How Brexit could jump-start the British economy – and do it very quickly
Bloomberg reports:
EU Banks Need $166 Billion, Deutsche Bank Economist Tells Welt
Europe urgently needs a 150 billion-euro ($166 billion) bailout fund to recapitalize its beleaguered banks, particularly those in Italy, Deutsche Bank AG’s chief economist said in an interview with Welt am Sonntag.
“Europe is extremely sick and must start dealing with its problems extremely quickly, or else there may be an accident,” Deutsche Bank’s David Folkerts-Landau said, according to the newspaper.
Tax haven route won’t work for post-Brexit UK, OECD says.
Ok then, making the UK a tax haven is clearly an excellent idea, enhancing competitiveness vs. the rest of the OECD. Of course that could not possibly be why a mouthpiece of the OECD thinks it would be a bad idea, right? Right?
With the Brexit vote of last week continuing to send shockwaves through the corridors of power (does that mean those corridors are vibrating, door handles jiggling and lights flickering?), one argument I have seen break out is of how the UK will, without being in the mighty, efficient and effective mechanism of the EU, be able to work out a deal. (If you are detecting a touch of sarcasm, you are correct.) For example, on a social media exchange, a person earnestly exclaimed that the UK can’t possibly arrange a free trade agreement (FTA) with India because the Indians just won’t, just won’t agree on one with us, because, well, they won’t. A stock argument goes that if the UK leaves the EU, then depending on whether it does or does not retain Single Market access, like Switzerland, other countries will be reluctant to trade with the UK. Why? Because the only reason, it is said, that people want to engage with the UK is because it gives access to the rest of the EU. The UK is, on this argument, nothing more than a conduit, an entrepôt, for Europe. The fact that another country might want to deal with the world’s fifth-largest economy on its own right is scarcely entertained.
Funnily enough, last year I recall reporting on how Australia, which for some crazy nationalist reason isn’t in the EU, signed a trade deal with China, which much to its shame, isn’t in the EU either. China is the world’s second-largest economy; Australia is some way down the order but still relatively significant. These two nations signed a deal. It was done without all the structures of a transnational organisation. This is an event that, for quite a lot of people, is unthinkable, like a decent summer in England.
Another option for the UK is to simply declare unilateral free trade, rather than wait for some grand negotiation with the EU over access. There is a consideration of this approach at Econlog here:
But if the new British prime minister want to puzzle and indeed shock its European counterparts, this may well be the best option. Go ahead and zero tariffs on imports coming from the EU. It might well be one of those very few choices that could prove to be economically beneficially in the long run, not least because it will minimize the problem of capture by special interest groups when it comes to trade policy. But it may prove to be expedient from a political perspective too. As the government should run through the Houses its proposed “interpretation” of the vote (which was, after all, a consultative referendum), open support for free trade may help, in the short run, to restore peace and harmony among the Tories. On top of this, it might give the UK a strong card in negotiations with the EU, making retaliatory attempts hard to “sell” to the public.
And here is Tim Worstall on the same subject:
The entire point of trade is that we can get our hands on what they make: so why would we ever want to have anything other than unilateral free trade? Why would we impose tariffs on the very things we want and make them more expensive for ourselves?
Sure, other people might impose tariffs on our exports. But that means that they are making themselves poorer by not having tax free access to the lovely things that we can make cheaper or better than they can. As Joan Robinson was fond of pointing out, tariffs are like throwing rocks in the harbour to make imports more difficult. And just because you are throwing rocks in your harbour there’s no reason I should throw rocks in my own. To do so just makes me worse off and why should I do that?
As I have said recently, one of the excellent consequences of Brexit is that it rends apart many of the lazy assumptions that give rise to transnational organisations, as well as the assumptions of the sort of people who prosper in working for them. It makes us think again about what sort of rules and regulations, if any, are needed so that human beings can trade. And those of a classical liberal disposition need to take the lead in pointing out that ultimately, countries don’t trade, individuals do. Any attempt to interfere with such transactions is ultimately about Person A being prevented from transacting with Person B on terms to their liking.
Maybe it is also time to dust of the speeches and writings of Richard Cobden.
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