Tuesday, May 10, 2016

Four economic questions

Tonight's brief post focuses on four questions as an initial foray.

Can you achieve economic growth when the living standards of the majority of a population are stagnant or declining? If, so how?

Are we using the wrong measures for economic growth, thus skewing the analysis? If so, what should we use?

Have we come, as some would argue, to the end at least in Western countries of the long growth cycle associated with the Agrarian and Industrial Revolutions? If so, what are the implications?

More locally and short term, what does it mean for superannuation if there is no where to invest the cumulative savings, to make a return without taking excessive risks?

I know that it's not Monday, but I would be interested in your response.


Noric Dilanchian said...

Briefly, good questions Jim. I'm pressed for time, so I'll respond without supporting arguments.

QUESTION 1: Unlikely.
QUESTION 2: Probably.
QUESTION 3: Possibly.
QUESTION 4: No comment. For me the superannuation questions is the hardest.

Anonymous said...

Q1: yes, although the question is more usually posed in the reverse. The US, for example, is said to have had some economic growth, while it is also acknowledged that living standards have, at best, been stagnant for some 10 years.

Q2: a classic economists' question, leading nowhere :)

Q3: no idea, and would be suspicious of anyone claiming a 'solution'.

Q4: you need to state a timeframe - 1 yr, 10 yrs, 30 yrs? Anyway, I have never been a fan of compulsory super - main reason being, and yet again now demonstrated, it is subject to political tampering at a moment's notice, and as such, it is not really "your" savings.


Anonymous said...

Speaking of changing the goalposts (your Q2) I was reading the Liberal Democrats' policy positions the other day, and was struck by their thought that the Reserve Bank should target inflation at 0% - on the grounds that any inflation is effectively "taxation by stealth".

Innocent, but serious, question: if that was in fact possible, why not target something less than 0%?

Such an outcome would assist with your concerns about superannuation savings - no?


2 tanners said...

1. Yes. The Philippines is a good example. However, development as measured by GDP per capita is lower than if there is more equality (see Thomas Piketty's recent book)

2. Yes. Perhaps a better measure would be household income surveys. This would encourage at least median growth. Not claiming that this doesn't have its own problems.

3. No. The new tech industries are relacing many of the old tech industries but using pretty much the same human/capital equation. This is an opinion and I don't have a data set to back it up. I've read reports claiming it to be so, but generally in computing magazines which rather tend to seize on these claims.

4. Conflating kvd and JB, if you have low inflation, you can take a low risk option, like term deposits. You don't need high returns, just compound interest. kvd, if you have lower than 0% inflation then the taxation by stealth disappears, meaning that the Government has to find cash from somewhere else and the value of the $A goes through the floor making our imports more expensive.

Anonymous said...

Was just paying employees wages when I flicked to here - i.e. not sitting on the keyboard waiting for responses - but:

tanners, I'm not a policy wonk but your comment re the $A going down leads to more expensive imports - yes. However, why does "negative inflation" lead to a lower dollar? Zimbabwe and Venezuala seem to indicate the opposite? And also, the "taxation by stealth" meme is just that; surely it implies government expenditures become "less costly" as well? Just askin' ...


2 tanners said...

The value of our dollar is largely dependent on our domestic interest rate to make it more attractive to overseas investors than, say, the US$ or the Euro. Neither Zimbabwe nor Venezuela have freely floating exchange rates, which makes for a different scenario. Zimbabwe had domestic hyperinflation and Venezuela asset seizures - both of those lead to dramatic falls in investor confidence which is the name of the game.

I don't think taxation by stealth is just a meme. Since the govt gets to print the shortfall, it gets to use it (the technical term is seigneurage, or seigniorage). So inflation is a source of income for the Government. It gets 100% of the nation's inflation (divided by the velocity of circulation and less the cost of printing or minting), while its the effect on its costs is much lower.

Anonymous said...

Of course you can have economic growth when majority income is stagnant. Spain achieved this in the 16th Century by way of plundering Aztec gold. This indirectly contributed to the later rise of more broadly based merchant capitalism in the lowlands (further to the Dutch revolt and its appropriation and piracy of Portugal's 'know how', then too part of the Spanish empire).Through the Dutch East India Company the Dutch then became the power house of Europe in the 17th Century.

Re- hyperinflation in Zimbabwe; at the time of its hyperinflation its nominal fixed parities meant nothing since most transactions were in informal foreign exchange markets. Oh, and Zimbabwe had abundant asset seizures. The violent expropriation of commercial farms, predominantly owned by Europeans led to the collapse of the banking system since most banks'assets consisted of loans to white farmers.These assets became worthless as land became unproductive and African herds interbred with white herds, carefully bred over many years. The banks became insolvent and were bailed out with printed money which debased the currency.