News That's Fit To Punt - 05/Aug/2016

BOE Set Interest Rates At Lowest Rates Ever

We live in interesting times. If you see things that are once in a generation, then live long enough you might see it twice. There are people who presumably experienced the Great Depression firsthand, and are now experiencing the GFC audits aftermath. Yet, even they would never have witnessed the Bank of England settler interest rates this low.  That would be because it's the lowest 322 years.

The central bank's Monetary Policy Committee voted unanimously to lower its benchmark interest rate to 0.25 per cent, the lowest level in the bank's 322 years. The rate had been at 0.5 per cent since March 2009.

further this year, but he ruled out the possibility of negative interest rates. The committee's next meeting is set for November.

The bank also said that it would introduce a series of additional measures to support the economy, predicting that there would be little growth in the second half of this year and that economic growth would decline sharply next year compared with its earlier forecast for 2017.

What we're seeing, is the Bank of England moving to the point where it no longer has any means of adding stimulus to a moribund economy.  

The Bank of Japan has been doing this for over 20years. There's a whole generation of people in Japan who grew up under low interest rates and low inflation that they cannot imagine a world with 6%-8% interest rates and 5-9% inflation. You wouldn't be saying it too loud, but it appears the British economy has entered a similar twilight zone where no amount of interest rate cutting and stimulus spending can reflate the economy. 

It's a strange state of affairs, when you think about it. The central banks are virtually giving money away to banks so they can lend into capital investment. The place where most of the money ends up is in fixed assets, namely housing, and businesses just hoard cash instead. The consumer expects prices to drop in the future so they too hold on to cash; and together they form an environment where demand is low. The rest of the heartache and sorrow, about which you know, so I won't go into it today. I just thought it was worth noting that if you see an institution doing something it hasn't in 322years, you're seeing something very extraordinary; something they'll be talking about in a thousand years' time.

The question I want answered is how do we get to the other side of this malaise without wars and revolutions and killing each other? Because that's what usually happened in the past. 

About Those Jobs In America That Were Lost To Free Trade

I caught this during the week and it's an interesting little article because it shows we might be overstating the extent to which globalisation is eating up manufacturing jobs. If you go through to the Op Ed it is citing, you get this:

The number of manufacturing jobs in the United States has indeed been in a long decline since the late 1970s, but that disguises the true story of American manufacturing. Nostalgia for a bygone era blinds politicians and voters alike to the reality of a revitalized sector of the American economy that is thriving in a global market.

American factories and American workers are making a greater volume of stuff than ever — high-tech, high-value products that are competitive in markets around the world. In the last 20 years, which include enactment of the North American Free Trade Agreement and China’s entry into the World Trade Organization, real, inflation-adjusted U.S. manufacturing output has increased by almost 40%. Annual value added by U.S. factories has reached a record $2.4 trillion.

What has changed in recent decades is what our factories produce. Americans today make fewer shirts, shoes, toys and tables than we did 30 years ago. Instead, America’s 21stcentury manufacturing sector is dominated by petroleum refining, pharmaceuticals, plastics, fabricated metals, machinery, computers and other electronics, motor vehicles and other transportation equipment, and aircraft and aerospace equipment. 

We produce more manufacturing value with fewer employees than in years past because today’s workers are so much more productive. They are better educated, equipped with more sophisticated capital machinery and turn out more valuable products than their parents’ generation. And as a result they are better paid, with total manufacturing payrolls rising during the last decade even as the number of workers declined.

The article in a nutshell says it's technological progress that has eaten the jobs, not trade. I'd imagine that this is true in Australia as well. There are good trade deals and bad ones (like theTPP they keep trying to pass), but in most part the economy has had rational players when it comes to manufacturing goods. 

I've had a number of discussions with people about this very phenomenon. It has been argued by empirical economists in the past that technological development does not kill jobs, it more than creates more jobs. That when the car came about, the horse-drawn buggy makers went out of business but lots of people found employment making cars; and so when the Australian automotive industry closes, those people will inevitably find employment in areas of higher technology. It makes sense that this has happened, but it seems unlikely that re-training auto-manufacturing workers into high tech workers of unspecified industries is the same as retraining buggy makers into auto-manufacturing workers. 

Similarly, the past performance is no predictor of future performance, and so we cannot simply subscribe to the view that it will happen again because it happened before. The implication being derived out of the empirical numbers, seem to be technological progress is happening in such as way as to cut the rate at which future jobs are created. We're now on the incline where each new development will likely destroy more job than they create, which is a new phenomenon.

The Rudd Revenge Is Just Beginning

Here we go!

"What I don't respect is, having pursued this campaign for United Nations secretary-general for such a long period of time in abso­lute good faith, to then see that good faith dishonoured and trust broken,"Mr Rudd told The Australian.

Arguing he had no interest in pursuing a "quixotic venture", Mr Rudd claimed his continued campaign to be the next secretary-general was based on assurances and underlying assumptions of support from both the Prime Minister and Foreign Affairs Minister Julie Bishop.

For his part, Mr Turnbull has again insisted that he told his predecessor that it was a decision for cabinet and warned him in May that the chances of his nomination going ahead were not good.

Oh, I dunno what to say. This Parliament hasn't even sat yet and they've managed to make a problem out of a trifle.