Debunking Economics - the podcast Steve Keen & Phil Dobbie

Sadly for Donald Trump, America seems to have been doing quite well in his absence. It has weathered the pandemic and inflation better than most. GDP pr capita is rising faster than most places and consumer spending is on the up. In fact, the main reason the Federal Reserve isn’t cutting rates is because the economy is doing so well they don’t see the need for a sudden change. But there are lots of warts in the US too. Industrial production plateaued decades ago, crime is rampant, despite the high predisposition for putting people in prison, the rich-poor gap is as wide as ever and, even though America spends more than anyone on health, they have a comparatively low life expectancy. Has America lost its way, with China beating it on EVs and, possibly AI, with Boeing outstripping Boeing because their planes are less prone to falling apart? This week Phil and Steve talk about what needs to change, and what happens if more of the world decides not to conduct international trade in US dollars.
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For a while now Dr Edgar Feige has been a proponent of an automated transactional tax. The idea is that we get rid of all taxes – income tax, sales tax, corporate tax, excise, capital gains, import and export duties, inheritance – and replace it all with a tax on all transactions Every transaction, which can be easily identified through bank accounts, has a very small tax on it. Phil and Steve discuss the pros and cons this week. It’s certain broad in its reach, but is there a danger that it could penalise those on lower incomes. There’s certainly a question mark on how it addresses the hoarding of money or long-term investment in asset classes that show strong capital gains. Perhaps it needs to work in conjunction with some means of taxing wealth – but that means, already, the simplicity of a transaction-only tax disappears.
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There’s been a lot of speculation lately about the role of immigration and its impact on inflation. Does a flood of foreign workers push down wages, which contains cost and keeps prices down? Conversely, did the low immigration levels post-COVID add to the wage pressures because, combined with sickness from COVID, there were a lot less people for every job vacancy. It sounds sensible, but Steve believes it’s only a small part of the issue. And if did have the potential to increase labour supply governments are often negating the benefits by failing to invest money into the economy, putting pressure on services and creating another inflation dynamic.
We also hear from Ben, who has a few words to say on the recent Elon Musk episode and all the talk of emigrating to Mars. Apparently we ignored the sex angle. Ad Ben set the task for next week’s podcast. Feel free to add your own contribution by clicking on the mic logo at debunkingeconomics.com

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The Bank of Japan has just lifted interest rates for the first time in 17 tears. The central bank has kept rates in negative territory in the mistaken belief that it would encourage banks to lend an people to borrow, helping to boost their flagging economy. Steve Keen says it’s based on the mistaken belief that banks lend money from their reserve accounts. They believed that by charging to hold onto the money banks will prefer to lend it out. If that was the case, the policy has been a dismal failure, with bank lending falling over the years the policy has been in place. So what next for a country with a shrinking, ageing population and massive private debt.
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One analogy that economists like to use is that of the Capitol Hill Babysitting cooperative in Washington DC in the 1970s. Government workers set-up a babysitting group, where they to it in turns to babysit each other’s children, so they could enjoy nights out without paying for childcare. There were quite a few on the group, so payment was formalised through the issuance of scrip. Economists like it because it mirrors a monetary system and suffers some of the pitfalls and problems faced in the economy at large. For example, the system quickly stopped functioning because some members would horde scrips, leaving others with none, and unable to go out for the night. The short-term fix was to issue more scrip, to get over this liquidity problem. Steve is concerned about drawing too many conclusions from such a microcosm, but it does seem curious how government workers are okay with issuing more Scrip for babysitters, but don’t see the need to expand the money supply in the broader economy.
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The UK Chancellor Jeremy Hunt delivered what is almost certainly his last budget, promising the usual stuff – more investment, more jobs, better public services and lower taxes. And, miraculously, all of this will be achieved by lowering government spending. Despite the rubbery figures, Steve Keen argues that the budget ignores the key principle, that you can’t increase GDP if the government is cutting back on money creation by trying to reduce its “deficit”. A get-out clause on that would be if the country was to see a sudden increase in the export/import ratio. That is in the budget figures, without any explanation as to how that’ll happen. So, what does a Steve Keen UK budget look like?
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