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Arithmetic for Austrians

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This piece grew from a number of conversations with people of Austrian economic persuasion, mostly Bitcoiners and goldbugs (which these days seem mysteriously to have converged). I thought of calling this "Monetarism for goldbugs", but decided to preserve the mathematical slant of the previous pieces in this series. But it's monetary arithmetic, of course. And as Austrians tend to obsess about "sound money", it is specifically soundmonetary arithmetic.

(Note: Someone has pointed out on Twitter that the arithmetic in this piece is considerably more advanced than the equations themselves suggest. If you are bit rusty on the mathematics of change, I suggest reading the first piece in this series, Calculus for Journalists). 

Inflation is complicated

As "sound money" seems to mean "no inflation", let's start by defining what we mean by inflation.

In mainstream economics, "inflation" usually means a general increase in the level of…

The Bitcoin Standard - a critical review

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For over a century now, the world has lacked a genuinely international means of payment. This is partly due to decisions made at the Bretton Woods conference in 1944, when the US dollar was adopted as the principal international settlement currency, rather than John Maynard Keynes's suggestion of an independent global currency that he called "bancor". Although the Bretton Woods gold-backed structure ended in 1971, the US dollar became ever more dominant.

In 2008, the dollar's global reach enabled an American financial crisis to spread to the entire world, causing a deep recession and long-lasting malaise. Ever since, there has been a deep longing for a more stable international financial system, one which didn't depend on debt, wasn't dominated by the US and was immune to political whims. Some have called for a new Bretton Woods, or even for the return of the classical gold standard.

Bitcoin emerged from the financial crisis as a fledgling international dig…

The EU is not a bastion of protectionism

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Jamie Powell at FT Alphaville has debunked the USA's claim to be the least protectionist trade area in the world. With the help of a couple of useful charts, he shows that it comes in a modest ninth on the list in trade-weighted terms. Go Jamie. The "victim America" narrative really needs to be stamped on, hard. America's trade deficit is not caused by mercantilist trade policies in other countries, it is an inevitable consequence of the dominance of the dollar - and is thus a measure of America's post-war success.

But in the course of debunking the USA, Jamie also incidentally debunked the Ultra Brexiters.

The Ultras insist that the EU is a bastion of protectionism, with extremely high tariff barriers to third countries. Indeed it does have very high tariffs for some products, mostly agricultural. But in the trade world, fallacies of composition abound. It is not safe to allege that a country or a trade bloc is extremely protectionist simply because it has h…

The sad story of Maplin Electronics

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Last week saw two high-profile corporate failures in the UK. Toys R Us finally went into administration after a stay of execution over Christmas. And private equity firm Rutland Partners pulled the plug on geeky electronics retailer Maplin. Total job losses from both failures amount to something in the region of 5,000 across the whole of the UK.

No-one was particularly surprised by the failure of Toys R Us. The company had proved slow to respond to the rise of online shopping and the trend away from large out-of-town retail outlets in favour of small local shops. In the US, Toys R Us filed for Chapter 11 bankruptcy protection (the American equivalent of administration) in September 2017. Despite the American company's insistence that its European operations were not affected, it was almost inevitable that the UK subsidiary would eventually follow suit. British consumers are shifting to online shopping every bit as rapidly as consumers across the Pond, and the trend towards loca…