Dallio on Economics

I am tidying the flat of items I have kept for too long, and came across an unread copy of Ray Dallio’s “How the Economic Machine Works”. I had been pointed at it by a then work colleague who had asked me to comment.

I didn’t feel in the mood to read it, and know I don’t want to keep it and so I googled it to create a bookmark but came across this 30 minute video, which can of course be consumed at double speed.

Dallio constructs a macro-economic model based on productivity growth, and credit cycles.

I have problems with his ignoring of the impact of monopoly on prices which given his rigid adherence to demand pull inflation theories could be a problem because he requires that over pricing leads to a dropin demand which doesn’t necessarily occur in monopolistic markets. He treats savings as a purchase of assets i.e. as spending; I am not sure that’s right.

He makes no mention of the marginal propensity to spend/save i.e. ignores the fact that the poor spend more of any incremental income than the rich. There is a limited discussion of fiscal policy.

He argies that the real economy i.e. the economy in terms of goods and services ignoring prices, grows at the rate of macro productivity growth.

There is no mention of international trade in his model.

I am unclear what causes the turn round in his long term debt cycle i.e. why does it change from benign to catastrophe. (Is it just animal spirits reacting to inflation and/or the micro debt burden? Or maybe its banks getting cold feet about the creditworthiness of thier borrowers.)

He argues that when the long term credit cycle moves to bust there are only four things that policy makers can do in order to reduce the total debt burden, restore creditworthiness and start spending again,

  • Cut spending (Austerity)
  • Reduce debt (Defaults & Restructuring)
  • Redistribute wealth (from the wealthy)
  • and print money

He argues that the first three are deflationary i.e. will reinforce the recession but the final one does not. (I can’t see how taking money from the rich and giving it to the poor is deflationary because of the short term higher propensity to spend of those with lower incomes.) He argues that these policies need to be balanced and that changes in income/product must be greater than the change in the debt burden. This reminds me that he does not seem to discriminate between domestic and government debt.

He finishes with three personal lessons, the last of which I heartily agree,  don’t borrow too much, don’t charge too much, and keep yourself up to date i.e. improve your productivity. …

Brexit and Labour’s 2017 manifesto

Some Lexiters claim that the EU treaties will inhibit a Labour Government if it tried to implement its 2017 manifesto. It is argued that the single market would inhibit industrial policy and the stability and growth pact would inhibit macro-economic policy. I don’t think this is so and have written up my notes on my wiki.

The single market does not inhibit an industrial policy, and the stability and growth pact has no enforcement mechanism for the UK. (Another opt-out which we will lose if we leave and seek to rejoin). 🤔 …

The day after the night before

The day after the night before

That was a shock, a soul deadening shock. In the words of the meme, I felt a grief for the loss of the future I thought I and my children had. How did this happen? How could we have voted to follow the corrupt and the vain, Johnson and Farage. The answer may have been most rapidly and accurately identified by John Harris of the Guardian in an article, entitled “If you’ve got money, you vote in … if you haven’t got money, you vote out” in which he identifies those whom we’ve known about for years, who can be described in a number of ways. In my micro blog post, “Pebbles”, I describe them as ‘globalisation’s losers’, the working class whose towns, communities and institutions have been smashed during the neo-liberal ascendency, communities that Labour stopped listening to and representing in 1997 leading to a loss of 5 million votes between 1997 and 2010. Making this even more problematic for Labour is that nearly ⅔ of Labour’s voters, voted remain, and just as globalisation’s losers cannot be ignored, nor can Labour’s majority of remainers. What is to be done? …

The end of economic growth

Earlier this month, the Guardian in its Economics’ Blog, published an article called “Are the UK growth pessimists right?” The article itself is unclear, partly because it wants to make the point that Social Democrats need growth to painlessly share the wealth more equitably and fund their social investment programs. The article argues that UK economic indicators are beginning to look up, that doomsayers have always been wrong before and that technological innovations have always revitalised capitalism. …