Disposable Jobs

[00:00:00] [SPEAKER_01]: Our overarching focus is using our tools to bring inflation back down to our 2% goal.

[00:00:05] [SPEAKER_01]: Reducing inflation is likely to require a sustained period of blow-trend growth, and it will very likely

[00:00:10] [SPEAKER_01]: be some softening of labor market conditions.

[00:00:12] [SPEAKER_00]: This is the debunking economics podcast with Steve Keen and Phil Dobbie.

[00:00:20] [SPEAKER_02]: Well, I was German powerly governor of the US Federal Reserve saying that they're going to put up

[00:00:24] [SPEAKER_02]: interest rates. This is a couple of years ago, more and more to care of inflation,

[00:00:28] [SPEAKER_02]: and jobs will go as a result he was admitting to that. But is that really?

[00:00:32] [SPEAKER_02]: Had a control inflation, now inflation is supposedly beaten in the US?

[00:00:36] [SPEAKER_02]: How quickly will those jobs come back? Or as the Fed seems to fear, will jobs continue to

[00:00:40] [SPEAKER_02]: disappear faster? And that might mean sharper rate cuts in the short term, trying to win

[00:00:45] [SPEAKER_02]: the back. Bit of a blunt instrument, isn't it? That's this week on the debunking economics podcast.

[00:00:56] [SPEAKER_02]: Now, in January this year, the unemployment rate in the United States was 3.7%

[00:01:01] [SPEAKER_02]: now it's up to 4.3% and the Federal Reserve is saying that they're keeping a close eye on

[00:01:06] [SPEAKER_02]: the labor market in case that unemployment rate worsens due to their action, of course.

[00:01:12] [SPEAKER_02]: So, Steve, it is their fault. One of the powers they have as a central bank

[00:01:16] [SPEAKER_02]: used to make people unemployed, and we had during power confessing to that. So, dropping

[00:01:21] [SPEAKER_02]: interest rates to stop people losing their jobs is presumably one central bank action.

[00:01:25] [SPEAKER_02]: You would approve of, well, we're going to try and fix the problem that we've created.

[00:01:30] [SPEAKER_03]: Yeah, I mean the question with any of their tools work the way they think they do.

[00:01:35] [SPEAKER_03]: When the answer is pretty much, when you look at the financial flows involved and so on categorically

[00:01:40] [SPEAKER_03]: no, it doesn't. But the one way they can slow down inflation is by crushing the economy,

[00:01:46] [SPEAKER_03]: which if I buckled it back in the United States, and that was going from interest rates,

[00:01:51] [SPEAKER_03]: which were all the order of 3 and 4 and 5% to 17, we've gone from 0 to 5.

[00:01:57] [SPEAKER_03]: And even though the numerical difference is a smaller, the impact of that change is bigger.

[00:02:06] [SPEAKER_03]: Both in terms of what the interest rate cash flow does to boost the economy.

[00:02:10] [SPEAKER_03]: But also what the high interest rates do to cripple people who are normally taking out credit

[00:02:14] [SPEAKER_02]: for things like housing loans. Yeah, and the problem is those people who came become unemployed,

[00:02:18] [SPEAKER_02]: weren't the people who were creating the inflation in the first place? That's part of the problem,

[00:02:22] [SPEAKER_02]: isn't it? That's part of the effectiveness of the whole thing.

[00:02:24] [SPEAKER_02]: But it comes. We wouldn't need to red-hine up to make a Jeff Bezos down unemployed.

[00:02:29] [SPEAKER_02]: That would be better if you'd be fun. That's right. Well, that is 100% interest rate, isn't it?

[00:02:34] [SPEAKER_02]: But the or more perhaps. But the, it does tend to steam roll as well,

[00:02:38] [SPEAKER_02]: doesn't it? So you talked, you know, talked about back in the 80s and we didn't quite get down to 0%,

[00:02:42] [SPEAKER_02]: did we with an inflame? It was not quite up to 5%. But if we go back to 2018, the US had 4.3%

[00:02:49] [SPEAKER_02]: unemployment early in the year by December that was 6.6% a year later.

[00:02:54] [SPEAKER_02]: It was nudging 10%. So we don't have to go back too far to see how bad things can get.

[00:03:02] [SPEAKER_02]: But it's always quick-sur-rise and then slow to fall. Just look at a graph. It's very easy to see.

[00:03:07] [SPEAKER_02]: Very quick to rise, slow to fall. So the good, so if it is, you know, a tactic being used by the Fed,

[00:03:14] [SPEAKER_02]: then the effect of it almost drags on to the next time they've got to use it.

[00:03:20] [SPEAKER_02]: So by that measure, it's not a good way of doing it. Is it?

[00:03:24] [SPEAKER_03]: No, and this is what the non-orthodox economists think opposed canes in the been arguing for

[00:03:27] [SPEAKER_03]: however long time. Physical policy is far faster to go back and far more effective.

[00:03:32] [SPEAKER_03]: So if you want to boost the economy, you increase the scale of the budget deficit.

[00:03:36] [SPEAKER_03]: If you want to reduce it, you reduce the level of the government deficit and what you're doing.

[00:03:40] [SPEAKER_03]: And this is what mainstream economists will never understand. They simply don't want to

[00:03:44] [SPEAKER_03]: understand it because they do. They've got to throw their entire paradigm out. The government

[00:03:48] [SPEAKER_03]: fiscal operations directly changed the amount of money in the economy. Whereas the interest rate

[00:03:54] [SPEAKER_03]: at best shows that the price of money, but part of the way they do it actually boosts

[00:03:59] [SPEAKER_03]: aggregate demand, which is appointed more in Moses being making for a while, but only in the financial

[00:04:04] [SPEAKER_03]: sector. So it's much more complicated than their models make out and they're long and variable

[00:04:12] [SPEAKER_03]: lags or he's been talking about. I mean as you say, how long it takes the economy to recover from

[00:04:16] [SPEAKER_02]: this stupid operation? So how do you keep people employed and solve the problem with inflation

[00:04:23] [SPEAKER_02]: and do that in two fiscal measures? Because the issue is of course, there's money swimming

[00:04:28] [SPEAKER_02]: around people who have got money to spend but there's not the supply to meet that. So that's

[00:04:33] [SPEAKER_02]: you know, forces prices up. How do you how do you create that with fiscal measures? Well I'm in

[00:04:37] [SPEAKER_03]: for a start. You look at actually what the price on them is. And again they're different

[00:04:40] [SPEAKER_03]: of what the textbook's teach. So the textbooks tell you that if you want to increase the level of

[00:04:44] [SPEAKER_03]: output, you've got to hire more workers to do it. And because you hire them more workers but

[00:04:49] [SPEAKER_03]: you've got the same amount of machinery, the amount per worker falls as you add more workers

[00:04:54] [SPEAKER_03]: and therefore the cost of production rises. That is carigot categorically wrong about real

[00:04:59] [SPEAKER_03]: corporations. Real companies have excess capacity which they know they need to be able to

[00:05:06] [SPEAKER_03]: take on if demand grows faster than their initial plans, which is good news of course,

[00:05:10] [SPEAKER_03]: than they can expand without needing to install new machines. If they're competitive

[00:05:14] [SPEAKER_03]: stuff's up, they can move into the bracket and they never get to the stage where they have

[00:05:20] [SPEAKER_03]: the two workers one jackhammer which is the sort of nonsense that comes out of textbooks when you

[00:05:26] [SPEAKER_03]: actually put it into a physical example. So when this is actually examined by two of the leading

[00:05:30] [SPEAKER_03]: conventional conservative economists who are going to guys kiddling in press card,

[00:05:35] [SPEAKER_03]: if you pretty hard to find more of more reactionary pair of mainstream economists than that

[00:05:38] [SPEAKER_03]: duo. But they did a very nice statistical study of the economy,

[00:05:43] [SPEAKER_03]: way back in the 90s which had the title, I think monetary facts and a monetary myth or some

[00:05:50] [SPEAKER_03]: title like that, and they concluded that growing economy causes a smaller rate of inflation not

[00:05:57] [SPEAKER_03]: a higher one. So we've got textbooks which pump out stuff that looks scientific when you

[00:06:08] [SPEAKER_03]: and that's what people in central banks are unfortunately, often out without even realizing

[00:06:13] [SPEAKER_03]: because they don't read the literature as widely as I do. They're using concepts which categorically

[00:06:19] [SPEAKER_03]: you're in the opposite direction to what they think they're doing. Yeah well of course you can

[00:06:22] [SPEAKER_02]: take the wrong argument put numbers behind it and call it science, can't you? And I think that

[00:06:26] [SPEAKER_02]: that happens a bit. Because I mean the counter argument, I mean if they're saying well okay there's

[00:06:31] [SPEAKER_02]: too much money therefore people need to lose their job so that they've got less money to spend

[00:06:34] [SPEAKER_02]: so there's less demand. I mean that's fine but that's only one side of the coin isn't it? The

[00:06:38] [SPEAKER_02]: other side of the coin is those people are not producing anything anymore so actually the productive

[00:06:42] [SPEAKER_02]: capacity of the country is declined therefore the ability for you to you know so the supply demand

[00:06:48] [SPEAKER_02]: imbalance, uh, give worsens further. Far better surely which I think is what you're saying give more

[00:06:54] [SPEAKER_02]: people jobs increase productive capacity then that supply demand can straight disappear because

[00:07:00] [SPEAKER_03]: you've also, I mean the other thing about the ups and downs of the economy is that

[00:07:05] [SPEAKER_03]: this is often driven by you know what capitalists do which sometimes successful sometimes fail

[00:07:10] [SPEAKER_03]: the BIMS and the BAS and particularly when you're talking about the financial speculation

[00:07:14] [SPEAKER_03]: like we saw at the 2007 financial crash which you know if you're going to be if you want to find

[00:07:19] [SPEAKER_03]: guilty parties they're all working for banks. They're not the people who took out ninja loans

[00:07:23] [SPEAKER_03]: that the people who offered them in the first place. Yeah but what ends up being the impact of

[00:07:28] [SPEAKER_03]: the failure that ends up falling on the people who take out the ninja loans who are

[00:07:32] [SPEAKER_03]: conned by bankers. So one of the arguments that modern monetary theory makes that I'm generally

[00:07:36] [SPEAKER_03]: supportive of, I've got some criticisms is the idea of a job guarantee and that is that rather

[00:07:41] [SPEAKER_03]: if you lose your job if you become an unemployed because of the BIMS and BAS of the business cycle

[00:07:45] [SPEAKER_03]: and the ups and downs of financial speculation then there's a you rather than being unemployed

[00:07:52] [SPEAKER_03]: and therefore going through all the negatives that go with that you get a job guarantee which

[00:07:57] [SPEAKER_03]: is a you know lower pay than your full-time job was but it's work and it's money coming in

[00:08:03] [SPEAKER_03]: and then that then means that you you're you're a buffet you've still got an encouragement

[00:08:08] [SPEAKER_03]: to go back and find a job at some point but you not put into the debilitating situation

[00:08:13] [SPEAKER_03]: of being unemployed and sitting on your ass watching your bills mount up and wondering whether

[00:08:17] [SPEAKER_03]: you can survive and that's the reality I know anybody who's been through about an employment

[00:08:22] [SPEAKER_03]: and I've been through two in my life. You know that feeling and it's not one that is actually

[00:08:29] [SPEAKER_03]: create positive positive behavior on the other side it's an awful experience

[00:08:34] [SPEAKER_03]: that a lot of people get forced into. Yeah we've always done the other way. Yeah we've always

[00:08:39] [SPEAKER_02]: yeah we've even worse as perhaps being a job which pays such a low pay that you kind of

[00:08:42] [SPEAKER_02]: afford to pay your bills and you haven't got the time to get another job because you're too busy

[00:08:45] [SPEAKER_02]: doing the job that's not paying you enough so you know we all be through back so that in our

[00:08:49] [SPEAKER_02]: life which is perhaps you know looking back on it is perhaps quite healthy because it gives you

[00:08:53] [SPEAKER_02]: that drive but at the time it's not particularly good but unemployment in the US and around

[00:08:58] [SPEAKER_02]: the world really I mean it's historically low despite these high interest rates so 3.4% in the

[00:09:03] [SPEAKER_02]: US in April last year that was the lowest since December 1969. Do you believe that?

[00:09:09] [SPEAKER_03]: Yeah I do but again again being old enough to remember the 60s I was actually there and

[00:09:14] [SPEAKER_03]: two young to get stoned an unemployment rate of in Australia was really excited to

[00:09:22] [SPEAKER_03]: send the average was about one and a half he had a couple of bouts when it reached almost 4%

[00:09:27] [SPEAKER_03]: but there was a really serious severe dividing line between the good times and the bad times

[00:09:35] [SPEAKER_03]: the good times were back and when we had what are called called Cains Union policies with dominant

[00:09:41] [SPEAKER_03]: and then in 1974 you had a jump in both inflation and the rate of unemployment which could

[00:09:47] [SPEAKER_03]: come down to stag flation and that led to Milton Friedman becoming dominant in economic policy globally

[00:09:53] [SPEAKER_03]: and driving out the idea that you can manage the economy using fiscal policy you have to switch

[00:09:59] [SPEAKER_03]: over to central banks being dominant and setting the interest rates and thinking that

[00:10:03] [SPEAKER_03]: controllability economy that way and the outcome has been that since that period when you look

[00:10:08] [SPEAKER_03]: at the thing that they're actually trying to achieve using those policies which was a high rate of

[00:10:17] [SPEAKER_03]: under the so-called bad Cains Union period was in America was of the order of about 4% real growth

[00:10:23] [SPEAKER_03]: per annum the growth since the new classicles took over has been about 2% per annum and we had

[00:10:30] [SPEAKER_03]: you know 50 years of it so it certainly accumulated it's impact over time and so it's

[00:10:37] [SPEAKER_03]: the arguments that you know we've got to use monetary policy due to this we can't use fiscal policy

[00:10:41] [SPEAKER_02]: the track record says Gargier what does he work because you know this time we've got these

[00:10:48] [SPEAKER_02]: very high interest rates and yet unemployment is as I say still historically low I mean much of

[00:10:54] [SPEAKER_02]: the fed approach with interest rates is dependent on slowing the economy through unemployment

[00:10:59] [SPEAKER_02]: but it's just not happening very tight policy people still working well until now I mean

[00:11:04] [SPEAKER_02]: now they're worried about it's all down to lags and in which case you know if it's down

[00:11:10] [SPEAKER_02]: lags we've got inflation beat and now we're going to pay the price for it after the event

[00:11:16] [SPEAKER_03]: yeah I mean again this is well there are a whole point about lags with fiscal policy versus lags

[00:11:21] [SPEAKER_03]: with monetary policy there isn't a normal there was almost no lag with fiscal policy

[00:11:26] [SPEAKER_03]: but the government decides to create more money by increasing its the gap between it spending

[00:11:32] [SPEAKER_03]: in taxation that money is thin as it's spent is in the economy and it is spent the government

[00:11:37] [SPEAKER_03]: first when you know bill by goods and services off the of the private sector or it will give

[00:11:42] [SPEAKER_03]: somebody who's unemployed or on welfare a payment and that money has then probably normally

[00:11:48] [SPEAKER_03]: spent very rapidly so the lags are very brief in the case of of monetary policy there are

[00:11:55] [SPEAKER_03]: it's best most that there's the straightforward lag in terms of the impact of the government

[00:12:00] [SPEAKER_03]: putting up its rates versus the private sector following with high rates which by the way is

[00:12:04] [SPEAKER_03]: necessary for come back to that but that's what normally happens but then it's also how long

[00:12:10] [SPEAKER_03]: it takes that private increase in interest rates to actually affect economic demand and in

[00:12:15] [SPEAKER_03]: America because virtually all mortgages are fixed term like you take out a million 30 years

[00:12:22] [SPEAKER_03]: it's only the it's only the new borrowers who don't turn up because of high interest rates so

[00:12:28] [SPEAKER_03]: it's only an impact on what the economists love to call the marginal by the marginal by a

[00:12:33] [SPEAKER_03]: but it encourages like the stroller and the UK we have more floating interest rates than

[00:12:39] [SPEAKER_03]: the effect is more immediate but it's still lag is still takes time for the banks to

[00:12:43] [SPEAKER_03]: decide to put up the rates you know let you know you're going to pay a higher amount etc etc

[00:12:47] [SPEAKER_03]: so the timing effect with the monetary policy and the monetary effect of monetary policy is

[00:12:54] [SPEAKER_03]: well quite different to what the economic models say there and yeah and the at the fiscal approach

[00:12:59] [SPEAKER_02]: I mean just think Australia in 2007 2008 must have been 2008 Kevin rather than newly

[00:13:04] [SPEAKER_02]: the new Prime Minister Kevin Kevin 07 one of the first things he did was the the start of

[00:13:10] [SPEAKER_02]: the crisis in 2008 was to say well I can't go to put a thousand dollars or whatever it was

[00:13:15] [SPEAKER_02]: into everyone's bank accounts and everyone went off shopping sadly they bought flat screen TVs

[00:13:20] [SPEAKER_02]: which were sort of like in demand at the time which sort of meant that Australia's import shot out

[00:13:24] [SPEAKER_02]: but you know at least it helped Harvey Norman the retail store and that's the thing I mean

[00:13:29] [SPEAKER_03]: the money was instantaneously and your pocket and spent immediately and the country

[00:13:35] [SPEAKER_03]: the country but the retail industry do you know which and that's one of my pet pleas

[00:13:40] [SPEAKER_03]: of course because I was sort of castigated for the fact that I said there was going to be a

[00:13:44] [SPEAKER_03]: recession Australia and it didn't happen therefore I had to be wrong in fact what really happened

[00:13:49] [SPEAKER_03]: was and actually I've got said this interesting work that the macro business did recently

[00:13:54] [SPEAKER_03]: to take a look at cabinet papers and see what actually happened because that stimulus policy

[00:13:59] [SPEAKER_03]: included doubling and trebling the amount of money that the government gave to the first

[00:14:04] [SPEAKER_03]: tone bars which of course I nicknamed the first time vendors grant because what it meant was you

[00:14:10] [SPEAKER_03]: give people who weren't able to buy home and deposit means they can buy home they they go and

[00:14:14] [SPEAKER_03]: borrow 10 times as much from the bank yeah of course and they pay to the pay to the vendor

[00:14:19] [SPEAKER_02]: and it just keeps on a popping up everywhere around the world that doesn't have anything

[00:14:23] [SPEAKER_02]: well have we learned nothing from this but they were these they were different times in

[00:14:26] [SPEAKER_02]: that with you know the government was stepping in there because there was a downturn not because

[00:14:29] [SPEAKER_02]: there was an inflation worry but the fact was you know we're heading to recession so that that's

[00:14:34] [SPEAKER_02]: very different to the central bank I mean the central bank would be dropping rates in circumstances

[00:14:38] [SPEAKER_02]: like that wouldn't they which is why we didn't have a company and after quite some time as well

[00:14:42] [SPEAKER_03]: that was still putting right suppers the recession was happening because according to their

[00:14:46] [SPEAKER_03]: opinion it wouldn't be a recession but yeah it's I mean this putting up in some rates in

[00:14:50] [SPEAKER_03]: response to the inflation we had a big after covid was as you know Isabella Weber and

[00:14:56] [SPEAKER_03]: Blay and Blay fixed show extremely well and quite a bit of detail that was you know trying

[00:15:02] [SPEAKER_03]: to reduce demand but rather trying to reduce inflation when the inflation was coming from

[00:15:08] [SPEAKER_03]: supply chain shocks fundamentally and also increases in markups so you know you wanted to

[00:15:14] [SPEAKER_03]: make Jeff Bezos unemployed not the people in his detachment what are they called those places

[00:15:20] [SPEAKER_02]: despite dispatchers yes yeah well yeah but you know and well all you need more people in

[00:15:24] [SPEAKER_02]: those dispatchers to get more goods out to try and fix that gap and dampen the price rise because

[00:15:30] [SPEAKER_03]: again that's the story with the exception of events like covid and when you complete this

[00:15:36] [SPEAKER_03]: drop in the incredibly complex production supply chains we have most of the most of the inflation

[00:15:43] [SPEAKER_03]: where you actually can reduce inflation by increasing capacity a lot we talked a lot about

[00:15:48] [SPEAKER_02]: monetary policy in this first half when we come back I just want to talk more generally about

[00:15:51] [SPEAKER_02]: the labor market and where it's going I mean there's obviously you know things like AI which could

[00:15:55] [SPEAKER_02]: challenge employment but we're also seeing you know more jobs than ever available so why is that

[00:16:00] [SPEAKER_02]: happening and you know also we had that great resignation is that all gone now curious things happening

[00:16:05] [SPEAKER_02]: in the labor market so we'll look at all of that when we come back on the deep banking economics podcast

[00:16:10] [SPEAKER_00]: it's me and Steve Keen back in a moment this is the deep banking economics podcast with

[00:16:15] [SPEAKER_02]: Steve Keen and Phil Dobby well looking at the labor market today on the deep banking economics

[00:16:24] [SPEAKER_02]: podcast you know we've looked at the approach of central banks around the world which is if you're

[00:16:29] [SPEAKER_02]: if you're employed and you're spending too much and inflation is rising we want you to lose your job

[00:16:34] [SPEAKER_02]: basically so that you're just a truth therefore you don't spend therefore prices come down

[00:16:39] [SPEAKER_02]: it's as simple as that hardly any pain felt in that process although Steve I mean it's not

[00:16:44] [SPEAKER_02]: really happened to that extent America is talking about a soft landing so really there's you know

[00:16:47] [SPEAKER_02]: any employment hasn't shut up a great deal has it so so you begin to wonder does that mean that

[00:16:54] [SPEAKER_02]: the their approach is not working the fed policy approach isn't working all the fact that

[00:16:58] [SPEAKER_02]: it is working without people losing their job is that just co-incidence I mean what what exactly

[00:17:03] [SPEAKER_03]: is going on well it's a huge part of its coincidence and one of my favourite ways of indicating

[00:17:07] [SPEAKER_03]: this is to look at what happened in Japan because if you take a look at inflation in Japan

[00:17:12] [SPEAKER_03]: inflation in the UK inflation in the USA inflation in Germany what you find is a spike in inflation

[00:17:18] [SPEAKER_03]: after COVID which then fall back down now it countries like the American particular but the UK

[00:17:24] [SPEAKER_03]: and Australia and so we'll say oh it's because we put up interest rates in that reduced the rate of

[00:17:29] [SPEAKER_03]: inflation China and Japan's interest rate did not change in fact I think was negative

[00:17:35] [SPEAKER_03]: for all the way through and finally they put the rate up to zero now they in Japan not only had the

[00:17:40] [SPEAKER_03]: same pattern of rising inflation followed by falling inflation they had the lower rise in

[00:17:45] [SPEAKER_03]: inflation than most of the rest of the world so the argument that it was interest rate change

[00:17:51] [SPEAKER_03]: that managed to bring the inflation rate down I just wrong because one of the world's major

[00:17:55] [SPEAKER_03]: economies had the same effective performance in terms of rising and then falling in

[00:18:00] [SPEAKER_03]: without changing as interest rate one on earth and now of course they're loving inflation

[00:18:04] [SPEAKER_02]: in Japan because they've had so little of it for so long the now there's an opportunity to

[00:18:09] [SPEAKER_02]: for companies to say well we can put up prices upwards they were castigated for doing that before

[00:18:14] [SPEAKER_02]: and so you had that stagnant economy now they've got a little glimmer of inflation companies

[00:18:19] [SPEAKER_02]: are saying well okay we can afford to pay people a bit more that means there's more money for

[00:18:22] [SPEAKER_02]: people to spend therefore there's more money to buy stuff we can move our margins up a little bit

[00:18:27] [SPEAKER_02]: which will not be able to do for years so that allows us to invest so there can be all of

[00:18:31] [SPEAKER_02]: a certain starts to kick off so inflation is actually helping Japan right now yeah and this is

[00:18:36] [SPEAKER_03]: the point we made of who I podcast away that a certain amount of inflation not when you get to

[00:18:41] [SPEAKER_03]: doing above 10% the lowest they have about 40% which is what I define at the point where hyper

[00:18:46] [SPEAKER_03]: inflation is occurring but if you have the of the order between two and five percent rate of

[00:18:50] [SPEAKER_03]: inflation that actually operates as incentive for people to spend the money they've got because

[00:18:55] [SPEAKER_03]: otherwise you're seeing it reducing value that's in a way a bit like an artificial version

[00:19:01] [SPEAKER_03]: of what Brazil what of which was money which actually was depreciated by a blind design and because

[00:19:07] [SPEAKER_03]: it's depreciated it's been like a hot potato you pass it on to somebody else you get a higher level

[00:19:12] [SPEAKER_03]: economic activity so it's the turnover of money as well as the quantity of money that matters

[00:19:17] [SPEAKER_03]: and even though near classical economists you know for the third it's taught themselves

[00:19:21] [SPEAKER_03]: managers by talking about the velocity of money they don't really pay any real attention to it

[00:19:27] [SPEAKER_02]: no well if they did they might be a bit worried about the fact that it's been getting slower and slower

[00:19:31] [SPEAKER_02]: and slower over the decade and the fact that you're bad there but here's what about the numbers

[00:19:36] [SPEAKER_02]: of jobs then because there's a peculiar thing since the pandemic that we've got this rise

[00:19:40] [SPEAKER_02]: in jobs available so typically in the US there's between one and one point two job openings

[00:19:48] [SPEAKER_02]: per unemployed person it's getting back to that now but it was double that at one stage

[00:19:55] [SPEAKER_02]: over the last year or so it looks like it's going to settle down higher than it was before

[00:20:02] [SPEAKER_02]: so why more jobs available I mean and there's certainly as you know we hear about labor market

[00:20:07] [SPEAKER_02]: shortages even though the same number of people are you know our available in fact you know we've

[00:20:11] [SPEAKER_02]: seen massive immigration in the United States and other countries as well so there's actually

[00:20:15] [SPEAKER_02]: more people chasing jobs and yet there's lots of job openings as well so I mean that that

[00:20:22] [SPEAKER_02]: sounds like a healthy sign doesn't it I mean it can obviously mean that you get wage inflation

[00:20:27] [SPEAKER_02]: if you know too many people competing but of course it depends from sector to sector and that's

[00:20:32] [SPEAKER_02]: often ignored it's always looked at to an aggregate but why that many more jobs available now

[00:20:37] [SPEAKER_02]: you would have thought in this day and age with automation etc the numbers of jobs would be sliding

[00:20:42] [SPEAKER_03]: well I'm actually wondering what extent COVID is having an impact there because you know with people

[00:20:48] [SPEAKER_03]: the silver tending it doesn't exist anymore and and and pretending it doesn't have much of an

[00:20:53] [SPEAKER_03]: impact in fact as a substantial proportion of the population that ends up being paralyzed and

[00:20:58] [SPEAKER_03]: various ways you know any it's similar to you know diseases that just reduce your personal

[00:21:03] [SPEAKER_03]: motivation you have brain fog etc etc they've been a large number of people who just dropped

[00:21:08] [SPEAKER_03]: out of the workforce and and we don't know it's it's not well recorded and we no longer get any

[00:21:15] [SPEAKER_03]: associated with COVID itself anymore but that may be one reason why they're involved they

[00:21:20] [SPEAKER_03]: can see them people because it's not that they're of the vacancies of risen it's the number

[00:21:24] [SPEAKER_03]: of people who are available for jobs has declined because some people find they simply cannot

[00:21:28] [SPEAKER_03]: hold a job down anymore so you know it is a weird time it's it isn't you know you're

[00:21:34] [SPEAKER_03]: I could make much more definitive comments about phenomenal like that back on the 80s or 90s

[00:21:39] [SPEAKER_02]: and I can make now yeah because it is a confusing picture yeah I wonder though whether one thing

[00:21:44] [SPEAKER_02]: you share with other economists oh dear is there anything terrified what is what is this I have

[00:21:50] [SPEAKER_02]: to just if you know if you're wanting to look at where the economy's going you know if you're trying

[00:21:55] [SPEAKER_02]: to look at you're leading indicators so employment or employment expectations aren't a bad one

[00:22:04] [SPEAKER_02]: are they so we get things like for example the the conference board they've got the employment

[00:22:08] [SPEAKER_02]: trends index they've got you know they ask people whether they think that they will be employing

[00:22:13] [SPEAKER_02]: more people over the next six months or or less and then they ask other people whether they

[00:22:18] [SPEAKER_02]: feel as though you know there's lots of jobs around they've got the jobs plentiful index which

[00:22:22] [SPEAKER_02]: is other on his way up all well it's very down all of that actually quite useful guide isn't it

[00:22:26] [SPEAKER_03]: for how an economy is doing the hiring intention sometimes that's not as far as what I mean

[00:22:34] [SPEAKER_03]: the point that the man does fall on officially the companies decide to resrange paper it's already

[00:22:37] [SPEAKER_03]: happened exactly so I mean but employment expectations is is a leading indicator in that sense yeah

[00:22:43] [SPEAKER_03]: so all the time I've got a few too many jobs on my back so I don't follow that one carefully

[00:22:48] [SPEAKER_03]: anymore if we'll be able to weren't expecting a collapse in the climate I might be taking a look

[00:22:52] [SPEAKER_02]: at the numbers what other than that yeah I wish you had nothing that question now where

[00:22:55] [SPEAKER_02]: me they but they're not really you know it's my day-to-day job really but they are they

[00:23:01] [SPEAKER_02]: are writing so there's they are picking up so there's more influence so both sides of the

[00:23:06] [SPEAKER_02]: equation both the companies are saying me want to hire more people and people certainly can

[00:23:09] [SPEAKER_02]: be just saying slowly but it's happening enough for the fed to be there saying well okay

[00:23:15] [SPEAKER_02]: we'll keep an eye on that looks good but obviously we don't want it to rise too fast because

[00:23:18] [SPEAKER_02]: that could create inflation again but we also don't want it to fall because that would mean

[00:23:23] [SPEAKER_02]: that we can have to drop our interest rates because we could be heading towards a recession

[00:23:26] [SPEAKER_02]: so I mean you know it's which watched in in both directions but it's it generally moving up at

[00:23:32] [SPEAKER_02]: the moment so that's got to be a positive sign that's for the United States you know Europe is

[00:23:35] [SPEAKER_03]: a complete different story of course yeah well I mean to hold a lot of them the monetary

[00:23:40] [SPEAKER_03]: reasons behind it can be the the fact that the government is still running substantial not as

[00:23:46] [SPEAKER_03]: not the scale of care if it's substantial spending exceeding taxation which is a good thing that's

[00:23:51] [SPEAKER_03]: creating feed money which isn't necessary for the private sector to have you know business

[00:23:55] [SPEAKER_03]: turnover out of out of private transactions and the the thing which I'm a bit concerned about

[00:24:02] [SPEAKER_03]: I would wonder which direction this is going in the higher rates that have been imposed upon

[00:24:07] [SPEAKER_03]: private borrowers though I banks using the increase in reserve rates as effectively

[00:24:12] [SPEAKER_03]: in my opinion at the cover for it those higher rates are going to be cutting back people's demand

[00:24:17] [SPEAKER_03]: does offer credit based purchases so you like to see less investment driven by credit and

[00:24:25] [SPEAKER_03]: endless house purchases and the following that means in terms of employment in construction and so on so

[00:24:31] [SPEAKER_02]: I worry about that is a long term trend and of course you know also I mean even with the

[00:24:37] [SPEAKER_02]: large number of people at the house got high mortgage they've got less money to spend on other stuff as well

[00:24:41] [SPEAKER_02]: yeah and they've got to cut back another thing but I'm just wondering whether employment

[00:24:45] [SPEAKER_02]: is actually the key indicator for economic health you know is it actually more useful in GDP because

[00:24:51] [SPEAKER_02]: you can have a growing GDP for example but have less people employed you can have more automation

[00:24:56] [SPEAKER_02]: which you know is fantastic for the for the country but it means the wealthy are getting wealthy

[00:25:01] [SPEAKER_02]: other poor or not and that's a bad combination so elixir we equal weight GDP and unemployment as

[00:25:09] [SPEAKER_03]: the two key indicators. If you look back to the policies that exist in the positive world war

[00:25:13] [SPEAKER_03]: two period that was the emphatic focus of government policy because they'd seen what happened

[00:25:19] [SPEAKER_03]: when you had massive unemployment which was the 1930s leading to the 1940s in the World War II

[00:25:25] [SPEAKER_03]: a huge amount of that was seen as being motivated by leading unemployment explode after the

[00:25:30] [SPEAKER_03]: 1930s when it hit 25% the population in American 30% in Germany high levels in the rest of the

[00:25:37] [SPEAKER_03]: world as well and to quite the Australian white paper unemployment which I know well of course being an Aussie

[00:25:43] [SPEAKER_03]: and reading a stuff when I was a young man the white the 1945 white paper unemployment in Australia

[00:25:50] [SPEAKER_03]: said that this is virtually a quote the and the if it's got some anybody who believes in we have

[00:25:57] [SPEAKER_03]: to have worked hem analogy my police excuse the next set of expressions it said the emphasis

[00:26:02] [SPEAKER_03]: of government policy has to be maintained such pressure on demand as the guarantee as shortage

[00:26:06] [SPEAKER_03]: of men rather than a shortage of jobs so that was the thing the the the the

[00:26:12] [SPEAKER_03]: debilitating impact of long-term unemployment was regard was given the experience of the great

[00:26:18] [SPEAKER_03]: depression in the world war two was so traumatizing that that became the policy focus but

[00:26:25] [SPEAKER_02]: the nia classical economists are a lot more jobs so we won't we can in a face and we won't

[00:26:30] [SPEAKER_02]: implement right to be really low because we want there to be more jobs than our people and that

[00:26:33] [SPEAKER_03]: has like this the standard way that economists think about that is they're all wages are

[00:26:37] [SPEAKER_03]: high profits low bad bad bad but what often happens in short paper is a better guided this than

[00:26:44] [SPEAKER_03]: virtually all other economists when you have high wages that is often an encouragement for technological

[00:26:49] [SPEAKER_03]: innovation for firms to sidestep the impact of the tight labor market and the high wages

[00:26:54] [SPEAKER_03]: they're paying so the very original invention that that said off the manufacturing side of the

[00:27:03] [SPEAKER_03]: and that was something which went from letting one person spin a wheel to weath you know

[00:27:08] [SPEAKER_03]: now to turn the wool into in terms of strands of the third clothing manufacturing one person to

[00:27:16] [SPEAKER_03]: six people the spinach any that was profitable in in Scotland because wages were so high the same

[00:27:22] [SPEAKER_03]: invention would have failed in France because the wages were lower and the the cost of the machine

[00:27:28] [SPEAKER_03]: and the servicing costs and so on we're greater than the wages that it displaced so what you

[00:27:34] [SPEAKER_03]: get out this part of the dynamic process which is totally underrated by conventional economists

[00:27:39] [SPEAKER_03]: they don't look at the dynamics there so you actually it's almost a year one high employment

[00:27:43] [SPEAKER_03]: you want wage increases which will inspire when it's part of the top of technological

[00:27:48] [SPEAKER_03]: innovations that displays part of that labor so you know causing a rise in unemployment in that

[00:27:58] [SPEAKER_03]: pressure you want so an economy which is performing with you know with with the low unemployment

[00:28:02] [SPEAKER_03]: it is more likely to be one way innovations occur as well and that's what gives you progress over time yeah

[00:28:08] [SPEAKER_02]: well again I worked in a any industry completely useless industry the radio industry

[00:28:12] [SPEAKER_02]: it says no bloody good to anybody at all except plays a few nice tunes for them by and large

[00:28:16] [SPEAKER_02]: but I mean that's all been you know organ by computers these days so whereas a radio station in the

[00:28:20] [SPEAKER_02]: olden days when I started I don't know you might have 12 or 20 people who'd be presenting on

[00:28:26] [SPEAKER_02]: a day during the week doing a couple of hours each because you know that's all you could do by

[00:28:30] [SPEAKER_02]: time you'd land records back filled in commercial logs you know done all that taken phone calls

[00:28:36] [SPEAKER_02]: from listeners you know you exhausted by the end of that now it's all done by computer people

[00:28:40] [SPEAKER_02]: do for our shifts and they might do for our shifts simultaneously for a few different radio

[00:28:45] [SPEAKER_02]: stations because they're just voicing links rather than listening through the whole show it's

[00:28:48] [SPEAKER_02]: also you know the very very few people needed that industry now therefore they can't demand

[00:28:53] [SPEAKER_02]: particularly eye wages because you know there's many people who can do it you know you don't

[00:28:58] [SPEAKER_03]: or you have innovation but leader putting on planet and other other industries and that's been

[00:29:02] [SPEAKER_02]: though yeah I know then these people who don't podcast where cause people are making a fortune

[00:29:06] [SPEAKER_02]: but the we are absolutely we're rolling it yeah absolutely you shouldn't tell people

[00:29:11] [SPEAKER_02]: but it is interesting exactly trying to figure out whether what would happen in the end where I am

[00:29:16] [SPEAKER_02]: in sorry there's since the pandemic particularly over the last year our town is flooded with

[00:29:21] [SPEAKER_02]: cafes loads of them you think how are they all going to survive and also you know there's only

[00:29:27] [SPEAKER_02]: so many people to work in these cafes so you'd be thinking you know economic theory it suggests well

[00:29:32] [SPEAKER_02]: there's lots of those jobs available there's very few people those people are going to go and say

[00:29:36] [SPEAKER_02]: well I want 20 pounds per hour and the shopkeeper is going to be saying they're saying well okay

[00:29:41] [SPEAKER_02]: if we want to get you to stop you working at the shop next door that's what we're going to have to pay

[00:29:44] [SPEAKER_02]: but the reality is they can't afford 20 pounds per hour the shop would go bankrupt if they did that

[00:29:49] [SPEAKER_02]: so they you know so there's wages can only be pushed up so far before you know commercial reality

[00:29:54] [SPEAKER_03]: it's a bit of a bit of a bit of a dynamic process so they're forcing up and then feed to

[00:29:58] [SPEAKER_03]: whether you know the cost-free means reduced in other areas and profit-benegeny related by

[00:30:03] [SPEAKER_03]: new technological processes reduce your need for labor and you need for other input so

[00:30:10] [SPEAKER_03]: this is the dynamics of capitalism fasten that in the statics and not only boring they're

[00:30:16] [SPEAKER_03]: relevant as well and unfortunately our central bank managers think in terms of statics but that

[00:30:20] [SPEAKER_03]: even realizing are doing any more because they put the word dynamic before this the costy general

[00:30:25] [SPEAKER_03]: liquid-evolving models so you know it's it's this what do you get out of any living system

[00:30:32] [SPEAKER_03]: and you can regard the economies in extension of the living system of humanity is it is going to

[00:30:36] [SPEAKER_03]: have cycles and you're questioning if you've ever understand the cycles first before you can

[00:30:40] [SPEAKER_03]: talk about how you might be able to dampen them in some areas or raise them to a higher low

[00:30:46] [SPEAKER_03]: level if you're trying to change the actual level rather than the cycle of characteristics

[00:30:51] [SPEAKER_02]: none of this turns up a management economic and mainly economics does tend to say central banks

[00:30:56] [SPEAKER_02]: in particular basically they are pretty much saying its wages that drive inflation on thing

[00:30:59] [SPEAKER_03]: almost without exception well I mean they're doing they're calling inflationary expectations

[00:31:03] [SPEAKER_03]: and this is the funny thing and you mentioned employment expectations went back earlier in the

[00:31:10] [SPEAKER_03]: nonsense that came out of mainstream economics is that inflation has set by expectations

[00:31:15] [SPEAKER_03]: of inflation this came out of Milton Fraser paper the optimal quantity of money written back

[00:31:19] [SPEAKER_03]: in the 1950s and here that's where the idea of helicopter money came from as well you literally

[00:31:24] [SPEAKER_03]: had the analogy imagine a helicopter flies over this country and drops $1,000 one dollar bills

[00:31:30] [SPEAKER_03]: we're previous there were only one thousand there were now two thousand what's going to happen

[00:31:35] [SPEAKER_03]: and that argument about people then it started to expect the helicopter to turn up

[00:31:41] [SPEAKER_03]: and therefore because they expect the helicopter to turn up they're putting up their process

[00:31:45] [SPEAKER_03]: even though markets roll in in completely equilibrium that's just a childish vision of how money

[00:31:52] [SPEAKER_03]: has created a childish vision of a capitalist economy but that's where the idea of the inflationary

[00:31:57] [SPEAKER_03]: expectations cause inflation so Milton Fraser solved the idea that if you can reduce

[00:32:02] [SPEAKER_03]: expectations of inflation you can bring the rate of inflation down without actually

[00:32:07] [SPEAKER_03]: affecting the level of unemployment well what we do that's that's the nonsense that gave us

[00:32:12] [SPEAKER_02]: the block for the set so if a central bank pushes up interest rates wouldn't the theory be

[00:32:18] [SPEAKER_02]: that people have got less money therefore companies are going to feel the squeeze as well

[00:32:24] [SPEAKER_02]: and company profits would fall wouldn't that be the argument and the partiality is the argument

[00:32:28] [SPEAKER_03]: what they were ignoring is when you're putting up rates on government bonds there's an impact

[00:32:33] [SPEAKER_03]: upon the value the face value of those bonds and this is what we're at silicon bank

[00:32:37] [SPEAKER_03]: silicon valley bank unstuck but if you're doing that the new bonds ratio are actually paying

[00:32:43] [SPEAKER_03]: more money from the government government created money to the private sector that buys

[00:32:47] [SPEAKER_03]: these bonds so there's a extent to which putting up rates on government bonds actually

[00:32:53] [SPEAKER_03]: is a simulated economy specifically in the financial sector but that's something which is left out

[00:32:59] [SPEAKER_03]: of mainstream thinking that simply treat this as being the high rate of rate of interest

[00:33:03] [SPEAKER_03]: leads to it corporations looking at pre-searcher cash flow flows discounting them by a

[00:33:11] [SPEAKER_03]: higher interest rate therefore you get a low-end net present value therefore low-end

[00:33:14] [SPEAKER_03]: this less and therefore you slow down the level of economic activity that reduces demand

[00:33:20] [SPEAKER_03]: for workers that reduces wage rises and that reduces inflationary expectations not inflation

[00:33:27] [SPEAKER_03]: itself of course expectations for inflation or for etc etc I'm sorry I can't see where I put my

[00:33:33] [SPEAKER_02]: volume.

[00:33:34] [SPEAKER_02]: Well here because we know my mum went to go shopping and they say it's going to cost you

[00:33:38] [SPEAKER_02]: 10% more she always goes well I wasn't expecting that so that's not him yet and so they say

[00:33:43] [SPEAKER_02]: okay well if you want to expect and you will only charge a 5% more than but let me so they live

[00:33:47] [SPEAKER_02]: the fair to see land on their real world.

[00:33:49] [SPEAKER_02]: Now let me give you some numbers then just before we finish off here

[00:33:52] [SPEAKER_02]: yeah I couldn't use because I want to get fact I know it's a road to some of you're trying

[00:33:56] [SPEAKER_02]: out on the podcast so you must be happy if we look at from 2019 the beginning of 2019 the

[00:34:02] [SPEAKER_02]: first quarter of the 32 to 2024 so before the pandemic through to the beginning of this year

[00:34:08] [SPEAKER_02]: over that period actually sorry from January they have got let me get the strike from

[00:34:13] [SPEAKER_02]: January we're going to use numbers we've got to get it right from January 2020 to January

[00:34:17] [SPEAKER_02]: 2024 the first quarter of 2024 anyway for the UK if the aggregate inflation so prices over that

[00:34:24] [SPEAKER_02]: four year period went up 21% that's where we've come out the other side from wages went up 23

[00:34:30] [SPEAKER_02]: percent so actually beat inflation ever so slightly corporate profits have I guess 200 percent

[00:34:37] [SPEAKER_02]: not quite that bad 53% though so still you know more than twice the rate of inflation

[00:34:42] [SPEAKER_03]: and that comes as well as but with us points that is actually increasing on mark

[00:34:46] [SPEAKER_03]: up the road most the inflation not increasing on wages yeah unless included in that

[00:34:50] [SPEAKER_02]: corporate profits is the final sector with the impact of the higher you know as you've just been

[00:34:55] [SPEAKER_02]: disbanded earlier yeah which could be part of it as well so for the US although you know

[00:35:00] [SPEAKER_02]: you would have thought they'd be the difference would be greater in the US if that was the case

[00:35:03] [SPEAKER_02]: but in fact slightly less so for the US inflation 21% wages 23% face similar to the UK in fact

[00:35:12] [SPEAKER_02]: less though 39% growth in corporate profits for Australia 14.4% inflation wages 12.5%

[00:35:20] [SPEAKER_02]: corporate profits 44% so it's the same everywhere Germany though inflation 14 and a half percent

[00:35:27] [SPEAKER_02]: wages just 6.4% corporate profits 14% so Germany because they are struggling as an economy

[00:35:33] [SPEAKER_02]: because they're an export nation and just not being able to float as much stuff to China

[00:35:37] [SPEAKER_02]: they really are suffering and corporate profits are down because they're export earnings and

[00:35:43] [SPEAKER_02]: not being able to you know abuse the privileged too much with the Chinese because they really don't have

[00:35:48] [SPEAKER_03]: any money yeah well this is the I mean Germany is pretty much given up at high export

[00:35:52] [SPEAKER_03]: focus the whole the master treaty i think is finally starting to cripple that economy

[00:35:57] [SPEAKER_03]: whereas the China is still you know happily creating money because they know that's what a government

[00:36:02] [SPEAKER_03]: should do and financing infrastructure projects and also causing a huge amount of cash that

[00:36:08] [SPEAKER_03]: circulates in the economy and drives the private sector so you know we've got examples out there

[00:36:12] [SPEAKER_03]: if we're not swallowing near a classical cool aid at least a bit around comes but we're never

[00:36:17] [SPEAKER_03]: going to look at them because hey we like the near a classical cool aid yeah and you can't say

[00:36:22] [SPEAKER_02]: in Germany that wages are driving inflation inflation is at 14.5% wages are growing by 6%

[00:36:27] [SPEAKER_03]: yeah really and that's probably part of what's leading to the the the rosin racism in

[00:36:31] [SPEAKER_03]: Germany but most of Europe because they're blaming migrants for it when in fact it's bad

[00:36:36] [SPEAKER_03]: economic policy but these numbers tell a lot don't they? I don't know why they're not used more

[00:36:41] [SPEAKER_02]: often just look at inflation look at wage growth and look at corporate profits and the end then go

[00:36:45] [SPEAKER_02]: we're hang on a second one of those is really add to kielter has that happening yep good numbers to

[00:36:50] [SPEAKER_02]: end on I like it yeah yeah very good okay catch an exam Steve I can act by the deep on King economics podcast

[00:37:05] [SPEAKER_04]: Can you know that you can get a quick analysis of the phones trip through a cafe

[00:37:10] [SPEAKER_04]: and say a fluke not a panic health risk average day with their creative

[00:37:16] [SPEAKER_04]: form of sites themselves the hard-narchic flanks for tiefen rainwater

[00:37:21] [SPEAKER_04]: an easy disk in the trombo verpin and the rest is that's going to do your washing machine

[00:37:25] [SPEAKER_04]: because you always have your best there are now the best disks of peace we'll go back to

[00:37:31] [SPEAKER_04]: on Kinden of the van.