Dr. Pippa Malmgren, founder of DRPM Group, former US Presidential Adviser and alumna of the London School of Economics, makes some very insightful connections between the breakdown of responsible economic policy in the USA and the increase of global warfare, from China and the South China Sea to Russia in the Ukraine.
She also explains that things like inflation don’t just happen like bad weather or something, they’re choices made by policy makers as a method of defaulting on debt.
Some quotes:
If you people in emerging markets are experiencing knock-on effects from our (inflationary) policy, that’s your problem…It’s our dollar, and your problem! …They’re view is, I’m taking enough pain, you can’t expect me to ask my people to take even more pain by dealing with a global financial crisis and now demand has collapsed..you can’t ask me to inflict more pain. What is the end result? When central banks are trying to create inflation, a normal side effect is that hard asset prices go up…we’ve seen record all time prices for stock markets, for property, we actually seen record all time prices for things like proteins, which are particularly important in an emerging market context. Emerging market workers are spending 40%-70% of their income for food and energy, so price movements in this area matter.
Suddenly, all these pressures, all these problems are bearing down on these few smart people sitting in the West Wing who we think can solve this. And they’re speaking in a language that is highly technical, highly mathematical, it makes it very difficult for the general public to engage in the question. They’re told, Don’t worry about quantitative easing, it’s all in your interest! And they’re going, Yeah but my Cadbury Creme Egg, I’m getting less of those, and my rent is going up, and I can’t get a job still. But there’s a mismatch between the language the public wants to speak to engage in these issues and the language in which the policy discussion is conducted. And that a gap exists in understanding, What are the consequences of the choices that being made on our behalf?
A highly worthwhile use of an hour or so of your time.
Definitely worth watching
She gave an interesting talk.
-I found it amazing to hear about the Feds adamant position that there are no consequences to inflation and how the emerging market bankers rejected that argument. To the extent that economics is a science, such a basic issue should not be debatable. This means that either no one knows what they’re talking about or it means that the Fed people are politicizing their position and rejecting real evidence because it is inconvenient to their preferences. Either way, no one is coming out looking good.
-It’s very rare for me to come across a non-obvious point in such lectures but her analysis on the South China Sea and the Ukraine was original to my ears. I’m really going to have to think through her point.
-As I’m listening to her lecture I keep referencing her arguments back against my own with respect to systemic efficiency. If the American economy, and welfare systems, and demographics, etc, all of society, existed as a closed system, could it be maintained, could growth develop organically, or does it require stealing input from external societies in order to keep the system functional. I’m not talking about economic autarky but more of can the system function without importing consumers as immigrants, then supporting them with welfare subsidies because they don’t produce enough value and thus requiring that we borrow from abroad in order to find the money neeed to subsidize them. If we could get our house in order to the point where we could growth wealth from our engine firing on all cylinders solely from internal dynamics, then when we reach outside the system any additional gains would only enhance an already healthy society,.
She’s talking about the system as it exists, the problems as they exist, but so far she’s not talked about why we have these problems. The welfare state is growing and this is driving debt growth, unmanageable levels of debt are driving QE policy, QE policy is driving foreign instablity. The reason our entitlement spending is growing is that we’re adding takers faster than we’re growing makers. Screwed up liberal policies which are coincident with delivering gains to the holders of capital, getting while the getting is good (eating the seed corn), is creating massive downstream instability for the entire world. Our entire society, not just the social welfare system, is a huge Ponzi Scheme. We can’t even reproduce ourselves without having to import people.
The sense I get is that international economics and political economy is a reactive game of constantly putting out fires rather than managing a machine which is running efficiently.
-She describes a complex world. What I hear so far is a speech predicated upon the Sapir-Whorf Theorem – if some ideas aren’t assigned a name, can’t be spoken of, then the policy world simply ignores considering them and proceeds on as though they don’t exist. If experts cannot adequately describe and define a problem then any solution they devise for the inadequately described and defined problem will fail because the forces acting on the world which are not acknowledged are left unaddressed. WHY, WHY is entitlement spending increasing so rapidly? This is afterall the principal factor driving our debt to stratospheric levels. Low human capital levels for much of the population cannot produce enough wealth to balance the cost of supporting such people in our society. Fix that and you reverse the trends which develop downstream.
-She talks about Greece and Britain wanting to manage their economy to generate more growth. Again, lots left unsaid. She seems to model a world where growth is the outcome of pulling various fiscal and monetary levers. Sure, I acknowledge that such levers exist but I don’t see this as the most powerful factor driving growth. Human productivity is key. Raise productivity either through innovation or through raising human capital levels. The practice of raising growth by growing population completely ignores the other side of the ledger, growing levels of social welfare spending to support the low human capital level immigrants who a country has imported as consumers.
– In the Q & A she reveals her preference for expansive immigration. I’m not convinced that she understands all of the moving pieces involved and so is principally driven by an ideological position and thus her solution is likely causing many of the problems and she is blind to what is going on. She doesn’t want to be a nativist, therefore she can’t admit that nativism raises some good issues, and so all the understanding which develops from a nativist position gets ignored.
“Signals, signals everywhere”…said Dr. Malmgrem as she spoke before the LSE audience, having the odd feeling that their eyes weren’t focused upon her face, but elsewhere…”Is something wrong with my jacket?”, she thought to herself.
Gaskill thinking smugly to himself, that “this ought to put those ugly Mugabe rumors to bed for once and all”
WHY, WHY is entitlement spending increasing so rapidly?
Because it gets Democrats elected?
She seems to model a world where growth is the outcome of pulling various fiscal and monetary levers.
I think early on she mentioned her preference for decentralized economics, the millions of individuals making real-time decisions that Von Hayek describes, instead of the ‘smart people’ in the West Wing trying to decide how far to turn such and such a dial. I think she also mentioned that real economic growth occurs on Main Street and small businesses, not on Wall Street or at Apple HQ.
I think her overriding point was that Washington’s debt is driving instability around the world, that their belief they can manage the problem or game their way out through inflation are misguided, risky, even dangerous. Further, that with so many people around the affected by US economics – because that’s the system they agreed to based on the promise the dollar would be managed responsibly – that Washington is being a poor steward, acting irresponsibly, and playing a very risky game with our future and the future of the international order.
Because it gets Democrats elected?
Well, of course. This is the pattern all around the West. Rising prosperity was a threat to all liberal/labor types of parties so they imported a client class from the 3rd world who would require permanent subsidy in society. All conservative parties didn’t say boo about this.
So if no politician can even think about the influence of low human capital levels then this is the outcome . . . . “that Washington is being a poor steward, acting irresponsibly, and playing a very risky game with our future and the future of the international order.”
The problems we are having are the problems of the bottom of a Kondratieff Cycle.
https://www.hotgas.net/2016/05/the-ins-and-the-outs/
Welfare would not be a problem if there were real profits. And the bottoms of a K. Cycle are always exacerbated by politics. The OUTs who could start supplying profits are resisted by the INs. Because the profits (or even existence) of the INs will get severely affected.
Think of what cannabinoid medicine if fully implemented might do to the medical system.
Think of 25% of the medical system eliminated. That is good for about $ 3/4 trillion a year. Now suppose it solves every thing but accidents? That is $2 trillion and change. Every year.
https://www.hotgas.net/2016/05/trump-100-medical-marijuana/
We don’t lack solutions. We lack the political will to make them happen.
And in case you didn’t get the link – Trump is 100% for medical cannabis.
Also consider that the problem is not even the worst in the US. We are making progress. Some 20+ medical cannabis states. Four with what is called “legalization”.
The rest of the world is much farther behind. Look up – UN Single Convention Treaty Narcotics – for why.
America is very fortunate to have a thriving underground. Medical and otherwise.
Hillary represents the INs. When it comes to medical cannabis she says “more study is needed.” Which is true and false. We do not have near enough human studies that give proof to all the anecdotes. We have more than enough anecdotes to go ahead given the safety of the medicine.
What is most needed is to get the Federal government out of the way. The President is legally authorized to do that by the Controlled Substances law. The left is severely annoyed at Obama for his failure to get the Feds out of cannabis. Thus a large fraction of Bernie Bros. Once Bernie is eliminated I do believe Trump will be moving much harder to attract that fraction.
I assume Trump has downplayed what he might do re: cannabis to win the Republican nomination. Once that is in the bag expect him to work the subject harder.
Tango,
You got it backwards, the importation of immigrants can in response to the support, it is a great magnet. We created our own dependent class long before the massive influx of low skill illegals. The immigrants of the 19th century were no dependent class, they were who the productive remnant are today. Even the former black slaves were moving along well in upward mobility regardless of the residual racial bias. The demographics in the 1950’s clearly show even there progress.
Of course this economy could show economic growth per capita without dependence on looting of others. Consult history. Trade is beneficial to both parties where within or without a geopolitical boundary. The only question is the proportional division of the gains.
Death6
I understand there are countries trying to create inflation forces, but only in the context of deflation and growth stagnation. Free trade agreements and globalisation (in other words, opening the doors to cheap foreign goods and services) also was supposed to help bring down inflation. Many countries have fought long battles agains inflation, restraining local currency controls and tightening fiscal control were some of the preferred models. However Dr. Pippa Malmgren seems to make the notion that states have to choose from defaulting creditors or bringing inflation to their populations. I don´t agree with that false dilema. Argentina defaulted foreign and domestic creditors, their populist government (Cristina Fernández de Kirchner) even nationalised pension funds to used them to finance government spending, and yet their inflation skyrocketed for years, even as their central bank and finance authorities claimed to have it under control, the whole world knew they were doctoring their numbers. I don´t believe inflation occurs as weather or some entirely unintended phenomena either, but I don´t believe economic planners in charge conciously decide to resort to inflation to “default” on their citizens. Most of the times it is bad economic planning, lack of understanding of the economic forces.
“We created our own dependent class long before the massive influx of low skill illegals.”
Disagree. One of my closest friends in medical school was the son of Mexican immigrants, probably illegal. His mother never learned to speak English. They came and prospered BEFORE Medicare and Medicaid. I think the welfare state created the dependent class in recent years. Social Security was a worthwhile program until it was diluted by Congress with the addition of “disabled” and the raids on the “Trust Fund” in the Clinton years when the budget was “balanced” by filling the Social Security program with IOUs that are worthless.
The latest has been the conversion of Social Security to eternal unemployment benefits.
My friend’s father had his own wrought iron business in east Los Angeles and, of their nine children, eight had graduate degrees.
Social Security was never worthwhile. It was just a steal from the young and unproductive to prevent the elderly and unproductive from living in poverty, and really just to buy votes. It’s a Ponzi scheme, plain and simple.
“It’s a Ponzi scheme, plain and simple.”
To some degree that is true but all “safety net” plans are the same. The big trouble with Social Security is that it was set up, not as a retirement program for everyone, but a baseline safety net. Then, in the 1990s when the fund was building a surplus as Baby Boomers were working and saving, the fund was raided again and again by expanding those eligible, like children, and by borrowing funds for other purposes.
There are some “Ponzi Schemes” that are worse then others.
Here is an analysis that concerns me a lot.
I’ve already posted on this here.
And here.
What actually happened is that China’s stock market began as a Potemkin project to assure the world of Beijing’s strength. Chinese investors knew the government would be propping up a mere facade; that the worse China’s economy got, the more the Communist Party would paint the facade. Harlan writes:
Let’s take a moment to state clearly that the stock market and the “real economy,” particularly in China, don’t always dance together. Until 2013, China’s major indexes were among the poorest-performing ”” which made almost as little sense as what happened next.
Starting about a year ago (yes, amid the slowdown), equities boomed. The Shanghai Composite Index more than doubled, and much of China was in a stock-buying frenzy, most of them mom-and-pop investors rather than major money managers. Shares looked like one of the few good investments in the country, particularly with the real estate market cooling.
Now, we have this:
Why is China antagonizing literally all its major trading partners with this strategy? China is under no threat in the South China Sea, and the gains, beyond political control, are negligible. The venture fails any reasonable cost/benefit analysis. As a point of comparison, the U.S. Gulf of Mexico produces about $25 billion of oil and gas revenues per year, perhaps $30 billion if other economic activities are added. The South China Sea is considered less promising.
On the other hand, China exported $2.3 trillion goods and services in 2015. A loss of only 1 percent of this trade would offset the full economic benefit of the South China Sea. Why risk it?
What is going on ? I see lots of young Chinese joining the US military every week. I am sure they are doing this to get US citizenship.
This is probably the program they are joining.
Why ? Maybe they have doubts about China’s future.
I recently heard an economist from the right say that we could ensure social security remain solvent for 75 years without breaking a sweat if we simply indexed its growth to inflation instead of wages.
I was trying to explain to my foreign colleagues how the Fed’s massive printing of money caused other currencies to fall against it.
I gave up when I got to the point of noting that the increasing supply (of dollars) caused increased price (against other currencies.) That seems to violate a basic assumption of the supply and demand curve.
I still don’t have an explanation – can our other commenters help?
I finally understand the German hyperinflation of the 1920s thanks to a book – “The Downfall of Money.” You do have to read between the lines as the Brit author is careful to not be politically incorrect.
https://www.amazon.com/Downfall-Money-Germany-Hyperinflation-Destruction-ebook/dp/B00EV0VGDA?ie=UTF8&keywords=the%20downfall%20of%20money&qid=1464236759&ref_=sr_1_1&s=books&sr=1-1
It was a deliberate tactic of the Socialist Revolution that took control of Germany with the Weimar Republic. Its goal was to break the conservative middle class that was the political opponent of the revolution. It linked the German trade unions with German exporting businesses. The businesses got export advantages as they could undercut international competitors while paying their unions COLAs. The union men voted Socialist.
It had little to do with the Versailles Treaty.
The Americans final stepped in with loan and a restructuring of the banking system but the cultural and political damage was done and lead to the Nazis in 1933.
My take-
Despite the monstrous expansion of the Fed’s balance sheet, it hasn’t done a whole lot besides fueling asset bubbles or funneled into other unproductive malinvestment, but mostly it has resulted in humongous amount of excess reserves stashed away in bank vaults (in the virtual, electronic sense).
The dollar reacted to the Fed’s grand adventure by staying relatively stable compared to years and decades past. See the chart here. From 2008 to 2014 they kept it tamped down, and especially 2011 to 2014 it was flatlined.
The dollar facing the monetary onslaught and not collapsing was a significant failure for the Fed. They had been exposed as the tail that could not wag the dog.
It also signaled the inherent strength of the United States of America, the vitality of American ingenuity, and the superiority of the American economy. In the middle of 2014 this finally became abundantly clear to the currency markets, and the dollar popped. As a result of the dollar strength the Fed is now forced to raise rates while still hopelessly twiddling and trifling, pleading with us to pay no attention to the frantic man behind the curtain.
Why is her shirt unbuttoned? Does she really think that looks good?
The US government was able to print currency with impunity because all other potential hard currencies were doing far worse.
-EU currency had collapsed
-China is known to be unreliable
-Japan is actually experiencing the economic problems the US is trying to avoid
-Switzerland publicly informed traders that their currency would be inflated if it was used as a replacement
-UK was a smaller country experiencing the exact same crash as the US.
This was the period of time where the price of gold shot up.
In the longer run, fracking and direct subsidies from Canada caused the US economy to jump. The economy would still be running hot except the Iran deal and Saudi mass pumping killed the oil price. Now the US has to worry about currency inflation or worse stag flation.