18th century economist Richard Cantillon theorised that new money added to the economy always reaches the wealthiest people first. If there’s a lot of it, the extra supply will push up prices, but the rich won’t feel it, they’ll just create it. The impact down the track is that the poor, surviving with the same money as before, get hit with the higher prices. 

Phil suggests that wouldn’t be the case if extra money was created through government spending. It would be the workers and those on welfare getting the first touch of the new money. But, as Steve explains, most money created through government deficits is counteracted by the private sector buying up the government’s bonds. Most of the new money is created through private debt - bank loans, for example. So Cantillon was right.

The way to fix the problem s to put in place policies that would see more of a balance between public and private sector money creation.

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In one of his many walks around his neighbourhood Phil has been listening to a book, The People's Republic of Walmart, by Leigh Phillips & Michal Rozworski. Basically, a contrarian economist and a journalist teaming up together. Could such a combination ever really work?

The book highlights how part of Walmart’s success story was its meticulous central planning, in contrast to Sears, a business decimated by an adherence to a market based internal structure. 30 internal division competed for resources, including shelf space.

Clearly, Walmart’s focus on delivery helped it succeed. So, shouldn’t the same approach be used in the broader economy? When should we choose planning over open market competition?  

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There is a huge reliance on data to aid decision making – whether it’s Investors wanting to know where to move money, central banks pretending to understand the economy, governments making policy decisions or companies planning for their future. Sadly, data collection faces two challenges. One is a lack of sufficient government spending. As Steve points out, perhaps Texas would be more prepared for the horrendous flooding of the last few weeks, if they hadn’t sacked so many meteorologists. The other problem is the increasing unwillingness of the public and businesses to complete surveys. Fortunately, as Phil points out, data is now being collective more from primary sources -like bank records or store transactions.

That’s a big step forward, but a lot of data is based on answering traditional questions, like what’s our GDP? It’s base don conventional thinking. Phil asks whether we should be paying more attention to money supply whilst Steve says understanding company mark-ups would also be a good predictive indicator. What data sets do you think are missing?

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In real terms the amount the UK spends on healthcare has risen from £500 in 1970 to £3,000 per person today. That’s a massive increase, but the payback has been that we are living 10 years longer. Ask people if they would be prepared to spend 10% of their income to live ten years longer, most would say yes. Yet we have a real problem in having the government spending more on healthcare.

As always, it gets back to the question of where is the money coming from? A government provided healthcare system is funded with government created money. A privatised system is vying for a share of your pay packet, using money that is already in circulation.

Phil and Steve discuss how our approach to healthcare is based on the standard question of, ‘where does the money come from?’, rather than ‘what can we be doing to make everyone’s life that much better?’

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There’s been a lot of talk lately about de-dollarisation. In other words, global investors are parking less of their money in US dollars (in the form of US treasuries/bonds). What was once considered a safe choice, is now seen as having more risk, and that’s being accentuated right now by the falling value of the US dollar. If, as an overseas investor, you bought US government bonds a t the start of the year, they’d be worth 10 percent less now, simply because that’s how much the dollar has fallen by. Steve says it’s not a big issue for the US government, because the Fed will always ensure there’s enough liquidity for primary dealers to buy up what the government is selling. But it’s the falling interest in the secondary market, particularly from overseas investors, which is contributing to the fall in the dollar.

But the other part of the equation is, does the dollar losing its dominance as the world’s trading currency. It used to offer stability. Not any more it seems. So, want replaces it?

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There was an article in The Economist last week, shared widely in press around the globe, about the apparent fixation with manufacturing. Aussie economist Saul Eslake calls it Manufacturing Fetishism, with government support focused more on that sector than anything else. President Trump wants to bring home everything from steelmaking to drug production and is putting up tariff barriers to do so. Britain is considering subsidising manufacturers’ energy bills; Narendra Modi, India’s prime minister, is offering incentives for electric-vehicle-makers. But of everyone subsidises the same products, does anyone come out ahead? And isn’t the manufacturing focus based on the simple notion that they are better paying jobs than hospitality and retail?

Steve thinks manufacturing is important for a while variety of reasons, including building the skillset to make economies more self-sufficient. That requires well-funded education, which is not one of the central pillars for Trump’s strategy of bringing jobs back home. Perhaps he hasn’t thought it through enough.

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There’s an irony that the UK Chancellor Rachel Reeves has imposed an inheritance tax on farmers, whilst a trade agreement with the US could see Britain selling-the-farm on a farm grander scale.

Phil argues that some sort of tax on the inheritance of farms makes sense kif its only used as a tax dodge. Jeremy Clarkson bought his farm (reportedly for £6 million) and had a farm manager run it for 10 years before he started making his TV series. If we he died before the new tax rules the £6 million would have been passed on exempt from the rules of inheritance tax. A nice little tax dodge. So, surely, the government was right to close a loophole.

The broader question, though, is what the government does about farm productivity more generally. As Steve points out, 40 percent of UK food is imported. Just over the channel France is 80% self-sufficient. Rather than talking about buying stuff from over the Atlantic shouldn’t the UK be working out how to be more reliant on its own food sources, in the same way it is pushing to be more self-reliance on energy and defence?

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