I've mentioned that Rabo gives Every a very broad remit to write under their imprimatur, here's an example.
Michael Every of Rabobank via ZeroHedge, January 18:
Decolonise Economics!
Markets started 2024 as wildly optimistic --and wildly wrong-- about rates as they did 2023: is there something structurally wrong with economics, or just them? After all, yesterday’s US retail sales were much stronger than expected, industrial production better than consensus, and while the Fed’s Beige Book said the labor market was cooling, with increased consumer “price sensitivity”, businesses expectations were positive and/or improved. In other words, doing nothing is a realistic option for the Fed. Moreover, UK inflation was stronger than expected, as Canadian core CPI had been earlier this week, and Australia’s Melbourne Institute survey today was an unchanged 4.5% y-o-y. On top, we got more central-bank speech saying “We aren’t cutting rates anytime soon.” And they aren’t. That said, Australia’s jobs data today collapsed -65.1K, having been +72.6K last month, with full-time jobs -106.6K, yet unemployment staying at 3.9% due to a plunging participation rate. The AUD didn’t like that much, and neither will the RBA. However, both this and last month’s job figures are mad in a population of 25m.
On economics, markets, and being structurally wrong, Davos just saw “anarcho-capitalist” Argentinian President Milei lambast its attendees for abandoning the “values of the West” - to warm applause. Moreover, JP Morgan CEO Dimon said, “I think this negative talk about MAGA is going to hurt Biden’s electoral campaign,” adding Trump, “was kinda right about NATO. Kinda right about immigration. He grew the economy quite well. Tax reform worked. ... I don’t like how he said things about Mexico, but he wasn’t wrong about some of these critical issues, and that’s why they’re voting for him.” Both comments are worth noting regardless of whether one agrees or not.
Davos, and ECB President Lagarde, also mentioned Red Sea inflation risks. There, the US has redesignated the Houthis as global terrorists - with a 30-day notice period(!) and massive sanctions carve-outs. The Houthis, apparently as deft at comedy as at disrupting the global economy, released a statement saying the US move “would not affect their operations.” Indeed, they have since hit another ship, and may be shifting their mobile missile launchers to avoid airstrikes and target the Gulf of Aden as well as the Bab El-Mandeb. That makes the maritime area vulnerable to attack even further beyond the protective capabilities of Operation Prosperity Guardian. So what is to be done as the ‘US Empire’ crumbles and the global maritime trading system goes back to a 19th century world of piracy, national navies having to protect trade, and no Suez or Panama Canals? Davos is short of answers.
While doing my own thinking earlier, I came across an EconTalk interview with Bloomberg opinion writer Noah Smith titled ‘Can a Nation Plunder Its Way to Wealth?’ That this is a topic of debate again now says something about the ‘geopolitical’ times we live in! Smith’s simple answer is zero-sum empires and plunder don’t make you rich; innovation and higher productivity do. Yet the reality is sadly far more complicated.
Most of history with metallic money showed if you plundered foes of their metal, you got richer, and they got poorer: Rome did that; so did Spain in the Americas. In more recent history, with a gold standard, a favorable balance of trade supported by gunships helped the UK become global #1. True, evidence also says empires cost so much to run that they can hollow out the economy at the center. Yet, sadly, that is to say empire can be mismanaged, not that it can’t make you rich if operated alongside innovation and higher productivity. Panglossian ‘economics over guns’ theory is wrong in its internal logic – and so we retreat back to guns over economics.
Smith’s counterview that small countries like Singapore prove one can became rich without empire also overlooks that, the brilliance of Lee Kwan Yew aside, its foundation as an entrêpot trading centre was laid, by force, by the British as part of their empire. Likewise, his view that within that empire India never industrialised ‘because they relied on cheap labor, not capital’ obscures that the British *deindustrialised* it at gunpoint, making them buy textiles produced in England’s mill towns.
Let’s think about the Suez Canal for a moment in that light. Who built it? Why was it built? Who fought wars to control it? Also note the 1956 Suez Crisis showed the UK and France were no longer Great Powers with freedom to act geopolitically, only the US and USSR were. And recall Egypt shut the Canal from 5 June 1967 until 5 June 1975, following the Six Day War: correlation is not causation, but what happened to global inflation at that time, even when Asia wasn’t the world’s factory floor?
In some eyes, this relationship is still echoed today under a veneer of neoliberal global capitalism. Indeed, ‘Imperialist appropriation in the world economy: Drain from the global South through unequal exchange, 1990–2015’ argues: “Rich countries and monopolistic corporations leverage their geopolitical and commercial dominance in the world economy to depress or cheapen the prices of resources and labor in the Global South, both at the level of whole national economies as well as within global commodity chains.”
It’s hard to argue with that when the West insists that it must control the highest value-added and best-paid jobs in new green supply chains....
....MUCH MORE