2022-10-19

Kuppy on Liz Truss and ‘Project Zimbabwe’

@Kuppy bangs on about ‘Project Zimbabwe:’ the plan to turn the USA into an emerging market by debasing its currency (and generally undermining the institutions which support capitalism there). He writes about the UK, and how a few mis-steps by our glorious PM has destabilized the gilts market. Truss now has gone into a padded cell and the government is being run by a technocrat who will make sure the market gods are appeased, but we sure had a wobbly few days.

Income and substitution effects on supply of labour

Labour is a funny thing. Working fewer hours gives the possibility of more consumption of leisure, which is a ‘normal’ good: as we consume less, the marginal value increases. There will come a point when the value of an extra hour of work, in terms of net wages, will exactly offset the (lost) value of one fewer hour of leisure, and, in aggregate, the supply and demand for labour come into balance. As wages go up, the labour supply increases, as they go down, the labour supply decreases.

This can lead to a situation where initial wages rises increase the supply of labour but beyond a certain point the increased wage results in the supply drying up. Surely we are in this latter regime when it comes to NHS consultants now, many of whom are cutting their hours and even taking early retirement. I suspect that it also applies to GPs who are partners.

There must be an affect too, when both partners in a marriage are highly paid. A huge proportion of NHS GPs work part time now. The situation is complicated, not least because for many types of work there is no flexibility in number of hours worked. There are not many part-time FX dealers employed on the planet.

Wrap

It’s not yet the close, but as things are going the big movers were: - Biden ordered further sales from the SPR to try to bring crude down, but it spiked 3.9% anyway, as traders bet on the headwinds from OPEC+ production quotas dropping overwhelming the sales. The mid-terms are the emergency which has lead to this desperate action. I heard that the reserve was down over 40% from full capacity, which is a lot of oil to buy to replenish the stock. - The UK govt. continues in meltdown, but somehow gilts keep going up, even though inflation is now printing at above 10%. More or less all other bonds continued to fall, - Equities are looking moderately nauseous.

German economic miracle?

This article makes the case that a few very specific and time-limited factors helped Germany enormously, but these are all running out now. I guess this is a suggestion to short the DAX, but I’m not saying you should, and nor is the author.