Wrap

Severely risk-off day, except for a few assets that have retraced from violent movements last week.

• DX up again, most other currencies down,
• BTC up an insane 14%. This thing can never function as a “unit of account,”
• Commodities generally down, except NG which always moves against oil. Nearby WTI future ($CL1) down a modest 0.7%, to $45.2,
• Bonds pretty quiet, modest steepening,
• equity markets across the glob down between a little and a lot (~0.2% to ~3%),
• all US sectors down except tech. and health.

$TSLA up a bit: going into the Consumer Discretionary sector, along with retailers, car companies.

Free trade

Trade barriers, originally called customs (now mainly referred to as tariffs) have always been a political issue. In Elizabethan times, the Treasury relied on them as the mainstay of their income. I think the government also sold monopolies, which is a sort of tax farming, but customs was the main source. The lords, although they owned all the land, were loathe to give up any of their resources to the king, beyond providing troops and some arms. I am not a historian, but my understanding was that even the Magna Carta did not alter the tax raising powers of the King.

Nowadays, tariffs are a relatively minor part of tax revenue. They exist to protect certain industries, probably certain firms, and are enthusiastically levied in exchange for political support. Now we are leaving the EU, the politicians see this revenue accruing to themselves, not the Trade Commission in Brussels, so, of course, why would they elect to set tariffs at zero, thereby removing the delays involved in tracking imports and the harm done to the consumer. Consumers don’t lobby or finance political campaigns.

I understand this, economically literate civil servants, news editor and MPs (presumably) understand this. But they all keep their heads below the parapet. The waffle on about although fishing accounts for about as much GDP as one store (Harrods, admittedly) and is smaller than the UK sewing machine industry, it is actually very, very important for jobs.

Politicians now can justify any policy, as long as it creates jobs. They could give their wholehearted support to Crossrail 2, if TfL promised that the tunnel would be dug by men wielding gardening trowels. Wind turbines no longer need to actually reduce the amount of CO2 going into the atmosphere, they just have to create jobs in their various processes of manufacturing and installing. So it is with fishing: a new fleet will be worth it if it creates some jobs.

Nobody ever suggests that the labour market can clear itself any more. I suppose we all consider it unthinkable that people should be paid their marginal product, or be allowed to keep more than a small proportion of this to consume as they wish. We need to tell employers what they must pay (at least the lower bound of this), and how little employees can keep. And yet they wonder why unemployment is so high, and rising. To the point that next year it might hit 7.7%. Even with government spending and transfer payments now hitting sixty or seventy percent of GDP, we still will have one in thirteen individuals of working age actively searching for work. The considerable numbers of terminally discouraged, who just conclude that they’ll never get a job end up being removed from the statistics, by becoming classified as disabled. The proportion of the population which is thus classified will undoubtedly go up over the next few years.

So, with days to go to complete agree a trade deal, you’d think that this would be a lead story on the BBC. But you’d be wrong. It’s Covid all the way. And some schadenfreude about the richly deserved demise of Phillip Green, whose Arcadia group has gone into administration.