Wednesday, 6 April 2016

Panama Pandemonium

Panama HatsThe leak of the Panama Papers has focussed a little light on the shady world of offshore shell companies and sent the press into complete meltdown as they feed like a shoal of piranhas on the juicy details contained within.

There is a very good analogy of the situation on reddit that explains the furore. Essentially it all looks really dodgy and it looks like you've been hiding the truth from MoM. And that means MoM is going to have to investigate these things thoroughly now - even though she sort of had an inkling what was going on before.

Tax evasion is illegal and should be prosecuted with the full force of the law. Here in the UK the long rubber-gloved arm of Revenue and Customs was once feared for reaching the parts where the sun don't shine and extracting the proper dues. Stones bled spontaneously in their presence. Not so much these days as successive governments have failed to hire sufficient staff of high enough quality to keep on top of the sophisticated techniques used by the wealthy and the finance sector.

Policing the finance sector has not been much in vogue over recent decades. Perhaps now governments will look at that and start charging them the cost of containment. The Regulators and Tax collectors should have the best people, which means bidding them away from alternative roles. And that should be charged back to the industry that is creating the alternative roles. There can be no better example of the MMT principle that taxes free up real resources for other uses, than a tax on the finance industry to fund a proper enforcement regime to keep the finance industry in check.

However as the analogy above shows, many of the people using shell companies are evading no taxes at all. They are often used shielding purposes - some reasonable, some less so - and for tax planning.

So then we get onto the thorny issue of tax avoidance.

Let's be absolutely clear here. Tax avoidance is legal. Not only is it legal it is required, because otherwise none of those 'tax engineering' nudges so beloved of certain political classes would work. And we all do it. If you pay into a pension you're avoiding tax. If you pay into an ISA you're avoiding tax. If you use a work computer then you are avoiding tax. If you claim travel expenses you are avoiding tax. If you're a business investing in R&D and get credits for that, you're avoiding tax. If you decide to invest in one company rather than another based upon one being eligible for the Enterprise Investment Scheme, you are avoiding tax.

Tax avoidance is everywhere. It is legal. It is required.

The problem arises due to the political process. We don't all agree on interpretations. Almost certainly my interpretation of social security is going to be different from Iain Duncan Smith's. Tax law is a minefield of interpretation.

Ultimately whether a tax break ends up as avoidance or evasion is a political matter. Every entry in the tax code is supported by a group of people and opposed by another group. Those in the ratio 95/5 - like paying into tax relieved schemes - barely get discussed. But those where the groups are more 50/50 over a particular interpretation get debated all the time. It's when the mood changes and the majority of people are against something that action must be taken.

But that action is a matter for government and the legislature. If the representatives sense the mood of the people have changed, then they have to take action, pass a law and change something from avoidance into evasion.  Only then does it become illegal and can be stopped.

Tax has to be seen to be fair and fairly distributed. That means supported by the majority of the population and their representatives. Which is why those representatives linked to Panama are the ones that are under the most scrutiny. You can't have those setting the rules abusing them.  They must be whiter than white.

But at the same time we can't have tax lynch-mobs and self-appointed 'tax experts' going around trying to dictate what is and isn't 'moral' or 'acceptable' on their own grounds. You can't have sons held accountable for the alleged crimes of their father.  I have no more time for vigilantes in tax than I have for vigilantes in crime. There is a presumption of innocence and due process to follow for a reason. Make your arguments through the legislature.

In general excessive unacceptable tax avoidance is nature's way of telling you that your tax code is too complex and needs simplifying. It's an important check and balance on those who think social engineering via tax breaks is clever. The whole concept of tax engineering relies upon avoidance in the first place. That ought to flash warning signs, but it never seems to.

Once tax is seen to be fair, it becomes  enforceable and it can drift into the background as the 'hygiene factor' that it is.

So I agree with Jeremy Corbyn when he complains that there appears to be one rule for the rich and one rule for the rest of us. In fact the rules are ridiculously complicated and need massively simplifying so that you don't get emergent behaviour in tax. The love of complexity first introduced by Gordon Brown has been a failure and it needs reversing - however many squeals that produces from those people enjoying 'tax breaks'.

Where I part company with Jeremy is when he starts talking about tax as 'revenues', and linking them to government spending.

Although dealing with tax dodgers is vital from an equity point of view, none of it increases the government's capacity to provide services. It is a mistake to link them, and it is a hostage to fortune that will come back to bite the Labour party. They should be working to break that down rather than reinforcing it all the time.

Government's capacity to provide services is down to whether there is anything available to buy in its currency that will provide those services. If there is then government can buy them, and that will automatically create its own funding for any positive tax rate. There are no fiscal constraints on government.

If there isn't anything available to buy then government needs to look at what the required resources are currently being used for and stop that from happening. Tax is one power that can do that, but only if it stops current spending on the required resources. Taxes on savings just change what is essentially voluntary taxation into compulsory taxation.

For example if a rich person is buying property and has been evading taxes, then it is unlikely that imposing the tax on them will free up the property. Why? Because they will simply go to a bank and borrow the difference. They have the income stream to support that.

Property prices are high, not because of tax evasion, but because of an excess of borrowed money in the market chasing a supply that is being constrained by low productivity techniques, land hoarding and a lack of investment.

The idea that tax havens are somehow an El Dorado that can be used to create the new Utopia is a myth. Taxing rich people doesn't solve the root cause of the problem. It never does. Because taxes for revenue is an obsolete concept.

Sunday, 3 April 2016

UK Private Debt Levels - Q4 2015

And here are the Q4 2015 private debt ratios

The household sector is the only sector increasing its debt levels relative to GDP.

Source: Office of National Statistics. Private sector debt based on tables NLBC, NKZA, NNQC, NNRE, NNXM, NNWK, NLSY, NLUA, NJCS and NJBQ (Lending and securities per sector, not seasonally adjusted) scaled by BKTL (Gross domestic product at market prices, not seasonally adjusted). Data and calculations are available online

UK Sectoral Balances - Q4 2015

Q4 2015 sectoral balances are now out. Sorry it's taken a while to get these published. The ONS has completely trashed their website and disabled all the access URLs for data. No doubt the team there are patting themselves on the back and virtue signalling like mad with their multi-lingual front-end with loads of accessibility features. But until I can type in a simple


then they haven't got the mashability right. Why, oh why are unique reference ids hidden in a hierarchy, eg.


Hierarchical classification is in the eye of the beholder. Use tags instead.

On the plus side when I finally did get the data, it has been extended back to 1987 once more and therefore I've extended the graphs accordingly.

The present government is well on their way to achieving their aim of restarting the financial crisis. The government deficit is dropping as households borrow more and the percentage of GDP spent on housing continues to rise. (Currently at 5.13%). When it gets above 6% for any length of time it usually ends in a private debt crisis as people over extend.

The five sector chart shows the household/corporate distinction much more clearly. The household sector is now borrowing consistently and represents 32% of the overall net lending to other sectors.

The pattern continues as the corporate sector prefers to hoard rather than invest and the government tries to push debt onto the backs of the household sector.

Source: Office of National Statistics, tables RPYH, RQAJ, RQBN, RQBV, RPYN, RPZT, RQCH, DJDS (Seasonally adjusted Net Lending/Borrowing per sector plus residual error) and YBHA (Gross domestic product at market prices, seasonally adjusted). Data and calculations are available online

Saturday, 2 April 2016

The steely view on steel

Steel has hit the headlines again this week with the news that Tata Steel is withdrawing from the UK market. The media has been full of 'facts' all week - almost none of which stack up to any sort of scrutiny. It's been like watching a Trump rally - high on rhetoric and emotion, low on cold hard steely analysis.

I've been disappointed with the response of the Labour party, which has been exceptionally emotional. Steel is clearly totemic to the current people in power in a way that Woolworths, the textile industry and numerous other obsolete operations that have closed over recent years are not. That I find particularly puzzling - there seems to be more going into steel than into supporting junior doctors. But then I find their obsession with 'manufacturing' pretty quaint as well - by which they clearly mean metal bashing jobs producers rather than near fully automated robotic operations like, for example, the Amazon distribution system. (which is in the distasteful service sector - like advanced high tech software, computer chip design, graphic design, advertising. All areas the highly creative Brits excel at).

The feeling that the current Labour leadership are living in the late 1960s just continues to grow and I find that worrying. It clearly appeals to a small number of people, but that economic and political attitude just doesn't seem to take into account 21st century problems.  It needs to evolve and quickly.

The biggest issue with the steel crisis is of course the loss of jobs and income to the people living and working near the Port Talbot factory. This is a terrible human tragedy that has to be dealt with and quickly. But this just throws into relief the problems with the current way we operate our market system and how that fails to help people impacted by obsolescence. The questions it raises are numerous and challenging.

Why do we have a homeownership system that relies upon people getting recourse mortgages for houses? Why haven't we got an advanced rental sector? What will happen in Port Talbot is the same as has happened elsewhere in the country hit by industrial decline.  The central employer in the area closes and people lose their jobs. They can't meet the mortgage, and they can't get rid of the house because nobody is buying any more. Our mortgage system doesn't allow people to hand the keys back like the US system, nor does it allow them to convert to renting. They have to go through bankruptcy and lose everything before they can move on. So they end up trapped due to a monolithic employment model, and a housing system that relies upon prices only ever going up.  There is no purchaser of last resort in the housing market, and no mechanism by which houses can be recycled. Instead you end up with a housing system that ends up increasingly looking Cuban Car ownership - propping up ancient structures because there is nothing new of quality being constructed and nowhere to construct them.

Why do we have company pensions in an era when companies come and go, merge and emerge, restructure and change ownership? They are an anachronism from a time when companies survived for decades. A modern company can't shoulder a pension scheme any more than they can shoulder a university to train their staff. It has to be moved elsewhere in the system to an entity that is likely to last a lifetime.

Why do we have pensions operated by insurance companies when they come and go in the same fashion? They simply cannot pay out on their pension promises unless they are provided millions and millions of pounds of indexed-linked savings certificates with the government - an inherent subsidy of the private system. Even then they need to receive 'compulsory contributions' enacted by parliament to keep them going. When you look at the accounts of a pension fund, there can be no doubt that it is simply a privatised tax collection system. It's there in the income and expenditure statement.  The funds of the current savers pay the pensions of those drawing, plus a top up (index linked mostly) directly from the state. Why do we have this complicated system, rather than just paying people directly like we do the state pension and taxing as necessary? That would free up tons of resources in the financial sector for other uses.

Rather than putting forward ideas about how Port Talbot can become the beacon for a modern market system that can recover from the inevitable failure of businesses, Labour are back to their 'nationalise' position. It's perhaps a credible angle to take - if we had an independent UK - but in our current situation the rhetoric just highlights the conflicted position Labour has on the EU.

You can't blame Chinese steel for the problem because the EU commission spent eighteen months investigating the situation and decided that a ~16% 'anti-dumping' tariff on Chinese steel was sufficient to make it cost equivalent to EU steel. So the problems with Port Talbot are either endemic due to its lack of competitiveness, or the problems are with the EU commission making a mistake on their calculations.

You can't really blame the Tories for 'blocking' higher tariffs, because they didn't. What they did is refuse  the transfer of more ex officio powers  to the EU commission - because they don't need them. For the 'lesser duty' rule to have any impact there has to be a 'lesser duty' calculated in the first place. Which the EU commission did - at 16%. The question should be, again, why is that tariff at 16% and why has no EU commission tariff ever been applied retrospectively.

The Tories are taking the 'blocking' line on the chin, because being Europhiles themselves they can't really draw attention to the huge tariff cock up at the unelected EU commission that is decimating the steel industry across the EU. Nor the clear grab for power from the EU commission - which wanted ex officio powers to apply tariffs even if no complaint had been received from a resident on a member state. What's really funny is that the change is opposed by 14 out of the 28 EU member states, as this document shows. Austria, Belgium, Cyprus, Czech Republic, Denmarks, Estonia, Finland, Ireland, Latvia, Malta, Netherlands, Slovenia, Sweden and the UK. Yes that's half the states in the union. You'll struggle to find that in the media reports.

If you're an EU fan, then you can't really call the UK steel industry strategic. The EU is the second largest manufacturer of steel on the planet. There is plenty of 'strategic' supply within the union even if Port Talbot goes. Saying UK manufactures need a UK steel works is like saying English manufacturers need an English steel works because they can't rely on the Welsh.

Outside the EU all this would be moot. The UK government could respond to the latest Chinese tariffs directly and rapidly without 18 month investigations and on a basis that covers UK businesses from unfair competition and reinforces our green tariffs on energy use. All while sticking to the letter of the WTO rules, if not the spirit - just as everybody else does.

Outside the EU nationalisation would likely be a foregone conclusion - to allow restructuring at the very least. Inside the EU it is virtually impossible because it is severely discouraged by the treaty and the commission. Many Europhile labour supporters are desperately trying to show that the treaty allows nationalisation, but the decisions of the ECJ and the view of the EU commission are against that interpretation. As the FT reported:

In January, Margrethe Vestager, competition commissioner, announced an investigation into €2bn of state support that the Italian government gave to the struggling steelmaker Ilva. 
On the same day, she ordered the Walloon regional government in Belgium to recoup €211m provided to steel companies in the country’s depressed industrial southern regions that are part of the Duferco group.
In its statement at the time, the commission declared flatly that “EU state-aid rules do not allow public support for the rescue and restructuring of companies in difficulty in the steel sector”. This was “to ensure a level playing field for those steelmakers that have already been carrying out painful and costly restructuring plans funded through private resources”.
You can't really get clearer than that. Professor Danny Nicol has put forward numerous articles showing how embedded neoliberalism is within the EU treaty and that those on the left believing otherwise are largely deluding themselves. There are less emotional counter-arguments, which end up being about trying to put a square peg in a round hole just to try and placate the EU commission. That is going to be very difficult when the EU commission is flat against what you are trying to do. So again the Labour party is tying its hands by backing the EU and ends up getting into contradictory positions that simply cannot be resolved.

Moreover saving jobs in steel in Wales means that the worldwide over-production of steel continues, and that the jobs must be lost elsewhere. How does that sit with internationalism and 'solidarity'? There is no plan to increase the demand for steel by building steel using things (except Trident, but that can't use the steel made in the UK because it apparently isn't the right quality.).

Port Talbot is a warning on many levels that we have no mechanism in place to handle obsolescence,  failure or de-growth either on a regional or national level. And it is a warning that centralised EU level responses just don't address the problem at all. In steel the EU has utterly failed its people, and then used the crisis as an excuse for a power grab.  Quite outrageous.

The problems at Port Talbot are probably terminal for the 100 year old plant. The usual British issue of lack of investment in skills and automation to produce higher quality products bites again. Automation costs jobs, and UK manufacturing is often reluctant to take the risk if it means a redundancy round. So they muddle on until the whole thing finally collapses as other countries build new plants with the automation built in. Port Talbot is a combined plant and hopefully parts of it can be saved to work with imported steel, but it may be the case the whole thing is doomed. Certainly anybody looking at the books has walked away and that suggests there are serious issues.

It's very difficult to maintain a low technology steel making plant if you are not next to the source of ore and coal. The virgin steel plants in the UK can't even use the ore that remains in the ground in the UK, and have relied upon imported ore for many years (hence why most of the remaining virgin plants are near, or at a port). There is no arguing with the economics - a boat load of steel is less costly than a boat load of iron ore plus a boat load of coal.

In the UK our steel industry needs to be scrap recyclers and formers for the hot products, which likely need to be somewhere on the main transport intersections, and cold formers at the ports. That is likely sustainable. You would need detailed input from industry and market specialists to work out the best structure than can actually compete in a global market.

Saving jobs in totemic obsolete loss making industries always plays well to the crowd - right up to the point where you show how much extra tax they have to pay to keep the place going. Maintaining wages above the living wage is always a transfer from somebody, somewhere. You can't continue with the pretence that 'somebody else' is going to pay. The buck stops with the household sector, and they always pay the cost of transfers one way or another.

We would likely be better reshaping the plants and the people into what we need in the future. It does work. Some of the best IT engineers I've ever worked with were ex-steel workers from Sheffield. They were never afraid of a hard days work and certainly never missed the steel plant they had left behind. But that would require admitting that higher value 'service' jobs exist that ex-steel workers are very suitable for.

And it would require finally admitting that there simply are insufficient jobs to go around, that the private sector is structurally incapable of providing them and that we need a state sponsored Job Guarantee scheme to fill in the gap. A guarantee that gives people the opportunity to retrain, all while maintain demand automatically in areas currently with high unemployment. We need a system where people can move around jobs and expect to move around jobs, but where the risk of doing so is reduced to an acceptable level by a more equal income structure, better pension and housing provision and a superior auto-stabilising social security system.

If we are to persist with a market system, then we have to have a market containment vessel that expects failure to happen and controls for it. How many more industrial collapses are required before the lessons are learned?

Tuesday, 22 March 2016

Post-War Banking Policy- Reginald McKenna

I keep having to find these quotes, so I'll post them here for posterity.

This is from the book Post-War Banking Policy - a series of Addresses published in 1928.

The Right Honourable Reginald McKenna P.C. was a former Chancellor of the Exchequer (1915-16) and ended up as Chairman of the Midland Bank in the 1920s

The quotes show that the way banks actually operate was known a century ago.

"While banks have this power of creating money it will be found that they exercise it only within the strict limits of sound banking policy."

Hmmm. Well, we might disagree there. He goes on to acknowledge the power of banks to create money is kept quiet.

"I am afraid the ordinary citizen will not like to be told that the banks or the Bank of England can create or destroy money. We are in the habit of thinking of money as wealth, as indeed it is in the hands of the individual who owns it, wealth in the most liquid form, and we do not like to hear that some private institution can create it at pleasure. It conjures up a picture of an autocratic and irresponsible body which by some black art of its own contriving can increase or diminish wealth, and presumably make a great deal of profit in the process"

Wednesday, 16 March 2016

Osborne the Cnut

Our vainglorious chancellor, George Osborne, has signalled that he will make further spending cuts of £4bn today as he desperately battles the deficit Cnut style. He stands there desperately trying to produce a surplus as the waves of accounting reality lap over him.

Given that producing a surplus is an impossible task in the UK, you do wonder why newspapers keep repeating it rather than explaining the truth of the situation.

It's fairly straightforward. 

If you make spending cuts of £4bn, then people receive less income by £4bn and there is less spending in the economy and therefore less tax and saving to the tune of ... £4bn.

But because you've frightened people they are likely to save even more and borrow less, which reduces spending, and therefore the tax take, still further. The result is that the deficit is as likely to widen as to narrow should the fear take hold.

Osborne can only 'eliminate the deficit', if he eliminates the excess savings that cause it. There are only two ways to do that - confiscate the savings of the wealthy, or force ordinary people to use credit cards and other borrowing for day to day spending.

Guess which one he's going for.

Sunday, 28 February 2016

The Limits of understanding of MMT

I've got a good amount of time for LK's blog. It is my 'goto' blog for good sense on many a topic. But I have to say I'm somewhat disappointed at the latest missive on foreign trade. It still has the usual straw men in it. I really don't understand why PK people can't get their head around the dynamics of floating rate exchange systems and still stick to fixed exchange analysis based around apparent Kaldorian views.

Bill has already debunked the Kaldorian points in his post of a few weeks ago.

I'll take the points in LKs post one at a time.

Now MMT would work for the US, Western Europe, Australia, Japan, South Korea or Taiwan, but not for much of the Third World.

MMT works wherever it is used for the fairly obvious reason that it is a description of how a floating rate exchange system on a sovereign currency works. With the correct policy operations it is perfectly applicable to all nations.

But it is important to note that the fiscal space and the real space are separate entities. Each operates within its own sphere and the influence of the fiscal space on the real space is akin to an electrical induction circuit. Importantly there is no one-to-one relationship between the two.

As Bill's blog on world development shows, it is the real constraints on a nation that limit how prosperous it is. If you have a country with a small population and limited real resources then what it can create at full output may not be sufficient to adequately feed, house and clothe the population. No amount of financial wizardry can help sort that out and the country needs international gifts of real aid.

That is, MMT-style policies are best suited for advanced capitalist nations, not necessarily for Third World countries, because most of them face severe balance of payments constraints. Increasing aggregate demand would, for many Third World nations, simply cause a balance of payments crisis, as imports surged.

There isn't really such a thing as a balance of payments crisis in a floating rate exchange system.  For those excess imports to exist at all, the saving of the local currency must occur at the same time. Otherwise the financing of the deal would have failed and the transaction would never have happened.  And there would be no excess imports. The floating rate balances out the successes and failures automatically. That's its job.

Very simply imports cannot 'surge' unless the equivalent local currency savings by foreigners 'surges' at the same time. And if the savings don't surge then the exporter loses a sale and their economy shrinks as well - because there is nowhere else to export to in aggregate. Mars isn't open for business as yet.

Generally this entire misconception comes about by failing to analyse a transaction end to end,  and by failing to separate the transaction into a real and financial component. (Every transaction requires the real part and the financial part to be in place before they will complete). And in particular failing to model the transaction(s) coming in the opposite direction that allows the FX swap to happen in the first place.

Imagine a system where nobody in the world wants your tally sticks. You want a larger standing army which means freeing up some people from land work. So you impose a tax on the land and issue tally sticks to those who sign up to your army and those that make pointy sticks. Productivity is improved by division of labour and the army gets the spare manpower  and goods - which they then use to improve the water drainage and irrigation systems further boosting output.

Everybody is more fully employed by using the state's power to create money, but there is no 'surge' in imports because nobody wants your tally sticks outside your border. But inside the border there is a demand due to the taxation system.

Only when you have that 'reductio' clear in your mind can you get a grip on the dynamics within a floating system. Where you have drawn the border is an artificial device based on political boundaries. If you just have a dynamic border that encompasses everybody holding a denomination then it becomes much clearer to see what is actually happening.

But it boils down to this. The end buyer always gets to use the type of money they want and the end supplier always gets the type of money they want. Otherwise there will be no deal. It doesn't matter what the invoice is priced in. It doesn't matter what the currencies are. It doesn't matter where people are physically located in the world. The finance system has to make the finance channel tie up or it all stops and the deal chain collapses.

Statistics showing excess of imports or excess of exports are thus the result of successful end to end deals on both the real and financial sides. They can't be anything else in a floating rate system.

Moreover, a huge stream of imports from the developed world tend to cripple the development of a domestic manufacturing sector in developing world nations

That is simply bad policy. MMT makes the point that excess imports, if you can get them, increase the standard of living of the population. But primarily you have to maintain your domestic economy at maximum output. And that will require anti-dumping policies, equality policies and other policies along those lines to ensure that the development of your economy proceeds in a sensible manner. That would include sourcing imports from multiple competing nations to ensure diversity of supply.

As Bill's blog above also mentions: Selective import controls, if they can be effectively designed, can ensure that a nation with a limited export base can import goods and services that target the provision of benefits via imports to the poor in the first instance

There is no super powerful magic in a floating rate. It's one tool. You still have to do all the other stuff to develop an economy. But with a floating rate you will ensure that you have all your available resources fully occupied and the development should then proceed at a brisker pace. That is the key issue that always appear to get lost in these discussions.

Exports matter a lot even for some developed countries, because exports bring in foreign exchange if you can’t attract foreign exchange via the capital account

This is particularly confused in a floating rate setup. It doesn't matter which side of the fence the swaps get done on - the buy side or the sell side of the currency zone boundaries. They have to happen at the same time as the real transaction or there is no deal. The whole chain collapses.

You don't need to 'attract' anything. The process is handled via the FX system which is a swapping mechanism. Insufficient matches = no deal.

These processes all happen in parallel and in real time. Attempting to serialise the process in your mind leads to the wrong result.

Where is this idea that you don't export coming from? If you have an excess of coffee you will export it and import something more useful - like corn. Or you may export your fish and import beef - because basically you're not a fish kind of people.

I feel the missing part here is understanding the process from the other point of view. Again the focus on a particular economy rather than the world in toto leads to a skewed viewpoint. Let's look at it from the exporter's point of view.

When exporters export to excess (i.e. beyond what they buy back in imports) then they cease to be exporting in any generally understood sense. In reality they have started to import demand. And that is what a net import nation is selling - demand to a wider world that is short of demand due to export led policies. Since demand is in short supply, it is valuable in its own right.

Excess exporters simply take foreign currency, discount or swap it for their domestic currency in some way and then figuratively chuck the foreign currency in the back of a drawer - pretty much like most of us do after a foreign holiday. The whole process is in fact a way of injecting domestic currency into the excess exporters economy, but they have a foreign currency asset to make the books look better. It's that simple - and that stupid.

The feedback into the import economy is the same as any saving. A reduction in domestic flow that has to be accommodated or you get a paradox of thrift. That is rarely done due to neo-classical beliefs. So you can't use economies that are operating under neo-classical rules and have failed to support an argument against floating rate systems. That's like blaming the aircraft for crashing when the person piloting didn't know how the controls worked.

Finally, manufacturing matters – a lot.

Never understood the metal bashing argument. I work in software - which is a service business. I can license tens of thousands of copies all across the world with next to no distribution costs. That's a far more efficient way of exporting than anything real.

If you have to import your resources it doesn't really matter if you import the steel or the iron ore. You've still got a supply chain requirement. That's why I can't understand the argument for virgin steel works in the UK. We've had to import iron ore, and these days coal, for decades. In fact our steel plants can't even work on the remaining iron ore deposits in the UK because its the wrong type for the plants that have been built. So why bother importing the rock, when you can import the steel from multiple locations? UK steel works should be recycling plants.

(I understand the 'good jobs' argument, but that is similarly controversial for other reasons which are outside the scope of this post).

The secret is the same as any business resilience plan - diversity of supply. And definitely diversity across political groupings. Because the USA, Russia and China are never going to be on the same side in anything.

I certainly don't go for the comparative advantage nonsense however. You need a multi-culture.  If you can't get diversity of supply you need to create at home. There is always a trade off between resilience and efficiency to get a sustainable cohesive economy that has low-coupling with the rest of the world.

But I see little difference between manufacturing and services. It's an old fashion separation that really doesn't hold that well in a modern world.

It seems to me that effective demand is the real source of power.

If you think imports are only a benefit, look at the devastating de-industrialisation of large parts of the Western world
Again this 'only a benefit' is a strawman argument that nobody seriously looking at floating rate systems is proposing. Imports is an aggregate. What is in that aggregate? BMWs or food? What are the strategic issues of supply and creation outside your political borders vs. inside them. And similarly what are the 'beggar thy neighbour' impacts of changing the status quo? Do we really want our fellow humans in China back in paddy fields dying of starvation?

And note that this all came about because governments operated neoliberal policies that didn't understand net-importing causes a paradox of thrift effect that has to be compensated for by government action. Precisely my point above.

As Alex Douglas discussed recently, even the supposed Post Keynesians still don't seem to get the issue with savings desires.

The dynamics at the borders of currency zones is indeed complicated and there is much to learn about how to manage them more appropriately. But it would help if people stopped analysing aircraft flight as though they were driving a car. It gets a bit tiring having to point out all the time that yes you do have to pay attention to the Z axis as well.