Monday, 27 January 2014

The Ricardian Equivalence Hypothesis

Sometimes you write a nice whimsical blogpost about how money isn't very much like ice-cream but could be more so and you think that's that and start to wonder about what to write for next week's post (maybe a nice poem about a juggler who falls in love with a knight or something) when 'ding' you notice that someone has left a comment.

Now, I don't get a lot of comments on my blog (even when I set fiendishly difficult riddles in mock Old Norse verse patterns for my readers to solve) so you can imagine how excited I was to read a response to my daydream of time-limited money being dropped into everyone's bank accounts. And then how disappointed I was to read that there are people out there that don't believe that ice-cream money would save the economy after all, in the words of 'JR':

Your theory sounds wonderful, but (and mostly to play devil's advocate), surely if you gave every person in England a £10,000 windfall, most of them would spend it repaying a loan they took out from the bank (or on the things they would have bought anyway, so they can pay the 'other' money back to the bank instead), so all the "spare" money would end up with the banks anyway? JR 

Incidentally, I meant to mention last week that the government of the UK has spent £200 billion on Quantitative Easing in the current crisis, had that money gone directly to the people that would have been a whopping £3,166 each! JR has ruined this statistic by making my figure look paltry next to his one.

A healthy economic community is one where each pound keeps getting spent and even when it winds up in the bank, the bank lends it out again. And, even though there isn't anything like enough cash for everyone to have all their money at once, everyone pretends there is and carries on sharing the same few pounds. You see this in action if you work in a bar, where you keep getting the same ratty fiver handed back to you. In a healthy economic community that fiver has got ratty because it has been through the tills and paypackets of so many local businesses.

If a government gave the money directly to the people some of it would become the useful type of money described in the previous paragraph. If the money had a time-limit on it (i.e the initial receiver can't just leave it in the bank) all of it would. 

I'm not sure that JR's argument holds even in the classic helicopter drop of giving everyone extra cash. We are not all rational actors who notice, a la David Ricardo, that this money can't just appear from nowhere, government bonds have to be repaid, taxes are going to go up, I better save my money. A lot of people would just think: 'Woohoo! free money! I'm going to buy a motorbike!' 

Thursday, 23 January 2014

Ice-cream money

I overheard a mother explaining money to her kid in terms of ice cream. If you don't have any and you see everyone else eating it it makes you upset. But if you have too much then it can make you unhappy. The trick is to have some in the freezer so, when you fancy it, you can have a small amount as a treat.

That's sweet, I thought. I'll remember that. Then I got to thinking that money really should be more like ice cream.

Too much money should make you physically sick.

You should be allowed to make your own money, but it should be really difficult and, no matter how much you churn it, never quite resemble the real thing.

Money should be of great interest to children, but as you grow older you should lose the taste for it except on really hot days or when someone gets you some as a surprise and you remember that you really quite like it.

Money should melt unless you spend it quickly.

This last idea has frequently been suggested by economists (e.g. Oxford economics professor Simon Wren-Lewis) as an alternative to quantitative easing (QE). QE involves inventing money and giving it to your banker friends and hoping they will share it with businesses (hint: they won't) who will use it to pay staff (hint: they won't either) who will spend money (hint: even if it gets to them they will probably put it in a bank because they'll need savings when they lose their job) to get the economy moving. 

QE doesn't really work, for the reasons hinted at above. An alternative is helicopter money. Whereby money is invented, as above, but given straight to the people (figuratively 'dropped out of a helicopter'). To stop people squirreling this money away for a rainy proverbial, the free cash is time-limited. Unspent, it melts away - like ice-cream.

Friday, 10 January 2014

Hint for the second riddle of Heithrek

As nobody has yet been able to solve my riddle, here is a clue:

The question is in the answer.

Friday, 3 January 2014

The Riddles of Heithrek

Three days into the New Year and I've made up my mind what my resolution is to be. This year I am going to read more of the Norse Sagas. When I was Xmas shopping, I came across a volume of Old Norse poems (rather sexily subtitled - "The most important non-Skaldic verse not included in the poetic Edda"). As I'm sure you can imagine, I was immediately hooked and spent most of the festive period engrossed in these beautiful ancient lays, songs, oaths and curses.

The poems describe another world, a world wreathed in bloody war and mystical incantation, where Gods disguise themselves as men to trick confident kings and grandmothers curse cruel tormentors. But they are tales my ancestors would have been familiar with and I have a sense that these stories are my birthright and that I have been denied them until this chance discovery at a second-hand bookstall.

Don't worry, I don't think I'm a reincarnation of Eric Bloody-axe or anything. It's just that these poems were shaped by the geography and mythic pre-history of Northern Europe lots of them reference events and people from Britain - my homeland. And I find myself a little angry that the stories I was taught in school reflected the geography and mythic pre-history of the near Middle East.   

The Bible stories are great, but they belong to another land, another people. The Riddles of Heithrek and the Curse of Busla resonate in another, more personal way.

Here are two riddles, one set by Othin (disguised as Gestumblindi) for king Heithrek to solve. And one set by Finnginn (disguised as Gestumblindi) for you to solve.

Have again would I    that which I had yesterday;
         Hear now what I had:
Hamperer of men,    hinderer of words,
         Yet speech it speeds
Aright read now    this riddle Heithrek!

Saw I a scroll    the scrivener scribed;
         Where read I this roll?
The earliest ink    at the end was eyed,
         And at the top, today's
Aright read now    this riddle Heithrek!

All guesses in the comments below please! (correct answers should be formatted in the liothahattr or "chant meter" and begin "Good is thy riddle, Finnginn, and guessed it is...")