Archive for June 18th, 2019

Economic Lessons from heavy crowding at Mt. Everest

June 18, 2019

Jim O’Neill in this piece applies ecomomic lens to the heavy overcrowding seen at Mt Everest this year:

Beyond specific conditions such as the narrowness of the trail, Everest’s overcrowding problem is not so different from many other economic and social challenges that policymakers confront, namely an imbalance between supply and demand, and possibly poor regulation. One example, of special concern to me, is the , which is failing because the development of new drugs is not keeping pace with demand. But more closely related to Everest is the broader challenge of managing tourist hotspots. Around the world, more and more people have joined the middle class, and they (understandably) want to experience the best that the planet has to offer.

When it comes to Everest, part of the problem is a fixed supply. There are only so many paths up the mountain (though some daring alpinists, no doubt, prefer to blaze their own), but the number of tour groups has increased. Given this, it stands to reason that the price should be allowed to rise until the balance between supply and demand is restored.

Of course, Nepalese policymakers, eager for tourism revenue, would balk at this suggestion; and they would probably argue that the average visitor should not be turned away from such a massive natural attraction. But, in that case, they must introduce and enforce stricter safety and regulatory standards for the companies offering tours up the mountain (which will also put upward pressure on prices).

The same fixed-supply problem applies to all tourist hotspots. As I have noted previously, Switzerland would have to produce more beautiful mountains to have any hope of satisfying the burgeoning demand from Chinese tourists visiting the Alps. The same can be said of Petra, Jordan, or any other wonderful destination. In all of these cases, the rational economic solution is to allow the price to rise, or to introduce more stringent regulatory controls.

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Facebook’s cryptocurrency Libra

June 18, 2019

FB’s crytpcurrency has been much talked about.

The whitepaper has just been released. This is the technical version, which requires know how of computing.

 

Fiscal Money Can Make or Break the Euro

June 18, 2019

As European central bank controls all monetary operations, the constrained European governments are trying to figure ways to create money on their own.

Italian government is planning to issue short-term treasury bills or mini-BOTs which has led concerns over creation of parallel currency and give government avenues to spend.

Yanis Varoufakis, former FInance Minister of Greece in this piece explains how in his tenure he had proposed a variant of this proposal. But it was aimed at saving the Euro:

My idea was to establish a tax-backed digital payment system to create fiscal space in eurozone countries that needed it, like Greece and Italy. The Italian plan, by contrast, would use a parallel payment system to break up the eurozone.

Under my proposal, each tax file number, belonging to individuals or firms, would be automatically provided with a Treasury Account (TA) and a PIN number with which to transfer funds from one TA to another, or back to the state.

One way TAs would be credited was by paying arrears into them. Taxpayers owed money by the state could opt for part or all of those arrears to be paid into their TA immediately, instead of waiting for months to be paid normally. That way, multiple arrears could be eliminated at once, thus liberating liquidity across the economy.

For example, suppose Company A is owed €1 million ($1.1 million) by the state, while owing €30,000 to an employee and another €500,000 to Company B. Suppose also that the employee and Company B owe, respectively, €10,000 and €200,000 in taxes to the state. If the €1 million is credited by the state to Company A’s TA, and Company A pays the employee and Company B via the system, the latter will be able to settle their tax arrears. At least €740,000 in arrears will have been eliminated in one fell swoop.

Individuals or firms could also acquire TA credits by purchasing them directly, via web-banking, from the state. The state would make it worth their while by offering buyers significant tax discounts (a €1 credit purchased today could extinguish taxes of, say, €1.10 a year from now). In essence, a new dis-intermediated (middlemen-free) public debt market would emerge, allowing the state to borrow small, medium, and large sums from the private sector in exchange for tax discounts.

Implications?

Indeed, if my parallel, euro-denominated system had been operational in June 2015, when the European Central Bank closed down Greece’s banks to blackmail its people and government into accepting the third bailout loan, two outcomes would have been possible. First, transactions would have shifted massively from the banking system to our TA-based public payment system, thus reducing substantially the ECB’s leverage. Second, it would be common knowledge that, at the push of a button, the government could convert the new euro-denominated payment system into a new currency.

In our case, the idea was to keep Greece viably within the eurozone by using the additional bargaining power afforded by the parallel payment system to negotiate the deep debt restructuring needed to revive economic growth and ensure long-term fiscal sustainability. As long as our creditors saw that our redenomination costs were lowered, while our demands for debt restructuring were sensible, they would think twice before threatening us with Grexit. Joint action by the ECB and my ministry would allow the parallel system to be portrayed as a new pillar of the euro, thus quashing any financial panic. By ending the popular association of the euro with permanent stagnation, the parallel system would be the single currency’s friend.

What about Italy?

This brings us to Italy. There are two technical differences between the system I designed and Italy’s planned mini-Treasury bills (or mini-BOTs). First, mini-BOTs will be printed on paper, something I opposed, to avoid a grey market. Our total supply of digital credits would have been managed by a distributed ledger, to ensure full transparency and prevent the inflationary overproduction of credits. Second, the mini-BOTs will be interest-free, perpetual bonds, without future tax discounts.

But the real difference between the Italian scheme and mine remains political. The parallel payment system I proposed was designed to use the reality of lower eurozone exit costs to create new fiscal space and help civilize the monetary union in the process. Italy’s system is the first step toward a parallel currency by which to bring about the eurozone’s end.

European politics around moneys is never boring.

 


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