Archive for Economics

Race Plan by Jeremy Browne.

A  brief review.

I was delighted to discover that I could download this book from the day it was published in the UK.  This was quite an achievement for a UK publisher.  Normally I have to wait several months for British books to appear on the Canadian site.

Jeremy Browne has interesting things to say about foreign affairs. The chapter on foreign policy is both informed and trenchant; for example his contention that our diplomacy in Asian countries is often inept. His overall message is that we have a lot of soft power, and we must use it to promote liberal values in China’s century, both for our own good, and for the preservation of those values in a world in which the dominant world power is a dictatorship.

The rest of the book, however, too often reads as a formulaic setting out of problems and solutions by an ideologically inflexible economic liberal.  Sometimes Browne gives the impression that he hasn’t been prepared to think about the issues he is writing about, other than to place them within the parameters of his ideology.  For example, does it really matter that a minimum price on alcohol would interfere with the free market?  Surely the only important criteria is whether or not it would work to reduce alcohol abuse? Blind adherence to any creed kills common sense.

What I found most disappointing was the almost complete absence of any consideration of the environmental implications of policy:

“The comforting truth is that, just because one country gets richer, it does not follow that one country gets poorer.  Global economic growth is not a zero-sum game: we can all get richer” (my emphasis).

True for Adam Smith perhaps, but not in the world of finite resources we live in now. For some resources it is in fact a zero-sum game: there isn’t enough pasture land for us all to eat red meat, and so if China is going to eat more, we may have to eat less, for example.

Browne’s blind spot on the environment is most apparent when he is talking about Britain’s infrastructure needs. He supports a new airport hub for London, new roads, rail and housing on green belt land — and they’d get it all built so much more quickly in China.  But you can’t possibly understand the complex issues of infrastructure on our crowded island unless you also consider greenhouse gas emissions, smog, preservation of landscape and biodiversity.  If, as a nation, we spend time considering the options and sometimes prefer infrastructure solutions which are not optimal for the economy, but less damaging for the environment, surely that is just our nation practising the same liberal values that he thinks are our strength?

I found parts of the book  just plain irritating.  There is  a section where Browne comes over all Niall Ferguson about our past and tries to out-jingo Michael Gove.  If he did some more reading, he would discover that there are other factors to explain the Industrial Revolution, than our intangible ‘national disposition’, and personally I’m not swelling with pride at being part of a nation that built the largest empire ever known.

The reason that supermarkets ran out of products in the nineteen seventies was because high inflation led to hoarding and runs on food. So  if that does not happen now, it is not an example of how commercial institutions improve their performance; though bread, which he mentions specifically, used to be a morning product, having been baked overnight.  But maybe an ambassador’s wife didn’t do her own shopping often enough to know that?  I remember because I was a grown-up in the seventies, not a schoolboy shopping with his mum.

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The pensioner’s top-up

I’m one of the people who could take advantage of the pensioners’ top-up just announced.  It looks very generous, offering an index linked annuity of 5.84%, compared with the 3.5% offered commercially.

But, the question that is puzzling me is this:  Why would I take advantage of this offer, when the government offers a much better deal through pension deferral, since every year of deferral increases my pension by 10.4%?

I reach pension age on 6th March 2015.  I am entitled to the full pension of £110.15 p.w. So, if I put off claiming my state pension for two years, until 6th March 2017, I will have foregone £11,455.60. But, I will have gained a pension increase of 20.8%; that is £22.91 per week.

Alternatively, if I use the pension top-up scheme to gain an additional £23 a week, the premium I’ll have to pay on 6th March 2017 will be £20,470, more than £9,000 extra for the same result.

So why would I do that? Will someone (Mr Webb?) explain?

It occurs to me I should add some links:

Deferring the State Pension

State Pension Top Up Calculator




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Goodbye to 2013 Part 2

5.30 pm, -18°C with windchill, snow.

We try to make sure that we give at least 1% of our net income to charity.  That is not overly generous, but in our defence, we do normally give more. My policy with regards to charitable giving has been fixed for several decades: With some exceptions for local and environmental charities, I try to make sure my donations go to the developing world.  But, I was made to think about my charitable giving for two reasons this year.

The first was the issue of executive pay as reported in the Telegraph in August. The fifteen leading foreign-aid charities pay six figure salaries to their chief executives, and these are the charities which receive the bulk of my donations.

My problem with this is the same as with politicians pay: Both I and my husband are educated to post-graduate level.  Neither of us has ever had a salary even approaching that of an MP.  Yet, we don’t feel poor or badly paid.  On the contrary, we have a good lifestyle and feel very fortunate to be so well off.  We still have incomes and savings well above the average in either Canada or the UK.  So, it is very difficult for me to understand when I’m  told that six figure salaries are necessary for charity executives. Nevertheless, for the time being I haven’t changed my pattern of giving, but I will be looking out for the report of the Public Administration Select Committee’s.

Secondly — Food Banks.  I’ve blogged on this before, so I’ll keep it short.  When I visited the UK before Xmas, I saw that the Food Bank industry has taken another step forward in the march to the domination of most pernicious, inefficient and wasteful means of poverty relief to ever undermine the welfare state. In Tesco’s I was mugged by staff handing out food bank vouchers.  The supermarkets love these in Canada too – always less than enough to buy a substantial item of food, so you will add to it with your own money. The next step is to pile excess stock on the counter, so if you haven’t used your voucher, you can spend it on almost time-expired tinned tuna, or something similar. Outside Waitrose a woman volunteer had set out a table and asked me to remember to buy something to donate. Yes, that is such a good idea, paying over the odds for Waitrose tinned tomatoes to be given to someone on benefits, who could have bought two tins for the same money in Poundland. I told the Waitrose woman that I didn’t think the upmarket supermarket needed charitable help.  I don’t think she understood me. I resent being made to feel like Scrooge by Christians with more good intentions than common-sense.

My politician of the year is George Osborne, though I say it with an embarrassed wince. He seems to be loathed equally by the Guardian and the Daily Telegraph, which suggests he is doing something right. While I take the opinions of the CEBR with a pinch of salt, the fact is that the UK economy is doing OK, unemployment figures ain’t too bad, and appointing Carney to the Bank of England was inspired.  It looks as if Labour will get  landslide in 2015, and that is a pity if it means Balls takes over.

Happy New Year everyone.

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Review of The Carbon Crunch by Dieter Helm

Climate change is speeding up, exceeding the worst predictions of the IPCC. The arctic could be ice-free in summer within five years.  Without ice, the sea warms up more quickly, melting the undersea tundra, and releasing huge quantities of methane into the atmosphere.  Methane is a much more powerful greenhouse gas than carbon-dioxide.  We may  already have reached the tipping point beyond which lies catastrophe.  Two degrees of warming is inevitable, but six degrees, by the end of this century, is a real possibility — a level which threatens the continuance of our species, but if humanity does survive, there will be far fewer of us, living in very changed and worsened conditions on far less of the planet’s surface.

International attempts to tackle the problem have failed utterly. Emissions keep going up.  We Europeans were apt to be smug because we were meeting our Kyoto targets, but that had nothing to do with the EU emissions trading system, which is dead in the water. Our emissions went down because of de-industrialisation. If we take into account the carbon emitted in the goods we import, then UK emissions have gone up by around 20%. The conferences at Copenhagen and Durban were a disaster.  To quote Dieter Helm:

“what was ‘agreed’ was that the parties would try to agree by 2015 what they may do after 2020.  This really would be hard to make up!”.

So what is the way forward?  Is there a way forward at all?  Helm thinks there is and that is one reason to read this book. Another reason is if you are unsure how shale gas fits into the picture.  As a relatively low carbon fuel does it buy us time, or is the environmental cost too high? And finally, Helm is reputed (according to Simon Jenkins) to have the ‘ear of the Treasury’, which in itself makes what he has to say interesting.

Dieter Helm, Professor of Energy Policy at Oxford, has written extensively on climate change, but this is his first book for the general reader.  If he wanted to reach a wide audience, it was possibly a mistake to be so politically partisan, particularly in the early chapters. His centre-right perspective may give him more leverage with Conservative politicians, but it is off-putting if, like me, you are not so committed to one side of the political divide. While he painstakingly teases out the different strands of Conservative thought (basically Roger Scruton’s traditional Conservatism = good, Neo-Cons = regrettable), he has Scruton’s tendency to lump everyone else  together, as impossibly idealistic and often authoritarian socialists. Contrast Helm’s sympathetic treatment of  Nigel Lawson who, he tells us “found it hard to get his book on climate change published, even though he accepted that climate change was likely to occur” (and also showed a profound lack of understanding of the science, questioned whether climate change was in fact occurring, asking whether a 3 degree rise really mattered, called for the IPCC to be disbanded, and set up a climate change sceptic organisation), with Helm’s treatment of John Sauven, who is labelled intolerant for calling the delegates to Copenhagen ‘criminals’.  Although I’d agree that Greenpeace is  often intolerant,  an exhausted and frustrated lobbyist lapsing into hyperbole at the end of the Copenhagen debacle is not the best example.

Because solutions to climate change are long term, any realistic strategy must command  a large degree of consensus across the political spectrum. It would have been helpful for Helm to acknowledge the heterogeneity of environmentalism. They are not all socialists who want to ration carbon worldwide to one tonne  per person per annum. Helm thinks that almost everything  done so far has been either useless or counter-productive, but he would not have difficulty finding environmentalists who agree with his criticisms: nuclear is needed — ask Mark Lynas; wind turbines are an expensive irrelevance — try James Lovelock; solar power also —  George Monbiot agrees; carbon emissions trading has failed, and we need a carbon tax — widespread agreement; coal is the main problem — over the pond, James Hanson has been shouting it from the rooftops for years; insulating people’s home may reduce fuel poverty but won’t reduce emissions — try the Canadian Mark Jaccard, and so on.

Helm proposes a three-fold strategy to set us on the right track. Firstly we need shale gas as an interim transitional fuel. He stresses that extraction must be properly regulated (he is, unsurprisingly, pro-nuclear, but doesn’t see it making a significant contribution for another 20 years).  Secondly we need a carbon tax, charged at the point of consumption not production, which would include a tax on imports. Thirdly we need a major programme of R&D, funded by the carbon tax,  to find technological solutions.

I’m not competent to make a detailed critique of what he proposes, but there is one glaring problem — that of persuading  the public, and governments, that carbon taxes are necessary.  Recent history is not encouraging.  In the UK the Labour government was forced to back down on road charging.  In Canada, the Liberal Party’s ‘Green Shift’ manifesto, which proposed a carbon tax, lost them an election. In the current US presidential race neither candidate dares even mention the subject of climate change. Helm is critical of leftist greens for making politically unachievable demands. but on the other hand, he is critical of governments for misleading the public by telling them that we can tackle climate change without any cost.  He wants politicians to come clean and admit that it will cost money and jobs, and cause a drop in standard of living for us all. Given the public reaction to austerity budgets, what chance is there that any government that tries to impose a carbon tax will stay in power?

To allow import taxes on carbon, Helm proposes WTO rules should be amended if necessary.  How many decades would it take to get international consensus for that?

If Dieter Helm does have “the ear of the Treasury”, I’d love to be a fly on the wall  to hear the conversation. It follows from Helm’s position that Britain should vote to implement the EU Fuel Quality Directive.  I hope he points that out, and the government listens. It is a small thing, but something they can do without angering the electorate.

For a more informed review than mine — by development economist Simon Maxwell — see here.

The Carbon Crunch by Dieter Helm – link to

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Chris Huhne and Shale Gas

I am neither for, nor against, the exploitation of Britain’s shale gas.  I haven’t made up my mind yet, but I think the issue is more complicated than the way it was put by Chris Huhne in The Guardian this week.

There’s the question of whether shale gas is a lower carbon fuel than coal.  There have been two studies by Cornell university which contradicted each other, one showing that shale gas had  higher greenhouse gas emissions than coal, the other that the emissions were half.

This matters.  Firstly,  there’s James Hanson’s argument that to prevent dangerous climate change, we cannot afford to take all the fossil fuels out of the ground. Therefore it makes sense to leave those with the highest carbon content, which means leaving the unconventional oils and coal. So the difference between a carbon content higher than coal and one half of coal, is the difference between leaving it in the ground, and exploiting it.

The level of emissions also affects the viability of using CCS, that is carbon capture and sequestration. In his article Chris Huhne advocates the use of CCS with shale gas.  So far, pilot CCS projects such as the one at Sleipner  seem to be showing that CCS is possible but expensive.  It is only economically viable for fuel sources with relatively low CO2 content (at Sleipner the natural gas has 9.2%), and in combination with a carbon tax. So, if shale gas actually has higher emissions than coal, then it is probably not viable, even with CCS.

Chris Huhne’s article did not mention the question of water use and possible pollution of aquifers.  Possibly he accepts the reassurances of the energy industry on this issue. Personally, I don’t know who to believe. On the one hand, I accept that the campaign against shale gas in North America is characterised more by hyperbole than hard facts, but I’m equally skeptical about the statements from the energy industry.

What concerns me most is the way we seem to be rushing to exploit our shale gas reserves.  It’s not as if the gas is going anywhere, and getting this decision wrong could have serious environmental effects for the UK. I’d like to see a slower and more considered approach; preferably a public enquiry to report on the viability of exploiting the reserves, economic, environmental and otherwise.

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Executive Pay

I’ve just listened to Any Questions, broadcast from the kleptocracy they call Great Britain, discussing the question of executive pay, in the light of the 50% rise enjoyed by the leaders of Britain’s failing companies this year.  Much hand-wringing from the panel, but of course “it is difficult to see what can be done” (I think it was Jeremy Browne who said that).  Same reaction as the government.  In fact, something could be done.  We impose minimum pay levels on employers by law, why not maximum pay levels?

What is the obstacle?  We’re always being told that we have to tread on eggshells not to upset the titans of industry, for fear of losing their talents, but what is wrong with demanding that they actually show some talent before they reap the rewards? We’re told that shareholders won’t question the pay awards, however unjustifiable, because that would cast doubt on their confidence in the company.  If that’s so, then it makes sense to make executive pay dependent on performance, by law.

I’m feeling the same anger that millions of other British people must be feeling today. What happened to the idea that the misery should be shared?

29th Oct, altered Question Time to Any Questions (which isn’t available in Canada).  Got my Dimblebys muddled up.

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One day last week I sat down to watch a debate on the world financial crisis on BBC World News, featuring half a dozen world class economists on stage and a lot of other experts in the audience. About half way through, I realised that the only feature of the programme I was engaging with, was Christine Lagarde’s elegance, and in particular the mystery of how a woman over 50 endures 4 inch stilletoes, or why she wishes to do so.

It’s not that I don’t understand what is being said by economists, but I do have difficulty engaging critically with the debate and making up my mind who is right and who is wrong. Also the questions I really want answered are not the ones that ever get discussed.  So, here they are, and maybe someone will provide me with the answers:

First — inflation.  You keep telling me that the aging population is a problem.  Us baby-boomers are going to be making increasing demands on the economy.  But, us baby-boomers are currently looking aghast at our life-savings devaluing by the day, which means we are going to be even more of a drain on public resources in the future.  So, how can QE, which is printing money, which creates inflation, be a good thing? When our government prints money they just give it to the banks who sit on it, or give it away in bonuses, anyway.  I get the point that inflation will magic away a large chunk of the national debt, but it will also create a lot of state dependent people, who will make it more difficult to keep our deficit down in the future.  So, what is actually achieved in the long run?

Second — deflation.  Before I started getting fixated on Christine Lagarde’s shoes, I heard her say the real danger was deflation, and go into  her “lost decade” routine.  I understand this deflation prediction is based on the idea that history repeats itself, specifically the nineteen thirties, or Japan’s “lost decade”. I’m sceptical. The nineteen thirties did not have diminishing oil  and other mineral reserves.  It had a smaller world population, and not the same pressure on food prices. It did not have massive economic growth in China and India competing for resources. It did not have climate change creating costly weather catastrophes. All of those factors seem inflationary to me.   So, please explain why you think we are about to revisit the nineteen thirties?

Third — deflation again.  Why is deflation bad?  People put off purchases because they think stuff will be cheaper if they wait. That acts as a drag on economic growth.  Anything else? Because I can think of a few advantages.  Such as, all those baby-boomers, me included, would recoup the savings they have lost and be able to support themselves in their old age. Housing would get cheaper and more affordable for first time buyers. A combination of lower prices and lower consumption should mean that the level of household debt, which has been at unsustainable levels, will fall, but by being paid off instead of magicked away. Of course, it also means us baby boomers losing out on the value of our homes, but that seems a reasonable quid pro quo to me.

Fourth — growth.  The IMF’s global forecast of 6.4% in developing countries and 1.6% in advanced economies, doesn’t seem that terrible to me.  It certainly doesn’t look like the crisis of capitalism, that  Marxists seem to think it is. There is a strong argument on environmental grounds for reducing the pace of  growth in the advanced economies (which only averages 2.5% in the UK anyway). What happened to the idea that we should stop measuring a country’s success by GDP?  Apart from the economy, we have an environmental crisis caused by the failure of the advanced economies, notably the USA, to develop meaningful strategies for combating climate change. Surely a decade in which emissions are restrained by sluggish economies might be a good thing in the long run?

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