Sincere economic questions

I know that my A grade a-level in economics does not translate well to serious national economics; however, i have some queries over Europe’s, UK’s and the US’s bail-out of the banks. It would be good if someone could explain why what i am saying isn’t feasonable or doesn’t make economic sense.

I get the idea/theory/jist of putting money behind the debts that banks have incurred from stupid, ridiculous lending. However:

Money was also given to banks to give them more money to lend to each other, well… if this money was instead used for sweeping tax cuts, or as grants to poorer families, or to ‘pay-off’ people’s debts, then would this not also give the banks more money? Understandably, if this money was used aboard then it would not be in UK banks, but, nearly everyone has a bank account, so if people have more money to spend then they will have more money in their accounts. Banks use the money people deposit in their accounts as their own money at the moment anyway, i.e. they lend it. So if governments used the money to cut taxes drastically, then more accounts would have more money in them, more people would be spending this money in more shops- pushing consumerism up, more shops would have more money- that is saved in bank accounts. So more jobs are created or kept because people are still spending. And more people are more happy, and from a electoral point of view, New Labour would most likely win a lot more support- Brown could have called an election and become our PM by popular choice.

But instead of this they just gave the money to the banks and asked them to lend it to other banks!? So this leads me to believe there is some illogic in my theory. I am sincerely asking people to explain it to me. This is not me using sarcy theories to push my own ideology, far from it. My ideology is more nationalise all banks, move away from consumer led economy, pump the money into a new green energy sector and move Britain towards a low carbon energy independence, and i don’t want New Labour to regain power. So i am being sincere.

While i’m at it, green energy. If all the money given to banks was instead put into green energy, would it not therefore be feasible for the UK to generate all of it’s own electricity, either from hydro, wind or solar. Could the money not have been used to give a grant to every household to enable them to generate their own electricity and sell it back to the grid? Would a revolutionised green energy sector not provide for thousands (maybe of millions depending on what the sector contains) of jobs- reducing unemployment, raising job competition, giving people job security and allowing them to earn and spend their money, boosting consumerism and along the lines of a previous point allowing more people to have more money in their bank accounts, boosting the amount of money the banks have. It would also give Britain complete energy independence, we wouldn’t need to rely on other countries. We wouldn’t need to have such a presence in the Middle East. In theory, it could reduce any terrorist threat that we are facing- one of the first major aims of Fundamental Islamic Terrorism is to end the influence of the West in the Middle East (destroying secularism and allowing for the push of fundamentalism – i don’t think secularism would be destroyed in the Middle East anyway, even if Britain/America weren’t there)- so because of our reduced addiction to oil, we wouldn’t need to be in the Middle East (Afghanistan but especially Iraq).

Anyway, i am going off at a tangent. My point is, if we gave everyone else but the banks money, the banks would get the money in the end anyway.

One last thing. The National Debt. Who are we actually in debt to? I understand when it comes to borrowing from other countries we are in debt to them, but why do i hear of Britain borrowing from the banks? Am i just mishearing? If we were borrowing from the banks (Bank of England) then to me it is more excuse to nationalise them! Plus who is going to hold the UK to account if they don’t pay back their debts on time? More sincere questions.

The UK Left should be smug, not wallowing in selfpity

This should be a booming time for the socialist and green movements. It is a time where we should be smug. Our smiles should be brimming from ear to ear at the prospect of the geminate sucker punch of ‘I told you so’ and the opportunity that is in front of us. Yet, we are instead waiting for other people to take the initiative. All this waiting is doing is to play into the hand of an Etonian, who is unmistakably buoyant that the only puissant opposition there is to New Labour is his band of affluent ninnies.

Five interdependent areas should be politically booming, where the red-greens should be taking the initiative by turning them into vote winners and realms of popular support. These are: the environment, terrorism, globalisation, socialist ideology and the factionary subject of nationalism.

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Environmentalists have long stated their claim for the theory of peak oil, and the dangerous race for biofuels. We are now seeing the results of these issues. The basic premise of demand and supply is that as the supply of oil goes down and the demand of oil stays the same or increases, then the price of oil will go up. Peak oil fits into this under supply. As oil is a natural resource, it is going to run out, there is not an endless supply of it. [http://www.fromthewilderness.com/free/ww3/102302_campbell.html] There has not been a discovery of a ‘giant’ oil field since 1976 with a capacity of over 10 billion barrels. [http://www.peakoil.net/AIMseminar/UU_AIM_Robelius.pdf] Originally, oil companies would refuse to acknowledge the idea of peak oil, however now speculation of peak oil works to the benefit of oil companies because it drives up the price of oil and therefore profits. This is not to say that peak oil is just a theory, but instead supports the idea of regulating oil companies, taxing them more and using this money to lower petrol prices. So where are the socialists arguing this case? Even better than using the money to lower fuel bills is to plough the money into renewable energy to make Britain self-sufficient, lower carbon emissions and lower fuel bills. So where are the environmentalists arguing this case?

By becoming energy self-sufficient, we can end the terrorist threat – face it, the only reason we are encamped in the Middle East is because of oil – fight globalisation, and for the more conservative of you, will support British (renewable)energy companies.

There is further nationalism within the environmentalist movement because of its promotion of local produce, and by supporting British farmers. By fighting with this nationalistic stance, the left can win support from the floaters deflecting towards the far-right while at the same time help Britain end its reliance on foreign countries and lower its carbon emissions.

Biofuels is another ‘I told you so’. Politicians have long pushed for biofuels, believing them to be the best way to combat climate change without investing heavily into renewable sources. Environmentalists, instead of being appeased, are livid at such ignorance. [http://www.newscientist.com/article/dn11811-biofuel-production-may-raise-price-of-food--.html, http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article602228.ece] Although not all biofuels are bad biofuels, the demand for ethanol from crops such as corn has helped lead to an increase in the price of food. [http://www.independent.co.uk/environment/green-living/food-price-rises-force-biofuel-uturn-859979.html] As more crops are being used to feed our cars, there is less food to feed ourselves. Again, supply decreases so price goes up. It is simple economics! I have a letter from the office of the Transport Minister in 2007 (Stephan Ladyman) that claims they have found no correlation between high wheat prices and the pursuit of biofuels. (I will post it up here when I am next near a scanner). It is great to see our Government on top of things, I wonder what they would say now. [http://www.thetechherald.com/article.php/200828/1423/UK-government-to-proceed-cautiously-on-biofuels]

As with oil prices, the left need to be seizing the opportunity of high food prices to win the support of those worse off; the Tories, while providing the only opposition to New Labour, are not going to help them. [http://www.guardian.co.uk/commentisfree/2008/jul/21/conservatives.labour, http://www.labourhome.org/story/2008/7/18/74035/5652]

It pains me not to see the left take greater advantage of the current financial crisis. As with regulating and taxing oil companies, the same should happen to energy companies who will soon be passing on their increased costs to their customers.

Despite the unions becoming more active in support of pay rises for its workers, we see the demands being denied while business men in the city give themselves higher than inflation pay rises and bonuses. [http://www.nakedcapitalism.com/2008/02/uk-chancellor-attacks-city-bonuses.html, http://www.telegraph.co.uk/news/uknews/2022636/City-bonuses-defy-credit-crunch-and-hit-new-record-of-andpound13bn.html]

The current climate is perfect to preach higher taxes for the rich to decrease the wealth gap between the rich and the poor. Moreover, perhaps socialists should abandon their interest in the free trade market to preach protectionism in the case of the fear of businesses moving aboard when faced with higher taxes. ‘If you leave Britain when it needs you, you will never be able to come back and exploit its public.’ We are currently a consumerist market; no business will want to lose us. The change in attitude of the left to free trade markets and protectionism would be the perfect example of how the left can adapt and modernise, without falling into the hands of the affluent as Labour did in the early 90’s. (I do realise that Marx did state that free trade can be described as exploitation, yet it appears that free trade has appeared to have been accepted by many modern day socialists).

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So come on you socialists, you environmentalists, you angry liberal Brits, let us unite and fight this wave of bitterness.

BERRilliant!

In May 2008, BERR, the Department for Business Enterprise & Regulatory Reform published their Communication on BERR Fossil Fuel Price Assumptions. This was an update of January 2008’s fossil fuel price assumptions based on their Call for Evidence.

The report outlines their expectations of the price of fossil fuels in the future which include: oil, gas and coal. The report quotes that “The set of assumptions presented below will be used in the analysis underpinning the Carbon Budgets and Renewable Energy Strategy.” As the BERR is part of the Government and influences policy, this suggests that the prices assumed by the BERR will affect the Governments Renewable Energy Strategy.

As of 9:40am, July 5th 2008, the current trading price of oil fluctuates between $138.96 and $152.58. As for gas, the UK Day Ahead forecast is at 65p/therm.

Now let me show you the low and high forecasts of the BERR:

The low scenario shows last years oil price at $73/barrel, and gas at 30p/therm. Due to the assumptions for future expectations of $45/barrel for oil and between 25p-33p/therm for gas, then this scenario becomes defunct when compared to the latest figures. Surely the high scenario should be more accurate:

As with the low scenario, the high scenario is also well off of the mark. Current prices for oil are already around $40/barrel higher than the predicted price in 2030- with little chance of the price of oil ever falling below $135/barrel again. The BERR did however offer a high-high scenario as part of their updated report based on their Call for Evidence:

Although the price of gas in this high-high scenario is more realistic than the other scenario’s, the price of oil is not. According to this scenario, we were not supposed to see this high oil price until 2015 at the earliest.

So what does this mean? Either it means that the Government is so inept at predicting the rise in fossil fuel prices- perhaps they do not realise that oil is actually running out. Darn those oil companies promoting their lies about how much oil there is. Or that they are hovering above acknowledgement of high oil prices in these reports to make the case for cheaper carbon trading prices and a lesser commitment in the need to increase funding for renewable energy.

You can imagine a Government spokesman’s response to the question of ‘why is there a slow growth in renewables when Britain is crying out for more energy’ as “we have conducted several highly specific and well researched reports that suggest that oil and gas will cover Britain’s energy needs in the present and future, although we are still committed to increasing our support for the idea of maybe increasing investment into renewables in the distant future, for the foreseeable long-term future, oil and gas is- and always will be- the cheaper option.”

Perhaps i should also point out the biggest beneficiaries of lower carbon trading prices are businesses. Now what does BERR stand for again…

English Fundamentalism

I have just been reading an interesting article on the Guardian website about the documentary film maker Sean Langan who has just recently been released by the Taliban after 3 months.

I would like to quote Langan in relation to his only glimpse of the outside world- a small hole in the wall of his ‘cell’ that was embraced with a view of an apricot tree; “It kept me going, thinking about the outside world and English values that could be lost, like tea and sympathy and tolerance and basic humanity.”

This is a man who has been locked up and psychologically tortured for 3 months, yet he still acknowledges basic English principles: sympathy, tolerance and basic humanity, and the fear that his situation could make him abandon them. It is a shame that a majority of English people are willing to throw these principles away when they are in the warmth, comfort and safety of their own homes and there is the slightest threat of a terrorist attack or they see a group of Polish workers on the way to work.

The article also led me to view the arrogance of those fighting the British in Afghanistan in their views of the West; “Mr C asked me once if it was true that western women married frogs. He had seen a children’s fairytale and believed that it was true.” This is not something confined to just a minority in Afghanistan. The rise in Islamophobia is fuelled by the fear and belief that all Muslim’s want to do is destroy ‘Western values’ and end British lives. [I put commas around Western values, as i believe a majority of those in power in both Britain and America have no dignified values at all]. In reality, this belief is the upside-down version of the truth. In reality, the majority of those who follow the Islamic faith pose no harm to the West at all. There is however a very small minority of Islamic Fundamentalists who appear to want to (i say appear because really the 9/11 attack was not against the West but an attempt to polarise the people in the Middle East into either fundamentalism or secularism- helped afterwards by America’s War on ‘Error).

Johann Hari wrote a brilliant piece on the latest Big Brother and how fundamental and secularist Islam is clashing within the Big Brother house. The point of the article is to explain the reality of the current situation. Islam is not about killing as many people who disagree with you as possible, but at the same time, there are fundamentalists who believe it is. This debate tends to be forgotten by the right-wing media, which wrongly portrays Muslims as a threat. Hari suggests that this clash is finally an example of proper reality television. There are many other aspects of Hari’s article that i could write on, yet to grasp the context of the debate you should read it yourself.

Judging by how some people are reacting to the threat posed by Fundamental Islam and their over the top reactions to immigration into this country, i would suggest that there is a growing sense of English (British) Fundamentalism growing. If they think that all Muslims are Fundamentalists, then it is safe to say that these English Fundamentalists are just as bad as the Islamic Fundamentalists they are afraid of.

To view the Guardian’s article on Langan, click here.

To view the Johann Hari article, click here.

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On a completely separate topic, here is another Langan quote; “I am alive. And I’ve realised that freedom is the air we breathe.” Out of all the things i could say, all i will say is that if the air we breathe is true freedom, then irresponsible oil companies and Governments are clutching onto not only our freedoms, but the freedoms of the next generation, and the generation after that, and the generation after that, and on and on. Why, therefore, aren’t more people fighting for our own freedoms if not the freedoms of others?

The Social Environmentalist

This is a key period for the environmental movement. If it were seen to be supporting the high price of fuel, then it will lose a large majority of its support. However, the higher cost of oil will lead to a fall in demand, essential in the fight against climate change.

Along with the rise in the cost of fuel, there has been a visible public outburst of rage – fuelled by the media – at the proposed increase in car tax for gas guzzling cars in October.

From the viewpoint of an environmentalist in a low income household, there is an obvious conflict; the climate verses being able to support oneself. This conflict is not helped with the possibility of being labelled a hypocrite by fellow environmentalists.

To fully engage the argument, it is important to note that the world oil price will now forever be high. This is down to peak oil supplies. Added to this, no country has been able to locate a viable ‘giant’ oil field for 30 years. We also have to take into account that although the Government are raking it in from high taxes placed upon fuel, it is not the Government who control the overall oil price. High prices are not limited to just this country. Recently, there have been other protests around Europe, including a rather violent riot in Belgium.

The most important issue that needs to be taken into account to help out the poorer members in society, while at the same time fight climate change, is the supply and demand of oil.

Gordon Brown’s recent reaction to the ‘oil crisis’ reaffirms his defunct commitment to the environment. By not offering viable alternatives to the car, and instead attempting to increase the supply of oil – by pleading with North Sea oil suppliers to increase supply – Brown has shown that any serious attempt to reduce our carbon emissions is not on the present Government’s agenda.

Let us not focus entirely on the Government during this period though. Let us also look at the oil suppliers themselves. At the start of this year, Shell announced a record breaking annual profit of £13.9 billion. The shareholders of these companies – that also include BP and ExxonMobil– must be sweating with excitement at the prospect of an even higher payback and increased yearly bonus at the expense of ordinary people who are struggling to put food on their families’ tables.

Now, we can never expect any oil company to show any form of corporate responsibility, especially when it is not possible to boycott their drug – however, consider the possible implications for the company of a 60 million strong petition being delivered to their next shareholders meeting.

Moving back to the issue of Government policy; protesters have commanded that the Government ease the impact of high oil prices by reducing the tax on fuel. The environmentalist in me is outraged at such an idea; we need to be lowing the demand for oil. However on the other side of my shoulder – the low income stricken angel, dependent upon the main income earner being able to drive, is whispering in my ear that the poorer members of society are being severely hit, including myself.

There are measures I believe can ease this situation. As noted, the world oil price shall conceivably never fall again. Nevertheless, this does not mean that the fuel tax should go down to ease pressure. Instead there should be a commitment from the Government that this money will be used for one of two things.

Firstly, there needs to be a huge rise in the investment into all areas of public transport. This includes: increasing the capacity of trains, making buses, coaches and trains more luxurious to make them more appealing, finally, and most importantly, to subside and lower the cost of using buses and trains. It is ludicrous that it is cheaper to go by car than by train in some circumstances.

It is essential that to reduce the number of cars on the road, and reduce the demand for petrol, there needs to be viable and suitable public alternatives.

Secondly, the money made from the rise in the price of fuel should be used to help subsidise essential travellers. These include manual labourers, such as plumbers and electricians, who need either their van or car for transport and to carry tools and materials. In many cases, these manual workers do not get fuel paid for them by their companies, and the fall in wages in these areas mean that it is increasingly difficult to run their transport and to feed their families.

The recent lorry protest demanded the introduction of an essential duty to lower the cost of fuel for truck drivers. Although I do agree with this duty, I do not agree that it should be given to long distance truck drivers. The reason for this is because I believe it is environmentally more effective to move haulage back onto the rail. However, it is naïve to suggest that this would not have dire consequences, as there will be high unemployment among former truck drivers. If significant investment in retraining programmes were implemented however, then it could be possible to manoeuvre these recently unemployed into the rail haulage network, working on transporting huge amounts of resources around the country on late night trains.

These two measures are not going to lower the cost of oil, however, it could ease and assist members of the public who financially need the most help.

This moves me onto the prospect of increased car taxes for those cars that emit higher emissions. As an environmentalist, I fully endorse a rise in car tax for higher polluting cars. However, coming from a working class background, the current proposals are economically destructive for British families.

Groups including Friends of the Earth and Greenpeace have commented how these would give green taxes a bad name. This is true. Although it is clear that radical action needs to be taken to halt the rate of climate change, it is also counter-productive for the poorer members of society – those whose apathy needs smashing – to be negatively impacted by these taxes.

Many economic, political and social commentators have suggested that the proposition of the tax being implemented on cars going back to 2001 is going to hit the poorest hardest. For example, it is highly unlikely that an average family would had considered how much carbon a new car would emit back in 2002 when they bought it. However, 6 years later, they will be taxed upwards of a hundred pounds a year extra for a condition that would not even be on the specification of a new car in 2002.

Once again, it would be the poorest who are the most vulnerable, and who will be hit hardest.

At the same time, the taxes should be implemented. We cannot give up on our commitment on the environment. These taxes however should only be placed upon cars that are bought from October 2008 onwards.

The risk is that families looking for new cars will purchase used inefficient cars, but at least at the same time it will put added pressure on car manufacturers to improve efficiency on new cars while not hitting those with low incomes who need their car in order to live the most.

There are therefore steps that can be taken by the Government to help those worse off from the rise in oil prices, while at the same time reaffirm their commitment to fighting climate change. However, whether the current or any future Government would dare be radical enough to implement such changes to move us away from this doomed addiction to oil that we have seems highly unlikely.