That's "unleaded and diesel" in Italian. I just returned from a very enjoyable week on the shores of Lago Maggiore, where I noticed a couple of things about energy prices. "Sin piombo" is selling there for about 1.55 euros a litre. That's equivalent to about 120p at current exchange rates. This morning I filled up my tank here at home for 116.9p. So complaints from UK drivers that they are paying more than everyone else for the precious fluid are not entirely true. (Actually those complaints come not from drivers but from people who describe themselves as "motorists". A driver is someone who drives a car; a motorist is someone who thinks that Jeremy Clarkson is right about everything and should be made Prime Minister. Motorists should be avoided!)
But here's an interesting thing -- in Italy diesel costs exactly the same as unleaded. That's the case in most of Europe too. At my service station this morning, though, it was 130.9p, about 10% more than unleaded. What's going on here?
There are two explanations, neither of which reflects well on the UK oil industry. The more-or-less official explanation is that the industry (collectively, even though of course they never collude) underestimated the growth in demand for diesel. It's true that use of diesel by private motorists has only taken off relatively recently in the UK, but as it delivers something like 10% more calorific content than petrol, should the industry really have been surprised by that?
The industry claims that the higher price for diesel in the UK simply reflects lack of capacity for producing the stuff (i.e. it's their fault), but as these products trade in open markets, shouldn't the price mechanism redirect diesel supplies toward the highest-price market, the UK? Taxes aside, it should not be possible to sustain a much higher differential between diesel and petrol prices in the UK than exists elsewhere in Europe, yet there is no sign of the gap closing: rather the opposite, in truth. Which leads to the second possible explanation: that the UK industry is charging more for diesel because it can -- i.e., whisper it not, it's gouging.
Whichever explanation is true, the outcome is the same: the UK oil industry is in effect using the price mechanism to discourage demand for the more efficient form of motor fuel. How good is that?
Unions and others are calling for an excess profits tax on UK oil companies. As a general rule, I think such things are a bad idea. But if I had to make a case for an excess profits tax right now, the price of diesel would certainly be where I'd start.
Thursday 26 June 2008
Friday 13 June 2008
They don't make politicians like that any more
The BBC is running a cute "docudrama" called "The long road to Finchley" about the early political life of Margaret Thatcher. It's highly fictionalised -- Mrs T is portrayed as a coquettish charmer, rather than the semi-deranged virago she turned out to be when she was in office. What's more, there are lots of clever-clever foreshadowings in the script. For example, schoolboy Mark Thatcher to his mother, as they watch daddy Denis head off for Johannesburg: "can I go to Africa too? I promise not to get into trouble". So it's unlikely to become a set text at university, but I still felt there was an interesting lesson or two to be had.
Margaret Thatcher was a grocer's daughter who succeeded in getting into Oxford. After graduating she worked as an industrial chemist, then studied law in her spare time and practised at the Bar. Her great rival, Edward Heath, who also featured in the show, was the son of a builder. He also went to Oxford, fought with some distinction in the war and then worked in finance before entering politics. He was a professional-quality musician and once took time off from running the country to enter -- and win -- the Sydney-Hobart yacht race.
Both Thatcher and Heath were political obsessives, but they had talents that went beyond the spin and chicanery of modern Government. Contrast them with today's bunch. Gordon Brown is supposed to be massively intelligent, but there's no indication that he has any outside skills or interests whatsoever, unless you count Raith Rovers. What has David Cameron ever done outside politics, or Willam Hague or any of the rest of the Tory front bench? Sure, there are all sorts of professions represented in the House of Commons, especially lawyers and teachers, but for the most part these are just lobby fodder. The leadership jobs go to the professional politicians -- people who have not merely, in the old phrase, never had to meet a payroll: they've never even been on one.
This is not just a UK phenomenon. John McCain can point to a distinguished military record, but what have Hillary Clinton or Barack Obama ever done? Our politicians are less representative of the people they serve than ever, and it's not a good thing.
Margaret Thatcher was a grocer's daughter who succeeded in getting into Oxford. After graduating she worked as an industrial chemist, then studied law in her spare time and practised at the Bar. Her great rival, Edward Heath, who also featured in the show, was the son of a builder. He also went to Oxford, fought with some distinction in the war and then worked in finance before entering politics. He was a professional-quality musician and once took time off from running the country to enter -- and win -- the Sydney-Hobart yacht race.
Both Thatcher and Heath were political obsessives, but they had talents that went beyond the spin and chicanery of modern Government. Contrast them with today's bunch. Gordon Brown is supposed to be massively intelligent, but there's no indication that he has any outside skills or interests whatsoever, unless you count Raith Rovers. What has David Cameron ever done outside politics, or Willam Hague or any of the rest of the Tory front bench? Sure, there are all sorts of professions represented in the House of Commons, especially lawyers and teachers, but for the most part these are just lobby fodder. The leadership jobs go to the professional politicians -- people who have not merely, in the old phrase, never had to meet a payroll: they've never even been on one.
This is not just a UK phenomenon. John McCain can point to a distinguished military record, but what have Hillary Clinton or Barack Obama ever done? Our politicians are less representative of the people they serve than ever, and it's not a good thing.
Wednesday 11 June 2008
NOW they're getting it
I've written here a number of times that it makes little sense to assume that the cure for the global credit crunch is to cut interest rates. The credit crunch is the result of years of excessively lax monetary policy, primarily in the United States. How can you expect to fix it by doing more of the same?
The major central banks seem to be coming to the same conclusion. The ECB, which never joined in with the Anglo-Saxon cheap money frenzy with any great enthusiasm, has given a pretty clear hint that its next rate move will be an increase. Eurozone inflation is way above the 2% target (which is, admittedly, honoured mainly in the breach) and the economy is holding up reasonably well, so in the ECB's mind there is nothing standing in the way of a cautionary rate hike during the summer. (As an aside, does the ECB now have any rival as the most credible central bank out there, apart from perhaps the Reserve Bank of Australia?)
At the Bank of England, gloom over the economy seems to be deepening. However, soaring industrial prices (input costs up more than 8% in the past year) portend further rises in consumer inflation and all but rule out further rate cuts.
Then there's the Fed. Chairman Bernanke has followed the dubious example of the "maestro" Greenspan in easing aggressively, but now seems to be calling a halt. His optimism that the worst of the crisis is over may well prove premature, but his comments about the feedback between the weak dollar and domestic inflation suggest a change in emphasis, with markets even speculating about higher rates by August. (Well, who'd have guessed that the lowest rates in history would eventually lead to inflationary pressures? Not Greenspan, for sure). It's a sign of changing times that Bernanke is even talking about the dollar. Usually it's a subject that Fed chairmen leave to the Treasury Secretary, who generally mouths meaningless cliches like "this administration supports a strong dollar".
The best reason for putting an end to the rate cuts is that they aren't helping the economy, but they are adding to price pressures. Here in the UK the Bank of England's easing moves have generally been followed without any delay by lending rate INCREASES by the major banks. In the wholesale money markets, the spread between interbank rates and the Bank of England rate, which is normally in single figures, is stuck near 80 basis points. Even ten months or more into the crisis, banks simply don't trust each other the way they used to. Until they do, monetary easing will be like pushing on a string. It's not quite a Keynesian liquidity trap, because rates are not yet down to zero, but it's the next worst thing.
There is a way out, of course, though it's not going to be the short and painless one that politicians would like to see. The shakeout in the banking system, of which Northern Rock in the UK and Bear Stearns in the US are conspicuous examples, is the markets' way of winnowing out those who overreached during the boom years. On the other side of the coin, capital-raising measures, including equity injections into large US banks by sovereign wealth funds and equity rights issues by UK banks, will bolster the survivors.
Once markets are sure that all the dirty linen has been aired and all the bad guys have been retired to the sidelines, banks will start lending again. While we wait for that to happen, central banks need to make sure not to get in the way, but there is no point -- and considerable inflationary risk -- in their trying to chivvy the process along by cutting rates any further.
The major central banks seem to be coming to the same conclusion. The ECB, which never joined in with the Anglo-Saxon cheap money frenzy with any great enthusiasm, has given a pretty clear hint that its next rate move will be an increase. Eurozone inflation is way above the 2% target (which is, admittedly, honoured mainly in the breach) and the economy is holding up reasonably well, so in the ECB's mind there is nothing standing in the way of a cautionary rate hike during the summer. (As an aside, does the ECB now have any rival as the most credible central bank out there, apart from perhaps the Reserve Bank of Australia?)
At the Bank of England, gloom over the economy seems to be deepening. However, soaring industrial prices (input costs up more than 8% in the past year) portend further rises in consumer inflation and all but rule out further rate cuts.
Then there's the Fed. Chairman Bernanke has followed the dubious example of the "maestro" Greenspan in easing aggressively, but now seems to be calling a halt. His optimism that the worst of the crisis is over may well prove premature, but his comments about the feedback between the weak dollar and domestic inflation suggest a change in emphasis, with markets even speculating about higher rates by August. (Well, who'd have guessed that the lowest rates in history would eventually lead to inflationary pressures? Not Greenspan, for sure). It's a sign of changing times that Bernanke is even talking about the dollar. Usually it's a subject that Fed chairmen leave to the Treasury Secretary, who generally mouths meaningless cliches like "this administration supports a strong dollar".
The best reason for putting an end to the rate cuts is that they aren't helping the economy, but they are adding to price pressures. Here in the UK the Bank of England's easing moves have generally been followed without any delay by lending rate INCREASES by the major banks. In the wholesale money markets, the spread between interbank rates and the Bank of England rate, which is normally in single figures, is stuck near 80 basis points. Even ten months or more into the crisis, banks simply don't trust each other the way they used to. Until they do, monetary easing will be like pushing on a string. It's not quite a Keynesian liquidity trap, because rates are not yet down to zero, but it's the next worst thing.
There is a way out, of course, though it's not going to be the short and painless one that politicians would like to see. The shakeout in the banking system, of which Northern Rock in the UK and Bear Stearns in the US are conspicuous examples, is the markets' way of winnowing out those who overreached during the boom years. On the other side of the coin, capital-raising measures, including equity injections into large US banks by sovereign wealth funds and equity rights issues by UK banks, will bolster the survivors.
Once markets are sure that all the dirty linen has been aired and all the bad guys have been retired to the sidelines, banks will start lending again. While we wait for that to happen, central banks need to make sure not to get in the way, but there is no point -- and considerable inflationary risk -- in their trying to chivvy the process along by cutting rates any further.
Sunday 1 June 2008
Good question!!
Apologies for yet another post on fuel costs, but I heard an interesting exchange on BBC News's Question Time last night. The Government was represented by the almost-forgotten Geoff Hoon, never a good idea, and there were three lesser lights from other parties.
Inevitably the first question was about fuel costs, and whether the Government would cut excise duties to ease the burden on consumers. Hoon launched into a boilerplate New Labour spiel about how the Government needed tax revenues to pay for health, education, policing and so on -- no mention, you may notice, of the expensive weapons programmes that Hoon was in charge of when he was defence minister.
The questioner listened to all of this, then with a butter-wouldn't-melt expression asked this simple but brilliant follow-up question: "Can I just ask how you were planning to pay for all of these things if the cost of energy hadn't skyrocketed?"
Inevitably the first question was about fuel costs, and whether the Government would cut excise duties to ease the burden on consumers. Hoon launched into a boilerplate New Labour spiel about how the Government needed tax revenues to pay for health, education, policing and so on -- no mention, you may notice, of the expensive weapons programmes that Hoon was in charge of when he was defence minister.
The questioner listened to all of this, then with a butter-wouldn't-melt expression asked this simple but brilliant follow-up question: "Can I just ask how you were planning to pay for all of these things if the cost of energy hadn't skyrocketed?"
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