BA's real mistake

Boy, are the media ever having fun with the opening day problems at Heathrow Terminal 5! BBC News 24 even had Max Clifford on just now, saying how he would have handled the PR side of the debacle. He said he might have delayed the opening until April 1, in the hope that passengers might assume it was just an April Fool's stunt. He was making a joke (and I know it isn't funny, but this is Max Clifford we're talking about), but actually, he's sort of right. Here's why.

For almost two decades while I was living in Canada, up until I left in 1998, I was an exceptionally frequent flyer. At the time Toronto Airport was pretty inadequate: the original terminal was known as "Turmoil 1", the Air Canada terminal had originally been designed as a freight depot. (They're both gone now, in case you're planning a visit this year). Add in Canadian winter weather and a near-monopoly government-owned carrier (Air Canada), and you had a recipe for an awful travel experience. A radio comedy show once came out with the line, "we needed to get there in the worst way, so we flew Air Canada".

Fifty weeks of the year, I and the rest of the business community put up with this, with absolutely zero attention from the media. But for two weeks of the year, the routine chaos at Toronto airport was front page news in the local media. That was the annual "March break" getaway, when half the country would flee to warmer climes at the end of another harsh Canadian winter. People like me travelling at full fare every week of the year could like it or lump it, but if Mr and Mrs Ontario and their sprogs paying six bits to head down to St Pete's for a week were delayed, it was all over the front pages.

So where BA (or BAA) went wrong was in opening T5 while the Easter school break was in progress. If they'd waited another week, they might have had just as many problems, but they probably wouldn't have got nearly as much press coverage.

Sick transit

It's reported that negotiations between the Department of Transport and Virgin Trains, aimed at adding more carriages to trains on the West Coast Main Line, have ended in failure. The DoT apparently feels it has given too much away to Virgin in past negotiations and doesn't want to get fooled again. Passenger numbers on the line have risen dramatically and the trains are already extremely overcrowded. If this was really a market-driven business, Virgin itself would pay to add more capacity, but of course the franchise system is such a mess that it can't do this. Instead, it's likely that Virgin will raise fares in order to discourage people from taking the train.

That's not even the worst of it. The DoT will, in fact, start adding carriages in 2012, after Virgin's franchise ends. But it will only add them to about two-thirds of the trains, and may be considering splitting the franchise in two, which would force passengers travelling from Glasgow to London to change trains at Preston. You have to ask yourself whether Ryanair and EasyJet are helping the DoT to set policy for the railways, except that they would probably be more subtle about it.

Mind you, it's not just the railways that make you want to throw up your hands in despair. Several airlines are likely to sue the Civil Aviation Authority over its recent decision to allow BAA, the owner of all the main London airports, to boost landing charges dramatically in order to service its massive debt burden. Like the railway franchises, privatisation of the airports has been a major disaster, combining the worst features of private and public monopolies.

Separately, it appears that the DoT has connived in the manipulation of key pollution and traffic data in order to justify the further expansion of Heathrow, the world's worst-located major airport. So huge piles of money will be spent on more capacity at Heathrow, while nobody can figure out how to lengthen the West Coast trains. Next time Gordon Brown talks up his government's green credentials, or Alastair Darling tells you that petrol taxes have to rise to protect the environment, feel free to flip them the bird.

Main Street gets it right

Yesterday, as the Fed was in the process of cutting the funds target to a sharply negative level in real terms, I happened to catch a glimpse of a CNBC survey of what Americans are worried about. Unfortunately I can't find it on the CNBC website, but I got the gist of it. CNBC asked people to say which of four economic outcomes they were worried about: higher inflation, falling stock prices, job losses or falling house prices. You could pick more than one. Just over 50% were worried about jobs and housing; 40% were worried about falling stock prices; and almost two-thirds -- 65% -- were worried about inflation.

Yes, even after months of scary stories about recession and banking failures, a majority of Americans appear to want the Fed to do something it was set up to do -- protect the value of the currency. Only 40% of them want it to do what it sometimes seems to be most concerned about doing -- stopping the stock market from falling. I've mentioned before that amid all the screaming and yelling on CNBC's morning business coverage, there's one guy, speaking from the floor of the Chicago exchange, who never tires of saying that the Fed can cut rates to zero if it wants: it won't be able to prevent the wrenching economic adjustment that years of excess have made inevitable. That guy's right.

The Fed has an unenviable job right now, especially in a US election year. But Bernanke and his pals need to be very sure that the palliative measures they take to ease the impact of the credit crunch don't set the stage for a two-decade battle to get inflation back under control.

Anyone seen the Maestro?

Immediately after his retirement in early 2006, Alan Greenspan was ubiquitous. Things quieted down a bit after that, but he could still be found at conferences and in the media, doing his bit to rewrite history in his own favour. He kept it up at the beginning of the credit crisis, too, but he's gone very quiet in recent weeks. He spoke at something called the Jeddah Forum in February, but he doesn't seem to be making as much of an effort as he once did to keep up his profile.

I wonder why. Maybe he's finding it hard to get insurance. I am a Greenspanophobe from way back, but lately I'm finding that bandwagon to be a bit crowded. People recognise that there's a key causal link between the idiotic monetary policies of the Greenspan years and the appalling mess in which the US financial system now finds itself, with unthinkable consequences for the entire global economy.

I did dig out a fairly recent piece by Greenspan, in the WSJ in December, where he offered his take on the credit crisis at that point in time. He tried to make out that it wasn't his fault, of course, but then (presumably inadvertently) explained exactly why it was. He blamed the very low pricing of risk in the years leading up to last summer's crunch, noting that such episodes had always ended in tears in the past.

Well now: why might risk have been underpriced since the start of the current century? Could it possibly have been because investors had been convinced by the behaviour of the Fed that it would always bail them out of any mistakes? Markets called that the "Greenspan put". History is more likely to remember him for that than for his supposed achievement in keeping US inflation low for so long -- credit for which has always rightly belonged in Beijing.

Oh won't you stay

So Alastair Darling has gone ahead with his £30,000 per year tax on "non-doms" who have been living in the UK for seven years or more. The Labour government has been agonising over the unique tax break given to these folks ever since coming to power, but until now it has been deterred by warnings that all these, ahem, rich and dynamic folks will leave the country in a huff, crippling the financial sector -- which is, let's face it, about the only globally-competitive industry we have left. These warnings were heard again this time, while from the other side the TUC and others argued for much more stringent measures.

I have trouble coming to a clear view on this. When I returned to the UK in 1998, after well over 20 years in Canada, I was allowed non-dom status. This didn't stop me paying a juicy amount of tax in the UK over the next ten years, but it meant I could keep the nest-egg that I'd accumulated while in Canada free from tax, as long as I left it offshore. Once I decided to retire in the UK, it was clear to me that I could no longer justify claiming to be non-domiciled, and I started to pay tax on all of my income, including the money held offshore.

Aside from the fact that I was born in the UK (and had never heard of the non-dom rules until I returned here), I think my case exactly illustrates what these rules are supposed to achieve. It seems quite reasonable that people moving to the UK for work, with a very high probability of returning to their permanent home within a few years, can keep their savings away from the UK taxman, given that none of the money has been earned or will ever be spent here. And they may well be paying tax to their home jurisdiction while in the UK anyway: the US, the largest single supplier of non-doms to the UK, taxes its citizens on their worldwide income.

In my case, I gave up non-dom status after eight years. Under Darling's new rules I'd have had to give it up after seven, or start paying his levy. Faced with the choice I'd have given up the non-dom status, so the new rules would have had no major impact on me. I suspect the same is true for most of the non-doms in the financial sector -- most are back home long before the allowed seven years are up. So concerns over the City suddenly emptying out are probably wildly exaggerated.

However, many of today's non-doms aren't rich, dynamic bankers like wot I was. A couple of issues ago, Private Eye ran a spoof ad in support of the non-doms' case to remain untaxed. Its non-doms included "Oligarski Sonovabitch", Russia's richest man, "Bakshish Bakhanda", a "samosas to steel tycoon", and "Don Corblimeone", a mafioso. These characters may be fictional, but the types they represent make up an increasing share of the non-dom population. It's hard to see what they do for the economy, apart from pushing up house prices and boosting the trade deficit by importing luxury goods.

Are any of these people going to leave as a result of a £30,000 tax? The money itself is a fleabite. Many of these people are in London because of its lifestle and perceived safety. I've always said that Roman Abramovich didn't move to London to launder his money, but to launder himself: as a public figure in London, he's largely immune to any recriminations from Moscow for his past activities, unlike some of his fellow tycoons who stayed at home. Roman and his like are not leaving, so you could argue that the Chancellor could have gone after them a bit harder.

All in all, then, I think the Government may have got this one about right. Inevitably there will be some TV coverage in the next while of some supposed fatcat boarding his private jet at Farnborough with his trophy wife and his suite of Louis Vuitton luggage, but I think the economy will survive the shock. The new measures are not going to raise much money, but at least they create the impression that the Government has done something to make the tax system just a little bit fairer.

I wish I was as clever as you, Patrick

Patrick Hosking's "Business Commentary" in the Times today (11 March) has a piece entitled "Is weak dollar boosting oil?". Can it possibly be true? No, I don't mean can it possibly be true that the weak US dollar is boosting the (dollar denominated) oil price. I mean, can it possibly be true that a supposed business journalist has only just figured this out?

I can only assume that Hosking was hired to make Anatole Kaletsky look smart. Amazingly enough, he may be up to the job.

The wrong target for abuse

As some one who once wore an RAF uniform, albeit a stunningly ill-fitting one provided by my school cadet force, I'm saddened to read that uniformed RAF personnel are being yelled at by "yobbos" on the streets in Peterborough. Mind you, based on my brief visits to that city in the past, I don't think you have to be in uniform to get targeted for abuse.

But in a sense I understand it. How else can anyone, even a yobbo, express an opinion against the Iraq war these days? (How convenient that they're yobbos, by the way. It would be much harder for the Government to dismiss them if they turned out to be middle class or middle aged. It's a wonder the term "chavs" hasn't been dusted off for the occasion). As many as two million people in London protested peacefully against the war before it even began, without any noticeable effect on the Government. And you're not likely to meet Gordon Brown or any of his colleagues on the streets of Peterborough or any other city these days, so you don't have any opportunity to let them know how you feel.

I doubt if any of the "yobbos" harbours any bad feelings toward our servicemen: it's the politicians they want to send a message to. The mayor of Peterborough has reacted to the abuse by arguing that "a small minority of people shouldn't be able to dictate to us". Now there's a funny thing, madam Mayor: that's what a lot of people think about the decision to go to war.

We need protection from these morons

Much of the coverage of the US primary season has focused on the personal attacks that the candidates are pleased to launch on each other: Obama may be a Muslim, McCain had an affair with a younger woman, that kind of thing. There hasn't been much coverage of the substantive issues. This may be just as well, however, because the standard of the discussion on key policy areas has been abysmally low.

This week, for instance, Hillary Clinton has pounced on a report that Barack Obama has told the Canadian Government that his rhetoric on trade protection and the NAFTA agreement is just playing to the crowds, and that he won't be tearing up the free trade deal if he becomes President. See, says Hillary -- he's not a real protectionist like me.

Protectionism goes with US elections like flatulence with burritos. When the US went wildly isolationist and protectionist in the 1930s, it managed to turn the Great Crash into the Great Depression. But the Democrats, in particular, can never resist the temptation, especially in the run-up to a Primary in a rust belt state like Ohio.

The plain truth is that the US economy has only ever prospered through taking in resources from the rest of the world. Back in the 19th century it was people and capital; for most of the 20th it was people and oil. And now? Well, with George Bush pursuing expensive and unpopular foreign adventures while trying not to deprive the US public of their bread and circuses, what the US needs is someone who will supply it with lots of cheap goods without worrying too much about getting paid on time. Step forward, China, Korea and India! As the great Warren Buffett said this week, if you can persuade foreign countries to send you $250 billion of stuff every year in exchange for bits of paper, that's a pretty good gig, and you should be careful not to rock the boat.

The US economy is all about consumption: it accounts for over 70% of GDP, more than 10 percentage points higher than in the rest of the developed world. Capital formation? Exports? Savings? Fuhgeddaboudit!! Any swing back into protectionism risks turning the credit crisis (entirely caused, lest we forget, by the idiotic and irresponsible monetary policies of the Greenspan era) into a rerun of the great depression. Let's hope that Obama and Clinton are both playing games: that he really is a fake protectionist, and that she's only pretending to be a real one.