Flying leap (of logic)

The airport we all love to hate, London Heathrow, comes in for another pasting in the press today, with a "confidential" report revealing that airline passengers rate it only 99th best in the world. The Times actually deemed this so important that it made the story its front page lead, but as The Times electronic content is behind the Great Paywall of Murdoch, here is a link to the story in the Telegraph.

I've passed through a lot of airports over the years (probably around a hundred) and yield to none in my dislike for the LHR experience. Still, I can't help thinking that this survey is a bit unfair on Heathrow; and if the idea is to force the government to revive the idea of a third runway there, which it probably is, then it might well be counterproductive.

Let's look at the unfairness of the survey first. It will surprise no-one to learn that Asian airports dominate the top positions: Singapore Changi first, Seoul Incheon second, Hong Kong Chek Lap Kok third. (It would have been interesting to know where the old Kai Tak might have figured, especially with nervous flyers!) Some of the others in the top ten, however, raise a few eyebrows: El Ain in the UAE, Jackson (Miss.) in the US, Humberside in the UK. They may all provide a wonderful travel experience, but those three probably handle fewer flights in a year than Heathrow does in a week, so they're hardly an appropriate comparator group.

In fact, if we look at airports that might be regarded as Heathrow's peers, a rather surprising picture emerges. Frankfurt? Comes in 127th in the survey. Paris CDG is 134th (out of 136!). Even the sainted Amsterdam Schiphol, supposedly the gold standard for European airports, barely edges ahead of Heathrow, ranking 93rd*. According to proponents of a third runway at Heathrow, each of those airports has invested in new runways and/or terminals and is just about to oust Heathrow as Europe's main long-distance hub. Evidently, if this survey is anything to go by, that won't add anything to the sum of travellers' happiness, so the threat is unlikely to have Heathrow's owner, BAA, quaking in its flying boots.

In these days of tight security and "cheap" fares, flying is never going to be a whole lot of fun. Business people just have to live with it week in and week out; leisure travellers can pick and choose so as to avoid the worst airports at the busiest times. Not that there's much relief for Londoners, though: both Gatwick and Stansted rated below Heathrow in the survey. Anyone know how far is it to Humberside?

* One possible reason: the newest runway at Schiphol is so far from the terminal that the time spent taxiing after landing is almost aa long as the time spent in the air on a flight from London.

Consider the alternatives

Sadly but predictably, media coverage of Saturday's demonstrations in London against the government's fiscal plans has focused on the mayhem and vandalism of a few hundred thugs in Trafalgar Square, rather than the peaceful march staged by as many as 500,000 protesters earlier in the day. Not, of course, that most of the press was ever going to give the Trades Union Congress and its supporters much of a hearing. For the most part, the media's mantra is that opponents of the spending cuts offer no alternative, or at least, not a palatable one. Here, in typically colourful style, is London Mayor Boris Johnson, writing in the Daily Telegraph:

So that's the alternative, eh! I was starting to wonder. After all those strategy reviews, all those blank bits of paper, we have finally heard Labour's response to the fiscal crisis bequeathed to the nation by Gordon Brown. The plan is to get a load of aggressive crusties and Lefties to attack the Ritz hotel, to storm Fortnum's, and to cause so much argy-bargy that 4,500 police officers are obliged to waste their time (and our money) in putting out the bonfires and controlling events as peacefully as they can.

At least that's entertaining, though non-UK readers may need a translation. Over at the Spectator, Alex Massie offers a more succinct verdict on the leader of the Labour Party, who addressed Saturday's rally:

I don't think there's any point in pretending that Ed Miliband is not an idiot.

Equally, one might think, there's no point in the media pretending that those opposed to the government's present course have no alternative to offer. Take Ed Miliband's party, for instance. Before last year's election, Labour said it would attempt to cut the budget deficit in half over a four-year period, and even announced the first stage of such a programme in a budget that was stillborn when the election was called. It may be that new Shadow Chancellor Ed Balls is not entirely on board with that, but it remains the party's official policy. Arguably, in fact, Labour has been more consistent in its approach to the deficit than the two coalition parties: you'd struggle to find anything in the Tory election manifesto, and still less in that of the LibDems, that would have warned you of exactly what they would do once in office. It's too soon to tell whether the coalition is cutting too sharply, as Labour is suggesting, but it's certainly a defensible argument.

Of course, many of Saturday's protesters might favour a different approach. For example, Bob Crow, the rail union leader, thinks the alternative to spending cuts is a tax on e-mails, which according to one estimate would raise only £12 million a year, and might be the easiest-to-avoid tax ever devised. (Memo to Bob Crow: maybe a tax on text messages would be a better idea, though you'd risk bankrupting every family in the country with teenage children).

More practically, the TUC leader Brendan Barber thinks the solution is a "Robin Hood tax" on the banks. This certainly hits the populist buttons right now, and it seems to be part of the Labour Party's thinking as well. Given the scale of the fiscal mess, it's hard to see such a tax making a huge dent in the deficit, and with the momentum for financial reform around the globe seemingly fading, there would be a risk of banks leaving London for less hostile climes. Still, it's an alternative approach, or at least part of one, as Messrs Johnson and Massie should acknowledge.

The government has stated that Saturday's events will not deflect it from its chosen fiscal course. It may well get away with that for the time being, as long as legitimate protests get pushed off the front pages by scenes of violence, and as long as the media keeps parroting the old Thatcherite line that "there is no alternative". Whether it's going to work is a different question altogether, and one that may not even be fully answered by the time the next election rolls around in 2014.

Bloggers or journalists: who can you trust?

Blogging seems to have been around forever, and we bloggers now have to share space on the internet with the increasingly sophisticated websites of the "old media". Even though many traditional journalists now write blogs and tweets alongside their regular output, relations between the practitioners of old and new media remain frosty. Bloggers deride the print media as "dead trees", while "real" journalists portray bloggers as fact-dodging dilettantes or fanatics.

Whereas "real" journalists are scrupulous to ensure accuracy, right? Well, an informal newspaper survey this week (i.e. stuff I've been reading) reveals an article on tax avoidance in the UK that offered an explanation of "employee benefits trusts" that was exactly 180 degrees away from the truth; an insanely complicated graphic of world oil production in which the country marked as Libya was in fact Algeria; and a property survey in which the verbal description of where a particular town was located was directly contradicted by a map right next to the incorrect portion of the text. (My source of expertise here: I was born in the town in question).

None of these trivial and tedious little errors can possibly fit the old journalistic cliche of "a fact too good to check" (i.e a fact that so perfectly proves the point you are trying to make that you don't want to risk finding out it's wrong). No, all three are the result of journalistic sloppiness, plain and simple. In each case the journalist didn't bother getting it right and the subs didn't know it was wrong.

A dozen years ago there was a major journalistic scandal at the much-admired US news magazine, New Republic*. Its star journalist of the day, a callow youth named Stephen Glass**, was found to have faked, entirely or in part, about two-thirds of the feature articles he had authored for the magazine. The story was made into a low-key Hollywood movie, "Shattered Glass", which aired on TV in the UK this week. (Originally when I posted this I called the movie "Broken Glass", but when I checked later I realised I'd got it wrong. This definitely proves something, but I've no idea what it is). Through the sheer strength of his imagination and the excellence of his writing, Glass was able to overcome the rigorous fact verification that was supposed to precede the publication of every article. It transpired that having concocted his stories, often out of thin air, he would simply invent the research and interview notes to support them. Every story was, in the eyes of his superiors, too good to check.

Nobody checks this blog, which is why you will sometimes find typos in it. And I don't have time to go back to original sources for all the things I write about, though I do try to provide links when possible, so that readers can check what I'm saying for themselves, if they want. Many bloggers do the same -- Chris Dillow, for example, writes far more rigorously and provides far more references and links than any "real" journalist on business and politics that I'm aware of.

The key difference between bloggers and journalists, however, and one that I'd say works in favour of bloggers, is this: bloggers only write when they have something to say about something that interests them, whereas journalists have to fill the pages every day, writing against deadlines and with an editor leaning over their shoulder. (Jerry Seinfeld once said that it was amazing that the amount of news that happened every day always exactly matched the amount of space in the newspapers). I'd bet that the three little errors I cited above arose because the journalists in question were writing about something they had never thought about before and might never think about again, and doing it with a deadline to meet into the bargain. In common with most bloggers, I don't have to worry about those things.

So, reader, if you want to be reasonably certain of getting a full spectrum of news, you need to read the papers. You won't get that from the blogosphere. But if you want opinions from people who actually care about the subjects they write about, and don't have to reflect anyone's views but their own, you might be better off following a variety of bloggers. And unlike the NYT, Wall St Journal or The Times, none of us has yet figured out a way to make you pay for the privilege.

* NR used to brag that it was "the inflight magazine of Air Force One". Really? I'd have thought in the Clinton era that was probably "Playboy", and under Bush Jr, "People" or maybe a Li'l Abner omnibus edition.

** After leaving journalism, Glass wrote a novel called "The Fabulist". Guess what it's about.

UK budget: short-term gain for long-term pain

The measures Chancellor George Osborne announced today to encourage greater charitable giving can be seen as a microcosm of the coalition government's overall approach to the economy. Simplification of the Gift Aid rules (yay! no more of those silly little forms!) and provision of an inheritance tax cut for those willing to give 10% of their estate to charity will no doubt benefit a lot of good causes. It's the only measure in the budget that's overtly inspired by the government's "Big Society" agenda.

One-offs like Red Nose Day aside, the UK generally lags behind many other wealthy countries, especially the United States, in charitable giving. It's always seemed likely that this relates to the ever-expanding spread of the state: if the government claims it can solve all of society's problems, and taxes you to the hilt in order to do so, why do you need to be generous to charities? (I'm not endorsing this line of reasoning, just reporting it). As public spending cuts bite in the next few years, improved incentives for charitable giving may help charities to raise the funds they need to fill the gap. The problem is, the government can only actually guarantee one half of this outcome. It can cut spending all right, but it can't guarantee that charitable giving will rise quickly enough (or at all) to ensure that nobody gets left by the wayside.

This is a microcosm for the government's overall approach because they're trying to achieve much the same thing in a macro policy sense. The loss of thousands of public sector jobs in the coming years is an inevitable consequence of the policies the government has adopted, whereas the hoped-for jump in private sector employment is much less certain. Very much less certain, in fact: the GDP growth forecast for 2011 and 2012 has been revised down again, so the overall level of employment is now forecast to be lower than the government had previously hoped. Unsurprisingly, this also means that the budget deficit is now forecast to decline more slowly than the coalition predicted in its emergency mini-budget last summer.

In truth, this was not so much a fresh budget as a series of headline-grabbing populist measures that the Chancellor surely hopes will divert public attention from the fact that all the tough spending measures announced since the election are just about to bite. That's not to say that today's measures are wrong in themselves: for example, raising the minimum threshold for income tax is a progressive step, and the replacement of inflation-plus fuel tax rises with a "fair fuel stabiliser" should both ease the near-term burden on households and make the task of policymakers easier, by curbing inflation expectations. However, these things are not the real story, something we are all set to discover in the coming months as the planned multi-year reduction in public spending really gets rolling. Next time someone in the family falls sick, the dash to the hospital may cost you a bit less in fuel, but that won't be much consolation if the A & E has closed down.

The price is right, ou peut-etre non

Back, with an audible sigh of relief from writer and esteemed reader alike, to economics. There's a general feeling in the UK that the although the official consumer price indices (CPI and the older RPI) are way above the 2% official target, they're still seriously understating the true pressure on household finances. There are several factors at play here.

There are certain products whose price everyone knows. Fuel is the most obvious example, and it's been rising sharply for several months. (US readers may not be aware that in the UK we are now paying the equivalent of more than $10 per gallon for unleaded -- so please quit yer bitchin' about your own gas prices!) Lots of household staples are seeing similar increases, thanks to the rise in global commodity prices. Making generalised judgments on the basis of such partial and anecdotal evidence is known as the "availability heuristic" and everyone does it, even economists when they think nobody is looking.

One of the functions of official price indices is to avoid the availability heuristic and provide a scientific measure of overall price levels -- not just what it costs to fill the tank and buy a loaf of bread, but a broad spectrum of products. To do this, statistical agencies compile a notional basket of goods and services, reflecting actual household spending patterns. They then check the prices for the stuff in the basket each month, correct for seasonal factors (because strawberries are cheaper in summer than in winter, for example), and publish an index that everyone can, supposedly, rely on and use.

You don't need to be an economist to see the problems with this. It's perfectly possible to compute "actual household spending patterns" across the whole population, but there's probably no individual household whose own actual spending matches the average, so everyone is likely to have at least a small quibble with the index, if they bother to think about it. What's more, patterns of spending change across each individual's life cycle. For example, I no longer care very much if rail fares are rising sharply, whereas a few years ago, when I was commuting daily into London, it was a big item for me. In my case, at least, the inclusion of rail fares in the basket of goods biases the index upwards.

The selection of goods in the basket is, in fact, a particularly fraught issue, because spending patterns change over time, so things have to be added and subtracted. In the UK, the ONS just carried out this exercise, and raised more than a few eyebrows in the process. Mobile phone ringtone prices are no longer measured, but phone apps and online dating services are in the basket for the first time. Convenience foods (prepared roasts of meat, for example) are now given greater weight, at the expense of less-processed food products. And so on. This may all reflect actual spending patterns (though not mine!), but it's unlikely to cut much ice with the middle-income commuter faced with spending £80 every time he fills up the car.

It's not just an issue in the UK, of course, and today an interesting story reaches us from France. That country's CPI rose 1.7% in the year to February, a figure which apparently nobody finds remotely realistic, for much the same reasons as in the UK. In response, the national statistical agency is going to introduce a simplified "basket of essentials" whose price it will compute each month. They really will be essentials, too: only twenty items -- bread and milk and cheese, rather than apps and dating fees.

Problem solved then, right? Well, probably not. It's unlikely that Carrefour and Auchan and the rest want to take the blame for the squeeze on French living standards, so there's every likelihood that they'll find ways to keep the lid on the prices of the relatively few items in the basket, compensating by boosting the prices of non-"essential" items just that little bit more. Which is more or less where we came in, of course: unless by some statistical freak your consumption pattern exactly matches the "basket of essentials", you're still going to suspect that the official inflation figures are understated.

Folding like a cheap tent?

It's hard to decide which is the more surprising: the international community, after weeks of dithering over the imposition of a no-fly zone in Libya, suddenly agreeing to something much more robust; or the Libyan regime, announcing a ceasefire within hours of the passage of the UN resolution. Interesting, by the way, that it wasn't Col. Gadhafi himself who made that announcement.

The experts' views on Libya's military capabilities seem reasonable, at least to this non-military observer. Gadhafi may be a fearsome monster at home, but his military poses little threat to anyone. It was reported early in the conflict that Libya spends less of its budget on its armed forces than Sweden does. As a direct result, the country's airforce mainly consists of obsolete Russian fighter-bombers, and its armoured vehicles are little better. Significantly, the Libyan army itself is a small and feeble thing, thanks to Gadhafi's paranoia, undoubtedly fully justified, about the risk of a coup against him. Much of the recent fighting against the rebels has been carried out by foreign mercenaries, Touaregs and others from further afield, brought in by the planeload since the uprising began. This is not a fighting force that can be expected to stay around once Predator drones start circling overhead, firing heat-seeking missiles.

If, as this suggests, it was always likely to be easy to rein Gadhafi in, then why did it take so long to bring a resolution in front of the UN? The answer must surely have something to do with the events prior to the invasion of Iraq in 2003. There's a recently-released movie called "Fair Game" that tells the story of an alleged plot to ship 500 tonnes of yellow-cake uranium from Niger to Iraq, a plot that formed much of the case concocted by the Bush administration to get UN support for an attack on Iraq. A former US diplomat, Joe Wilson, employed by the CIA to uncover the truth of this tale, quickly concluded that it was fictional. Far from dropping the story, the response of the White House was a vicious campaign to ruin the lives and reputations of Wilson and his wife, Valerie Plame, herself a CIA operative.

Not many people have seen "Fair Game", but a large number of people in the US, UK and elsewhere remain convinced that they were deliberately misled by their governments in the run-up to the Iraq invasion. So, undoubtedly, do a lot of the countries at the UN who were bamboozled into supporting the so-called "coalition of the willing" back then. It's hardly surprising that the Obama administration has been extremely reluctant to go down the same path on this occasion. A no-fly zone probably wouldn't have been imposed even now if it were not for the fact that the Arab League indicated last weekend that it would support one, and even help to enforce it. Once that happened, even Russia and China, who might have been expected to oppose action over Libya on their usual "non-interference" grounds, could do no more than abstain in the UN vote.

Better late than never, then? That depends on what happens on the ground in Libya in the coming days and weeks. Early indications are that the announced ceasefire has had little effect on the level of fighting. However, it seems quite clear that painful memories of the mendacious case for a needless war in Iraq, and the quagmire that has resulted there, made it much harder to agree on what could yet be a much easier task in Libya.

Papering the Olympic Stadium

Arguably I've already ranted more than enough here about the London Olympic Games, but as the tickets went on sale today (500 days before the opening ceremony), I'll indulge myself one more time*. Mark Littlewood, of the Institute for Economic Affairs, thinks he should be allowed to tout the tickets for the Games if he wants to. Not sure I agree with that, but I like his introductory comments, published in today's Times:

Lord Coe wants to ensure that the 2012 Olympics are the greatest show on Earth, rather than the greatest scam. The British taxpayer will feel it’s a bit late in the day for such sentiments. We’re already spending more than £9 billion on hosting what basically amounts to a fortnight of people running, jumping and throwing things around in our capital city.

But of course, the chairman of the London Organising Committee of the Olympic Games isn’t referring to the egregious waste of public money; he’s underscoring his determination to prevent the little guy from making any sort of a profit out of the 2012 fiasco.

There are 6.6 million tickets available for online purchase (Visa cards only please, which is another point of contention). This seems a very precise number, but remarkably, the Organising Committee (known as LOCOG) is unable to say how many tickets for the showcase events, like the men's 100 metres, will be available to the general public. Presumably the answer to that will depend on how many they can sucker corporate buyers into taking, at extremely fancy prices: according to a report on the BBC this lunchtime, some of the ticket "packages" will set you back a cool £250,000. Try making money out of touting those, Mark Littlewood!

The same BBC report asked 20 companies who habitually entertain clients at big sporting events how many Olympic tickets they were planning to take. The answer: none. The same may well apply to local governments, for whom tickets have thoughtfully been set aside. Eight of the 33 local authorities in the greater London area have already decided not to take their allocation. A councillor from Camden, one of the eight, explained that at a time of crimped budgets, the council had to spend what money it had on frontline services.

LOCOG's "budget" requires it to raise £500 million from ticket sales, and Lord Coe says the aim is to sell every ticket for every event. The latter goal will surely not be met: there can't be much demand to watch marathon swimming, or obscure wrestling diciplines, or the opening rounds of the football competitions (one of a number of sports that probably shouldn't be in the Olympics anyway, though that's not LOCOG's fault). But there's also a clear risk that the overall revenue goal won't be reached either. No doubt the venues will look full for the key events, but even that may well only be achieved through the old theatrical trick of "papering the room" -- literally giving the tickets away to anyone who's prepared to show up. Not that Lord Coe and LOCOG will ever 'fess up to that.

* Just to be clear, I love sports, I enjoy the Olympics and I will no doubt be watching on TV next summer. What I object to is vast amounts of public money being spent on rich people's vanity projects.

Economic aftershocks

The apocalyptic images of the destruction wrought in Japan by Friday's massive earthquake and the resulting tsunami will live long in the memory. On the whole you would have to say that Japan's extensive earthquake preparedness served the country well. Reports on Saturday suggest that life in Tokyo is returning to some semblance of normality, though in the worst-affected areas around Sendai the extent of the devastation is still unclear, and of course there's still the Fukushima nuclear plant to worry about, though fears of "another Chernobyl" seem to be overblown. (Update, March 15: Bloomberg has a good explanation of the physics here).

Even before the cleanup gets under way, people are starting to make assessments of the likely economic impact, on Japan itself and on the global economy. Some of these have been frankly quite peculiar. Let's take a look.

The standard text on the subject is "Sixty seconds that will change the world", by Peter Hadfield. Published in 1992, it's now out of print, though you can still pick up a copy on Amazon (perhaps at a higher price than was the case a few days ago). Hadfield attempted to predict the consequences of a repeat of the Great Kanto Plain Earthquake of 1923, which killed 140,000 people and left much of Tokyo in ruins. His belief was that the death toll in any repeat occurrence would be much higher, because of the rise in population, and the damage would be much more severe -- there weren't any three-storey expressways in the middle of Tokyo back in 1923. He predicted that the entire world economy would be plunged into depression as Japan turned its attention to rebuilding, sold its foreign financial assets and withdrew temporarily from trading with the rest of the world.

This week's event wasn't on the Kanto Plain, but even allowing for that, much of Hadfield's analysis seems dated. Japan has continued to make progress in earthquake-proofing its buildings and infrastructure. The relative lack of damage suffered in the Tokyo area suggests that a Kanto-style event (i.e. a tremor on land rather than at sea) would be less damaging than the 1923 disaster was, as the Japanese have always claimed. There's not much you can do about a tsunami, but the area worst affected by flooding is relatively less populous and less pivotal to the Japanese economy than Kanto was in 1923, or is now. Lastly, Japan is much less important to the global economy now than it was when Padfield wrote his book, so the impact on the rest of the world should be correspondingly smaller.

Despite these differences, much of the early analysis seems to be heavily influenced by Padfield's doom-and-gloom approach. There are fears that the economy will be plunged into recession and that the government's dismal fiscal position will be pushed over the edge by the costs of reconstruction. This piece on Slate by Annie Lowrey is fairly typical. Even the Tokyo stock market seems to think the same, selling off as news of the disaster came in.

There's no doubt that the economy has slowed to a crawl for the last day or two, but there's no reason to think that will last very long. The rebuilding process that will soon get underway is a Keynesian public works project writ very large. What's more, it won't all have to be paid for by the government. The Japanese are the best-insured people in the world. Householders will now claim on their insurance to rebuild homes, replace furniture and cars, and so on. This will give economic activity a strong boost in the very near future, and to the extent that this private sector spending generates tax revenues for the government, even the needed infrastructure rebuilding may not place an undue burden on the public purse.

The bill to be met by the insurers does raise one interesting possibility that was discussed in the Hadfield book. Japanese insurers have always been big buyers of foreign financial assets, including US Treasuries, because of the need to ensure liquidity in the event of a major earthquake. They have also ceded a great deal of coverage to the major international reinsurers. To the extent that the Japanese companies themselves, or the reinsurance giants, now have to liquidate assets in order to meet claims, the effect of the earthquake could well be felt in global financial markets. But it's highly unlikely that the quake and the tsunami will trigger an economic slowdown, either in Japan itself or anywhere else.

Addendum, 14 March. Bloomberg has a well thought-out piece on Japan here.

Pension tension

Most people are baffled by the arithmetic of pensions. Consultants regularly report that people saving for their own retirement underestimate, routinely and massively, the amount of money they need to set aside. Meantime, those with company pensions rarely have any idea of the value of the benefit they hope to receive, or how big a potential burden it represents for their employer.

A few years ago, during one of General Motors' regular flirtations with bankruptcy, an intriguing story went across the Bloomberg wires. A GM pensioner, recently retired on his full salary, was fretting that the company's plight might deprive him of his entitlement. The retiree in question was, if memory serves, 40 years old and had been with the company for about 18 years. It did not seem to occur to him (or, it may be said, to the Bloomberg staffer on the story) that he just might be one of the reasons why GM was in financial trouble in the first place.

Which brings us, in a roundabout way, to the Hutton Report on UK public sector pensions*. Hutton wants to see public employees paying more into their pensions, retiring later and receiving benefits based on average earnings over their careers, rather than final salary as is currently the case. Recognising that this could look like a penny-pinching "race to the bottom" in terms of pension quality, he urges the government to ensure that the burden falls on the better paid, with the majority of people seeeing little change in their eventual pensions, though they will have to contribute more and work longer to get them.

Public sector unions are predictably up in arms and threatening strike action. (However, there are no reports that any of them have reacted quite as colourfully as Robert Peston: he says the proposals will seem "as attractive as a plate of cold sick" to union leaders). Like the GM retiree of a few years ago, today's public sector union leader seems to have no conception of just how expensive the existing package is, or who is paying for it; unlike that retiree, however, he presumably has little fear that the employer will go bankrupt and wipe out his pension altogether. As a result, the initial reaction from the unions is that the reforms proposed by Hutton amount to "workers paying the price for the banking crisis". This is patently untrue: governments have been trying to get the ravening beast under control for years. The most recent attempt was made by the Labour government when the economy was going great guns, though sadly, they flinched from making any really tough decisions.

There are misrepresentations on both sides of this issue. Talk in the right-wing media of "gold plated" public service pensions is offensive: the average annual payment is not far above £3000, reflecting the fact that a large number of public servants are low-paid. At the same time, the old union argument that public servants trade off lower earnings when they are in employment for better pensions when they retire no longer holds water. Public employees' average earnings are now on a par with those of the private sector, but they retire much sooner and get larger, inflation indexed pensions.

The average private retiree's pension "pot" used to buy a retirement annuity is apparently £32,000, which in today's low rate environment buys you a pension of a whole lot less than £3000 a year, and no inflation protection. You couldn't blame the unions for trying to hold on to what they've got, if the alternative was that sort of pittance. Hutton's proposals are designed to protect the lower paid from exactly that fate, but that may not be enough to stem the threat of strikes. History suggests this will be one of the toughest fights the coalition government faces.

* How unfortunate that this important report has been authored by the same man who prepared a risible whitewash of a report into the "dodgy dossier" during the 2003 Iraq war. His Lordship's name is not exactly a byword for rigorous and unbiased analysis.

Shares in the banks? Thanks but no thanks

A group of Lib Dem backbench MPs is supporting a plan by a group called CentreForum, whereby the Government would give the shares it currently holds in Royal Bank of Scotland and Lloyds TSB to all registered voters in the UK. The lucky recipients would then have the option of selling them, or holding on in the hope of capital gains. However, the first part of the proceeds of any sale by a taxpayer would have to be remitted to the Treasury, which would thereby recoup over time the money it spent rescuing the banks at the height of the financial crisis. You can read a summary of the scheme here.

This is an overtly populist move. Its proponents have chosen to portray it as an example of the "big society" that David Cameron is always banging on about. I'm as keen on a freebie as the next man (well, unless the next man happens to be Tony Blair or Prince Andrew), but I don't think this is a good idea.

It's true that "the taxpayers rescued the banks" back in 2008, but it didn't actually cost them any money at the time. The Treasury did it on taxpayers' behalf, with the cost borrowed and added to the national debt. The time for the "taxpayers'" stakes in RBS and Lloyds to be sold is still a long way off: first the Government has to decide whether to break up the larger banks to ensure they are never again too big to fail. When the right time comes, the first priority should surely be to ensure that the Treasury gets to repay the debt incurred as part of the rescue plan as promptly as possible. A second priority is to ensure that as much of the proceeds as possible can be used for that repayment. This implies that setting up a costly one-off scheme to distribute shares to 40 million voters, protecting existing shareholders from a stampede of people looking to cash out as soon as possible, and providing long-term enforcement to chase down those who "forget" to send money to the Treasury when they do sell their shares, are all things that would be better avoided.

It's more than likely that the Government will give taxpayers a right of first refusal to purchase bank shares when the big day arrives, though even that will be an expensive proposition. Simply giving them away might be good politics -- though woe betide the government of the day if the shares crater as everyone rushes to sell -- but it's not good policy.

It's "must watch" TV, but nobody does

Some mistake, surely: that last posting was almost sympathetic to the Murdoch Empire. Time to redress the balance a little.

Murdoch's SKY-tv in the UK recently added a new channel: Sky Atlantic, "the new home of HBO drama". Most Sky channels are made available (for a fee) through other platforms, such as cable, but this one isn't, at least not yet.

The weeks leading up to the launch saw saturation advertising, accompanied by shameful amounts of free publicity in other Murdoch-owned media, including The Times. The big drawing card was deemed to be "Boardwalk Empire", the prohibition-era drama developed by Martin Scorsese and starring Steve Buscemi.

Well, after a few weeks the first ratings are in, and Boardwalk Empire, available to all ten million Sky subscribers in the UK, is getting audiences of .... about 280,000 per episode. By way of comparison, the almost unheralded, subtitled Danish detective series, The Killing, is drawing over 400,000 on BBC4*. A couple of years ago "The Wire", also much better than Boardwalk Empire, was watched by about 600,000 on BBC2.

As well as Boardwalk Empire, Sky Atlantic has snared "Treme", the new series by The Wire's creator David Simon, and it's poached the next series of Mad Men, for which the BBC has been diligently building up an audience for the last few years. It will be instructive to see whether the latter can maintain the audience it was getting at the BBC. For now, though, it seems certain that Murdoch is paying top dollar for these series and showing them at a big loss: it would have been quite possible to show them on one of the existing Sky channels (God knows there's plenty of dross there that could have made way), which would have allowed cable viewers and others to see them. Instead they're on a new channel that Sky subscribers don't have to pay for and nobody else can watch.

Why oh why would Murdoch do such a thing? Could it just possibly be that his aim isn't to build audiences for these shows at all, but simply to prevent the BBC from showing them? He's constantly complaining that the BBC, particularly through its website, is an unfair competitor with his own newspapers. It may be hard to imagine that the loveable old chap is using the HBO shows to exact revenge on the BBC, but that's the way it looks.

*Out of the goodness of his heart, Murdoch allowed us rubes a free look at the first couple of episodes of Boardwalk Empire, which qualifies me to opine that The Killing is immeasurably better. Even some of Rupert's own minions are starting to agree, with one Times columnist this weekend referring to "Boardsnore Empire".

BSkyB: who cares?

It looks as though the Government is about to allow News Corporation (R. Murdoch, prop.) to acquire the 61% of UK satellite broadcaster BSkyB that it doesn't already own. To pave the way, the Murdoch family will spin off Sky News into a separate company, in order to allay fears of excessive concentration in media ownership. Opponents of the deal are already calling it a whitewash and a sellout. One Tweet: "Congratulations to Rupert Murdoch for winning the next few general elections".

I'm no fan of Murdoch, as any regular reader of this blog will know, but I can't get worked up about this. Does anyone really doubt that with its current ownership structure, BSkyB is already entirely under the Murdoch thumb? If Rupert wants to spend something like £10 billion to convert de facto control into de jure ownership, I have to say I'm really not bothered.

Having said that, I don't really see the spinoff of Sky News as much of a sweetener. Sky News will continue to be 39% owned by News Corp and will get almost all of its revenues from providing news services to BSkyB. Doesn't sound very independent to me, regardless of who they put on the Board of Directors. Put it this way, it's still going to be a cold day in Hell before Sky News runs a fearless expose into the Murdoch Empire.

Kaletsky's cunning plan

Anatole Kaletsky isn't just getting older; he's getting worse. Now styled as "Editor-at-large" of The Times, Anatole graces today's issue with his urgent solution to the problem of high oil prices. In essence he wants to drive the oil price down by strongarming the Saudi Royal Family (no, I'm not making that up), then curb demand by pushing up taxes in order to....raise the price of oil to consumers! So are high oil prices a problem or not? Apparently, for Kaletsky, it depends on whether the producers or the taxman are cornering the spoils.

The full story is behind the Great Paywall of Murdoch, but let's parse a few choice snippets.

"Since the first Arab embargo of 1973, there have been five global oil shocks, in which oil prices have doubled in the space of a few months. All these shocks — in 1973, 1979, 1990, 1999 and 2008 — have been followed by global recessions".

There's an element of "post hoc, ergo propter hoc" reasoning there, but it's certainly factually correct. However, it marks a big change for Kaletsky, if he's now saying that the recession of 2008/09 was caused by higher oil prices. Up till now he's always claimed that there was no serious problem in the world economy or financial system until Hank Paulson pulled the plug on Lehman Brothers.

"There are....two broad strategies for America, Europe and Asia to protect their economic interests.

The first is to force the Saudi regime, as long as it survives, to push down prices by supplying the market with every barrel of oil that it can produce".

Saudi crude, with its high sulphur content, is a poor substitute for the sweet Libyan crude that many European refineries are geared to accept. But let's leave that aside for a second. "Force the Saudi regime"? How? Back to Kaletsky:

"Whatever the Saudis’ motivation, the West can now call their bluff, for we have something the princes need even more than we need their oil. That is protection for their personal wealth and safety. With the rest of the Muslim world now polarising into democracies and terrorist theocracies that hate the Saudis almost as much as they hate America, the princes can no longer rely on comfortable exile among their neighbouring dictators and despots. If they have to flee their country, they will rely entirely on the goodwill of Western nations.

That goodwill should depend on how co-operatively the Saudi rulers behave. If the Saudi princes treat their own citizens humanely and co-operate to stabilise the world economy, they can hope for a comfortable exile if they are eventually overthrown. On the other hand, if they defy global political norms and economic interests, they should expect treatment similar to Mubarak or Gaddafi. If they are deposed, their homes, shares and financial assets in America and Europe should all be subject to confiscation as property of the post-monarchical Saudi state. Such arguments should be sufficient to persuade the Saudis that their interests now lie in relieving the oil shock rather than making it worse".

Blackmail is an ugly word, but in this case it's accurate. It's insulting in the extreme to the House of Saud, and it is sure to occur to them that the West can't actually deliver anyway. As long as they remain in Riyadh, the West can't protect them, and if they are forced out, any successor government would be certain to come right after them in the courts in order to recapture all their assets.

But let's look at what Kaletsky would do if the Saudis bought into his scheme:

"It should now be clear that long-term demand reduction is needed, not only for environmental and geopolitical reasons but also because of the economic instability created by oil. Ratcheting up oil taxes and using part of the revenue to subsidise other energy sources is the best way to achieve this. The right objective is not a “level playing field” between oil and other technologies, as in today’s British energy policy. Instead, nuclear power and alternative energy should be heavily subsidised".

So, having blackmailed the Saudis into selling their current oil ouput at less than the market would allow, Kaletsky proposes that governments should seize for themselves the "economic rent" foregone by the Saudis, then use the money to subsidise alternative energy sources. To put it another way, he wants to use money that would otherwise go to the Saudis and the rest of OPEC in the short term to make investments that would premanently undercut the long-term value of these countries' only natural resource. Can't see any reason why the Saudis wouldn't jump at that proposition.

There's a little coda to Kaletsky's piece, saying that financial investors should be barred from cornering markets in physical commodities. That might be a good idea in principle, but as always with Kaletsky, even his good ideas rarely look practicable.

What a piece of work! Kaletsky and today's article, both.

Food for thought on inflation

According to the dwindling flock of doves on the Bank of England's Monetary Policy Committee, current "one-time" price pressures won't translate into sustained inflation because of the shaky state of the economy. Supposedly companies don't have pricing power and trade unions don't have bargaining power. The evidence that this Panglossian view is dead wrong is mounting steadily.

Let's start with corporate pricing power. There's been an ominous increase in producer prices (sometimes referred to as "factory gate prices") for many months. Now there's fresh evidence that prices at the retail level are under increasing upward pressure. UBS's UK economics department has just released a report showing that food prices are rising faster in the UK than in other developed countries: 4.9% in Britain, compared to 3.6% in Germany, 1.8% in the Eurozone as a whole and just 1.5% in the US. UBS baldly states that UK supermarkets are raising food prices by far more than can be justified by the well-reported rise in global commodity prices.

UBS's main purpose is to warn of the growing risk of yet another official enquiry into competition in the UK supermarket sector. Obviously there's an important point to be made here: it's striking that food price rises are so much slower in both Germany and the US, both of which have stronger economies than the UK at the moment. However, the inflation implications of the findings are surely worth considering as well. After all, the supermarkets would hardly be pushing prices up so enthusiastically if they didn't believe that they had the pricing power to make the increases stick, which casts serious doubt on the proposition that one-time price pressures will not become embedded in the economy.

So, supermarkets are raising prices, fuel costs are still rising, VAT has gone up to 20% and local governments are busy raising fees for everything in sight to make up for the reduction in transfers from the central government. Still, with unemployment rising, there's nothing to fear from the unions, right? Well, at the start of this week train drivers at Arriva Trains Wales staged a two-day strike in support of a pay claim. They are rejecting a 12%(!) increase over two years, which would take their pay to £39,000 a year for a normal 4-day working week. That's about 50% higher than UK average earnings, but the union claims that drivers in England are paid more than those in Wales. (This is just one more of the many ways that the disastrous privatization of the railways has boosted their operating costs, but that's a separate story).

It would be naive to assume that Arriva, who are allowed to increase fares in line with inflation each year, won't grant the drivers an increase well above current CPI. It would be beyond naive to think that there aren't many other groups of unionised workers who will assess that they have just as much bargaining power, and are facing just as much pressure on their standard of living, and will resort to industrial action to get what they want. It's hard to blame them, as long as the Bank of England, with the tacit approval of the government, continues to signal that it is not taking seriously the myriad inflationary threats that the economy is now facing.

The problem is, of course, that not everyone has a union to fight their battles for them. Inflation will bear hardest on those on fixed incomes and those in the private sector who are not unionised. It would be wrong to assume that unions (or supermarkets for that matter) will moderate their demands in recognition of the plight of those groups. It's increasingly untenable for the Bank of England to act as if it believes that they will.