Saturday, June 19, 2010

Oil spill? Sorry Guv, I just work here.

 “ I’m really really sorry for this accident. I really really regret that my car left the road, killing eleven people and causing massive environmental damage.  

  Do you take full responsibility? 
  Well, that’s a matter for the inquiry. 

  But you were driving the car were you not?
  Of course, but I wasn’t around when the key decisions were taken on the design of the car and the safety measures so I can’t really be held responsible for this terrible and tragic incident.

   Who is responsible. 

   Well, that’s a matter for the inquiry and we mustn’t pre-empt that in any way... I’d like to help, really, but my hands are tied”

    It looks like ‘Hapless Heyward’, as the boss of BP is known after his appearance before the US congressional energy committee inquiry into the Gulf of Mexico oil spill, may get his wish.  He said he wanted his life back, and after last week’s performance he will assuredly get it -  minus his job.   It was a  dismal display, in which the BP CEO - one of the highest paid executives in Britain -  sounded evasive and a bit dim, like a middle ranking manager of a small engineering company rather that the leader of one of the greatest economic forces on the planet.  How many companies in the world could agree to pay out £20bn in compensation and then see their share price actually go up?  

   Mind you, I didn’t find the congressional hearing particularly edifying.   The sub-Paxman questioning by drawling and self-important congressmen.  Not so much grandstanding as an Olympic display of synchronised indignation for the benefit of the voters back home.  The inquisition was led by the marvellously sneering  Henry Arnold Waxman, Ca, a man Time Magazine once described the  as “the scariest guy in Washington”.  He certainly looked the part with his flaring nostrils and pitiless moustache.   The purpose was clearly not to get at the truth but, in President Obama’s phrase, to kick ass.  Heyward’s ass certainly made a target rich environment and the congressmen didn’t miss.  But the episode reminded me a little of the show trials that Stalin used to stage in the 1930s to humiliate political rivals. 

   The astonishing thing was the latent chauvinism that the affair uncovered on both sides of the Atlantic.   Special relationship?  You’d be pushed to tell, as the Americans laid into “British Petroleum” and the tabloid press in Britain ran peevish  headlines like the Daily Mail’s two classics:  “America’s ALWAYS tried to do down Britain” and “When disaster strikes, the US will NEVER take the blame”.    Really?  Did America try to do us down in the war fascism in the Second World War?    Okay, American companies didn't exactly leap to take the blame for disasters like the Torrey Canyon or Piper Alpha, but there is a question of scale here: this is America's worst ever environmental catastrophe

     Tory MPs practically accused President Obama of stealing the pensions of millions of elderly Brits and Boris Johnson, the London Mayor, came right out and accused Obama of being “anti-British”.    Wisely, David Cameron ignored appeals to “stand up for Britain” and kept his comments brief, unemotive and to the point.  In doing so, he rather got one over Barack Obama, whose comparison between the Macondo spillage and the destruction of the twin towers on 9/11 was just a little over the top.  The two episodes hardly compare either in body count or in international significance. 

   Nevertheless, this was an epic disaster and almost certainly avoidable.   BP knew this was a “nightmare well”  as email traffic confirmed.  It certainly looks as if they took risks because the reward was so high and the BP leadership was so remote from the well-head.    Tony Hayward’s “wasn’t me guv” attitude reminded me of the Wall Street CEOs who appeared at the congressional hearings into the financial disaster.   Yes they were sorry - terrible catastrophe...deep regrets...but they weren’t responsible for all those dodgy collateralised debt obligations because they weren’t around when they were introduced and anyway no one understood them them.    Like BP,  financial institutions were working at the limit of human comprehension, but no one asked whether this was safe just so long as the money was rolling in.   Deepwater Horizon is also reminiscent of the way politicians rationalised an illegal invasion of Iraq on the basis of weapons of mass destruction that didn't exist.      All those Labour leadership candidates insisting that they weren’t really around when the fateful decisions were made.  Or rather they were around but they didn’t think to say anything.

  But the the Macondo disaster could have wide ramifications for the future of world energy.  It was part of the drive to find new sources of oil deep beneath the surface of the earth.  Most of the easy-to-get oil in the world has already been exploited, and the rate of new discoveries has slowed to a crawl.  It was this that led leading businessmen like Richard Branson to declare, earlier this year, that we are about to reach “Peak Oil”, after which the black stuff will rapidly run out.  Branson said that the crunch would come within five years and that governments should be preparing now for the end of the oil age. 

   Now the idea Peak Oil has been  highly controversial ever since it was first forecast by early environmentalists in the 1970s and the attitude of governments and the oil industry has always been that new technology will come along and allow difficult oil to be extracted, either from far below the oceans or from deposits like tar sands in Canada.  But the Deepwater Horizon episode could be the moment when oil really does peak.  Like nuclear power, which stopped in its tracks after the Three Mile Island meltdown in 1978, this could be the end for deep sea drilling, at least for the next two decades.

    On the principle of never allowing a good crisis to go  to waste, President Obama, has declared this the moment when America must wean itself off the black stuff and start looking seriously at renewable energy like wind and solar.  The halt to deep drilling will leave America even more dependent on hydrocarbons from the Middle East - hardly a comforting prospect given the march of Islamic fundamentalism.  Really, America has no choice but to go green now. Let’s hope the British government takes note and, unlike the BP boss, takes responsibility now instead of avoiding it later . 

Thursday, June 17, 2010

Sorry guys: the debt has to be paid,

 They don’t call it the dismal science for nothing.  You could forgive politicians of all parties for despairing of economics.  Take the great deficit row.  On the one hand we have all the economic analysts in the City, saying that Britain’s budget deficit is much too high, the largest peacetime deficit in history,  and has to be cut.  If you don’t cut the deficit, then the cost of debt interest will shoot up above £70bn and Britain will have a Greek tragedy. This is why the chancellor, George Osborne, is planning an epic austerity programme in next week’s emergency budget. 

   But on the other hand we have another group of economists, like Nobel laureates  Joseph Stiglitz and Paul Krugman, who say no! no! no! -  cutting the deficit is the last thing we should do. At least not now, while all the EU economies are doing the same thing. The combined austerity programmes will plunge us all back into recession as demand falls and trade grinds to a halt.   Government debt will actually rise because of the increased cost of mass unemployment and the loss of tax revenue.  The latest rise in unemployment yesterday to 2.5 milion suggests that this is a real problem. We were already having a jobless recovery - swingeing cuts in public spending could make it a jobless slump.  Labour’s interim leader, Harriet Harman, tore into the “Tory cuts” at prime minister’s question time yesterday accusing David Cameron of “talking down the economy” for ideological ends. 

     So there you have it: the deficit is going to go up if we cut public spending and it’s going to go up if we don’t cut spending.   Brilliant!  Britain is on the fast track to default, and in a hand cart to stagflation, whatever we do.   Might as well grab a gun and a bag of gold and head for the hills.     Fortunately everyone is agreed on one thing: economic growth is the only way ultimately to bridge the deficit - just as you have to get a job earning good pay in order to pay off a mortgage. Everyone, Labour and Tory, also agrees that the deficit has to come down.  The question is basically one of when and how.  The neo-Keynsians say that you need to keep spending high for the time being to replace the demand destroyed by the downturn/  The fiscal conservatives say that we are already nearing the limits of borrowing and that Britain’s debt crisis will spiral out of control if we don’t convince the bond markets that the government is serious about balancing the books.  After all, our deficit is larger than Greece’s right now, and the about only reason financiers and firms are still buying our government debt is that Britain has a relatively good record of paying it back.

   It’s really a question of just how much debt can we take.  Britain’s national debt is relatively small right now at 60% of GDP  and is scheduled to rise to something like 90% .  After the Second World War,  America had a budget deficit of 120%.  Which was a good thing according to the Guardian’s economics editor Larry Elliott. “Far from being burdened with unpayable debt” he wrote this week, the baby boomers in the late 40’s and early 50’s were the most blessed generation in history”.  Well, some might disagree with the beatification, but what is really wrong with this analysis is that,  er, we aren’t at war,  and hopefully won’t have to be.  

    It’s true that rearmament ended the Great Depression and  America boomed after the war.  But this was largely because the dollar became the world’s reserve currency, and America, on the back of that, became the world’s greatest industrial and military power.  It could dictate the terms of trade, and still does.   War isn’t a get out of jail free card mainly because  it is not possible to replicate the wartime conditions in peace. The government can’t go around freezing bank accounts, seizing property and dictating to industry.  And Britain after the war was a very sorry place indeed,  afflicted by rationing, deflation and manufacturing decline.     I don’t believe that people could go back to that.   

   The peacetime debt record is held by Japan, which is scheduled, according to the IMF, to borrow 250% of GDP by 2015.   But this colossal spend hasn’t been much of a stimulus - Japan’s economy been stagnant since the property crash nearly twenty years ago.  Japan is able to run massive deficits because the Japanese people are fanatical savers.  The British public doesn’t save a penny, in fact we are so addicted to debt that we owe, in personal debts, more than our entire annual national income.  Any way you look at it, Britain simply cannot risk going much further into debt. We are heading for a trillion pound national debt; a trillion pound public sector pension liability piled on top of a trillion pound bank rescue and personal debts of one and a half trillion.  There’s no way of laying this off, pretending it’s not there, wishing it away.    Nor is default, or declaring national bankruptcy, an easy way out because that just raises further the cost of borrowing. 

   I’ve thought a great deal about this issue in the last couple of years, and I’m afraid I have to part company with the neo-Keynsians.  Actually, Keynes didn’t support unlimited public spending and argued for balanced budgets in the 1930s.   The most important political reason for cutting the debt, Keynes argued  is that it will ultimately be paid, not by the rich, but by the working class.  Public spending is unique in that it is paid entirely out of the taxes of ordinary working families or through inflation. 

  These are scary times.  As European countries like Greece and Spain topple under the weight of their own debt, there’s a very serious risk of  a wave of sovereign defaults across the euro zone. These are countries only recently emerged from dictatorship where democracy has yet to be tested by serious economic hardship.  If the politicians here and abroad get it wrong, spending too much, printing too much, devaluing too far, we could end up like Weimar Germany.  And what’s worse, Germany could end up like Weimar Germany too. 

Sunday, June 13, 2010

So Scots have a death wish?

 We’re doomed. Doomed. Get out now while you still can. It’s a wonder there’s anyone left in Scotland so terrifying are the headlines about Scottish mortality.   97% of us are living dangerously unhealthy lives according to a report last week in BMC Public Health.  A boy born in Glasgow can expect to live thirteen years less than a boy born in Chelsea, according to the Office of National Statistics. Twice as many of us die from alcohol abuse than in England - that’s if we aren’t murdered first. Half a million of us have coronary heart disease, according to CHASS -  one of the highest rates in the world.  Diseases like multiple sclerosis are off the scale. Two thirds of us are overweight or obese.   

Friday, June 11, 2010

Labour leadership candidates: 'wasn't us guv'.

 The odd thing about the Labour leadership contest, nominations for which closed yesterday,  is that the leading candidates all appear to have been elsewhere during the last 13 years of Labour government.  How else can we account for their disowning so many of the policies pursued by Tony Blair and Gordon Brown.

    The former cabinet secretary Ed Balls has recently discovered that the government of which he was a prominent member was letting in far too many immigrants. And the Iraq war was a “dangerous mistake for which the country has paid a heavy price”.  Well he kept that to himself.   David Miliband agrees that immigration got out of control in the Labour years and that the government let down Labour voters.  Oh, and the former foreign secretary never supported the policy of regime change in Iraq . 

Wednesday, June 02, 2010

CGT - more welfare for the wealthy

 Is there any group in society more jealous of its privileges, more militant in defence of its perks, more determined to avoid paying tax than the ‘hard working’  British middle classes?  The howls of anguish at the proposal  to tax capital gains as income, part of the ConDem coalition agreement, illustrates how difficult it is to tackle what is called the middle class welfare state.  People who complain about welfare scroungers and benefits tourists see nothing morally wrong with avoiding  tax.