China, Rare Earth Metals & The Emergence of a New Global Power.

When the Afghan war began, and the Russian involvement in the "Stans", it became common to talk about Central Asia being the "New Great Game" for the warring superpowers. But the real new Great Game is being played in the swamps of the Niger Delta, on the borders of Colombia-Venezuela, in the metal mines of the DRC [Democratic Republic of the Congo] and now in the rare earth mines of the world.

If you think this sounds like part of a conspiracy theory, think again. These are the words of Newsnight’s economics editor, Paul Mason.  "97% of the specialist metals that are crucial to green technology are currently mined in China".  They are used in rechargeable batteries that are used to store power from renewable energy sources and for use in electric cars, etc.  They are also used in certain missile guidance systems (so, it's swings and roundabouts, I guess).

For a better explanation of why rare earth metals are important watch Paul Mason's Newsnight report, his blog provides an account of the U.S. and Japanese role.

Proposition 13 & the effects of regressive policy in California

The financial crisis has hit California particularly hard. Poverty continues to spiral as unemployment reaches a post-war high of 12.2%. The political response has been to implement drastic cuts.

In July, the state legislature haggled for weeks over how to close a $26 billion budget gap. Instead of increasing taxes of corporations or the wealthy, the budget deal that emerged to be signed by Republican Governor Arnold Schwartzenegger ordered deep spending cuts, laying off tens of thousands of state workers.

Reduced funding for education, coupled with big tuition increases, sparked a student and faculty strike at California’s public universities. Programs for ex-prison inmates and parolees have been slashed. And the social safety net of healthcare and services for the poor, children and elderly - the least powerful and least vocal members of society - has been systematically shredded. [...]

A legal challenge has temporarily halted some of the cuts to elderly care. But Governor Schwartzenegger is trying to overturn the court ruling and re-institute the cuts. [...]

So, why has California been hit so disproportionately hard, and what are the causes of this drastic response? Whilst Schwartzenegger's regressive political attitude can take some of the blame, Proposition 13 plays the lead role.

Proposition 13 was an initiative that was enacted by the voters of California. The key components of the proposition were to cap property tax (even if the value rises) and put into law that a two-thirds majority is required to raise taxes and pass a budget. The bill gained popular support and the Californian constitution was duly amended.

Ever since its was written into law, Proposition 13 has played a duel role in exacerbating California's instability and inequality as well as preventing progressive reform.

It is so iniquitous because the maximum rise in property tax is considerably lower than the actual increases in property prices. Neighbours living in identical homes are liable to pay substantially different property tax depending upon when they purchased the property. This means that the tax liability is heavily tied to the date of purchase rather than the value of the property or financial circumstances of the owner. (A relatively well-known example of this is billionaire Warren Buffet, who pays less than 0.06% tax on a $4,000,000 Laguna Beach home purchased in the 1970s. Meanwhile, a working family in a modest, newly purchased home is liable to pay several times this amount).

By capping property tax, Proposition 13 effectively places the state’s budget in a straitjacket. As Krugman argues, "limits on property taxation have forced California to rely more heavily than other states on income taxes, which fall steeply during recessions," which is why California has been so heavily affected by the financial crisis. And, by putting into law that a two-thirds majority is required to raise taxes and pass a budget, Proposition 13 prevents progressive reform and encourages drastic regressive policy responses in times of economic hardship. With Proposition 13 in place, the response to people needing a safety-net in times of need will always be to take it away from them.

George Osborne - Opportunistic liar

George Osborne recently said,

Labour's secret spending plans, which Gordon Brown never wanted to make public, appear to reveal an income tax bombshell.

However, as Channel 4 News FactCheck reveal:

The figures Osborne quoted don't hide any secret tax-hike bombshell. They are the same numbers put out by the Treasury with the budget, in April.

So not secret.

What about those tax increases?

Some income tax increases, for big earners, were set out in the budget. The most headline-grabbing, a new, higher 50 per cent tax rate on earnings over £150,000 a year, is expected to raise £2.4bn, according to the Treasury's estimates.

Taking away the tax-free personal allowance on high earners is also expected to bring in another £1.5bn.

Which is great, but accounts for just 3.9bn.

According to the figures Osborne released, gross income tax revenues are due to increase from £144.7bn in 2010-11, to £191.8bn in 2013-14; a £47bn, or 32.5 per cent, increase.

So, where does the rest come from? Forecast growth.

George Osborne is complaining about increased income tax revenues generated by taxing the rich and economic recovery whilst trying to make it appear as though there is a 'secret' plan for an 'income tax hike'. His crude attempt to mislead the electorate is an insult. George Osborne is an opportunistic liar.

(Accidental) Honesty vs. Less bad economic management

Conservative Health spokesperson, Andrew Lansley, let slip that the Conservatives plan to ring-fence health and aid spending at the expense of a 10% cut for other departments. Labour jumped at the opportunity to cast the Conservatives as spending cutters.

Brown accused the Conservatives of being out of line with received opinion, “The only party that's proposing a cut in public spending is the Conservative party” said Gordon Brown at PMQs. What’s more, Labour proposed increased spending. (In itself, referring to public spending rather than investment is peculiar for frontbenchers.)

As it turns out Gordon Brown was being very misleading, you might even say that he was lying.

Due to the constraints placed on the treasury by the financial crisis, whoever is in government will have little choice about what to do. Both the Conservatives and Labour will do the same thing - protect healthcare expenditure and cut other departments more or less to the same amount, 10%.

The truth has come out and Brown has egg on his face. Cue George Osborne for a dose of piousness,

“The real dividing line is not ‘cut versus investment’, but honesty versus dishonest […] We should have the confidence to tell the public the truth that Britain faces a debt crisis; that real spending will have to be cut, whoever is elected; and that the bills of rising unemployment and the huge interest costs of a soaring national debt means that many government departments will face cuts in their budgets. These are statements of fact and to deny them invites ridicule.”

To the Times’ credit, they acknowledge, albeit fleetingly, that Osborne “gives no specific Conservative spending plans”.

So, is it a case of honest vs. dishonest?

Firstly, ‘honest’ should be prefixed by accidentally, reluctantly or surreptitiously, depending on which is actually the case. I would opt for accidentally given the way in which the Conservatives initially handled Lansley’s admission.

Secondly, there is more to Labour than dishonesty. As bad as Labour have been on the economy, the Conservative would have been far worse. When Brown acted swiftly to support banking when it was most needed Cameron, Osborne and Co. had little response.

Labour’s press management is appalling. Rather than the media focusing on the bold decisions made by Brown in contrast to the Conservatives' reluctance to do anything, the media are focusing on Brown’s petty lies. Labour have themselves to blame.

UPDATE

The day after this post was published Polly Toynbee offered the following advice to Labour:

Talk about the national debt honestly and turn it against the Tories. If Britain really is coming out of recession, keep telling voters the truth: virtually every penny of debt comes from rescuing the country from depression and the knock-on effect of recession. Saving banks that were hours from shutting ATMs and starving the population, then flooding the economy with money to stop a depression, was action strongly supported by the Financial Times and the Economist. The Tories – alone – opposed it and would have plunged us back to the 1930s. Most of the debt is due to recession – when tax revenues dry up and unemployment costs soar. These costs would be phenomenally higher in a long Tory-induced depression. […]

Voters know the Tories will cut with relish anything they dare, but David Cameron will win on competence if he is the only one who seems to face up to the debt. Labour has the best record on the recession and the best record on public services – but no chance if no one believes a word it says.

Krugman on Brown

As is often my want, I thought that I would point in the opposite direction to much of the blogesphere. Paul Krugman, receiver of the Nobel Prize in Economics, has this to say about Gordon Brown:

Do Mr. Brown and his party really deserve blame for the crisis here? Yes and no.

Mr. Brown bought fully into the dogma that the market knows best, that less regulation is more. In 2005 he called for “trust in the responsible company, the engaged employee and the educated consumer” and insisted that regulation should have “not just a light touch but a limited touch.” It might as well have been Alan Greenspan speaking.

There’s no question that this zeal for deregulation set Britain up for a fall. […] But here’s the thing. While Mr. Brown and his party may deserve to be punished, their political opponents don’t deserve to be rewarded.

After all, would a Conservative government have been any less in the thrall of free-market fundamentalism, any more willing to rein in runaway finance, over the past decade? Of course not.

And Mr. Brown’s response to the crisis — a burst of activism to make up for his past passivity — makes sense, whereas that of his opponents does not.

The Brown government has moved aggressively to shore up troubled banks. This has potentially put taxpayers on the hook for large future bills, but the financial situation has stabilized. Mr. Brown has backed the Bank of England, which, like the Federal Reserve, has engaged in unconventional moves to free up credit. And he has shown himself willing to run large budget deficits now, even while scheduling substantial tax increases for the future.

All of this seems to be working. Leading indicators have turned (slightly) positive, suggesting that Britain, whose competitiveness has benefited from the devaluation of the pound, will begin an economic recovery well before the rest of Europe.

Whilst the victories of hateful fascists across Europe are a grotesque articulation of anti-political feeling, resentment & bigotry, the victories of this hateful ensemble is largely symbolic. A loathsome symbol to be despised by all the right-minded and politically aware. They serve as warning to future voters. Yet, for now, they have little power.

In terms of the legislature, the gentle shift of the Europe further rightwards is more potent. The centre-left coalition shrank– the right is even more powerful.

As we reject New Labour we reject the ‘third way’ economics. The even more laissez-fair economics of the right awaits us.

MPs' salaries

Stumbling and Mumbling has another excellent post in opposition to my view on MPs salaries. He looks at ‘MPs' pay in historic context’ and presents some interesting stats “in 2008, MPs were paid 2.58 times as much as the average worker.” “Putting it all together shows that MPs’ wages have trended upwards, relative to the average worker, since the late 70s.”

However, average wage is not the only metric worth looking at – as I responded to the above post – “what would it look like with the top 5%, 3%, 1%, etc.? Would those statistics make MPs salaries look less desirable (comparatively speaking)?” I do not know the answers to the questions that I pose*. The questions are pertinent, so much so in fact that I am willing to concede my argument entirely if the answers to my questions sufficiently undermine it.

I fear that by concentrating on the ‘average’ and ignoring the super-wealthy the left of the blogesphere are self-indulgently wallowing in an ‘I am lefter than thou’ mindset. I am arguing for inequalities for efficiency’s sake not for their own sake. The point I make is not necessarily a right-wing one – as I suspect some may consider it to be. If the top 1% were paid less, or taxed more then it would not be necessary to increase the salaries of MPs because they would be comparatively wealthier.

My discontent, which is not directed towards Stumbling and Mumbling – to whom I can only express admiration and admit my own inferiority, is that too many people react on their perceptions without properly researching the subject or considering all the relevant factors. I am guilty of this in this instance, but unlike many others, I admit and am aware of the weaknesses of my argument.

Update

MPs' salaries in context via the BBC (statistics based on household income).

On salary alone, the MP's household is above about 91% of the population - 55 million individuals. About 9% have household incomes higher than this.

And lump them both together (salary and expenses) - our honourable member sits above about 96% of the population - 58 million individuals. A working partner would push them higher still. [...]

The poorest we can make the MP appear in the population at large is to remove the expenses, continue to assume one income only for a two-adult household and give them three teenage children. That puts them roughly in the middle of the distribution, after adjusting for family circumstances. [...]

So are MPs badly paid? We have to ask on whose scale. Not by the standards of half the population or more, for whom they are rich. The top 5% might think otherwise, and perhaps it's those people we want in the job.

An additional consideration not factored is regional salary varience. In the context of London, MPs would appear comparitively worse-off still.

A couple of recommended links

Angry Mob’s Daily Mail dictionary

Stumbling and Mumbling has a look at the economics of immigration.

A couple of links to Dave's Part.

Here are two posts from Dave’s Part - 'Atrophy: how the left blew its big chance.'

New Labour has from the start been gulled into intellectual stupor by its own self-delusional rhetoric. Convinced that it was indeed ‘the political wing of the British people as a whole’, it neglected even to renew the bases of Labourism itself.

Old Labour, by contrast, pulled up the drawbridge and refused to acknowledge that the last three decades were happening. As a combined result, the Labour Party is now so hollowed out that it could collapse at the slightest push.

The Marxist left, which prides itself on being the brains of the operation, for the most part retreated back to fundamentalism. There has been no attempt to come to terms with the need to put Marxist philosophy on a footing devoid of dialectics, for instance, or even to operationalise fully the essential concepts of Marxist economics.

On the Budget and the 50% tax rate - 'Return of class war. Not.'

Toynbee at her most divisive on the financial crisis

Polly Toynbee writes what I had been waiting for someone to write. Toynbee re-contextualises the financial crisis – she does a great job or a terrible one (if you read some of the comments). Read the whole piece and make up your own mind - ‘After the lie of the free lunch comes a real political choice’.

Guardian editorial on the financial crisis & cuts in spending

Guardian editorial on the financial crisis and the likely cuts in spending - 'Public services: The rise and fall of the state.'

"Some have argued that we should cut public services," Alistair Darling said on Wednesday, before adding "immediately". That one word add-on to Labour's standard attack on the Tories was perhaps the most telling moment in his whole budget speech, an implicit concession that the two frontbenches are now agreed that there will be big cuts to services. The dispute between the parties is no longer if but merely when the axe will fall. [...]

The single biggest slug of public money goes on paying the public wage bill, and nurses and teachers will soon feel discouraged if their salaries fail to keep pace with the general standard of living. Indeed some will vote with their feet, at which point pupils and patients will feel the effect. The second great tranche of the cash goes on state benefits, easily the most expensive of which is the retirement pension. This will only add to the pressure since - starting next year - the ageing of society will pick up pace, as the baby boomers start to reach pensionable age. And all the while, new cancer drugs and other technologies will be adding to the pressure on services. [...]

True, there are some things, notably Trident and ID cards, which this newspaper would be keen to see scrapped. But although each of these misguided projects has a total price tag in the low tens of billions, the year-on-year costs consume a minuscule share of the state's overall budget.[...]

Many secondary fields of state spending, such as housing, have already been cut to the bone. Other cuts around the edges - imposing museum charges or privatising the BBC, for example - might soon be on the agenda, but would impoverish public life without fully fixing the public finances.

In large part, at least, the savings are likely to come from those items of spending whose relative importance has grown non-stop since the second world war - health, education and social security.

Labour & press relations

Andrew Neil’s blog, which on the main criticised what he saw as Darling’s optimistic economic forecasting, made an interesting point about media relations.

One thing is clear to me: this Budget may or may not mark the end of New Labour but it certainly marks the end of the Murdoch newspapers' dalliance with New Labour.

If this is the case, which I suspect it is, then this surely is the end of the Labour government’s reign. The papers’ response to the budget suggests so too.

One thing stands in Brown’s favour, the declining circulation of Murdoch’s papers. Although by even mentioning that I feel that I have overstated the case. Although the might of Murdoch’s press empire might not be what it once was, his influence is still immense.

The Guardian columnists' view of the budget.

The Guardian columnists' view of the budget.

Jonathan Freedland’s offered an assessment that was no doubt similar to much of the Left's.

To see Alistair Darling deliver his budget was like watching a man pushed from a skyscraper window, falling calmly, even gracefully, as he somehow managed to remove his jacket, raise it above his head and tie it into a makeshift parachute.  You couldn't help but admire his ingenuity and optimism - but you still felt sure it was bound to end in a sticky mess.

Polly Toynebee’s Labour-friendly, if no more optimistic, viewpoint - 'Polly Toynbee: At last, a budget where the super-rich's bluff is called. Shame it's all too late'

When the new 50% rate kicks in next April, this last social democratic flag may be drowning, not waving

Is this a people's budget? It did soak the rich - just listen to their indignation. The 1.5% who earn over £100,000 will yet again claim an assault on "middle England". They will protest that productivity, growth, aspiration and the very future of the nation will be imperilled by skimming just a little cream off top earners. […]

Taxation is the only easy way to restore a very small measure of sanity to the unjust rewards of the rich. […]

Wealth has lost touch with reality: however often the rich are reminded that 98.5% of people don't earn £100,000 and only 10% earn over £40,000, they insist they are only "ordinary" and "middling". How cleverly the newsrooms of the right, led by extravagant earners, have diverted popular wrath on to the handful of public servants who earn more than the prime minister - without adding that this is an inevitable, if reprehensible, leakage from private-sector greed. […]

On the cuts

It hardly bears thinking about what these numbers will do to the old and disabled, children in care, children's centres or prisons. Councils will be left with shrivelled budgets to meet soaring demands from more old people and more deprived children. After the years of plenty, public servants have no experience in how to manage the coming famine. George Osborne's promise to cut now and even deeper suggests he too has no understanding of the misery this means.

For more on the 2009 budget see

• 'Andrew Neil on the 50% income tax rate for higher earners'
  
• 'Labour & press relations'
• 'Budget talk and press management'

Andrew Neil on the 50% income tax rate for higher earners

Andrew Neil on the 50% income tax rate for higher earners - 'Worse than we feared?'

The independent Institute of Fiscal Studies uses a more dynamic model which rightly assumes some high earners won't (for example, they might leave the country, stop working or pay themselves anything above £150,000 in tax-free pension contributions). It recently concluded that the proposed 45% would not bring in ANY extra revenue and indeed might actually generate less. We will wait with interest to see what it makes of the new 50% rate.

Threats that high earners will leave the country are often dismissed as propaganda and no doubt they often are. But a 50% top rate of income tax means Britain will have the third highest top rate in the industrialised world -- only Sweden (55%), Denmark (59%) and Netherlands (52%) will be higher while America (35%), Canada (29%), Hong Kong (16%) and Dubai (0%) could start to look even more tempting to Britain's high fliers, especially now the streets of the City are no longer paved with gold and there are mumbles among them that the Budget of 2009 represents the end of New Labour.

Good riddance to bad rubbish, you might say, and if we see the back of some of the bankers who've brought us to our knees you might be right. But the top 5% of income tax payers account for half of all income tax receipts. You don't want to lose too many of them when you're already planning to borrow £800 billion.

Budget talk and press management

Impressive political manoeuvring from Labour – they have managed to ask a questions of the Conservatives that they will find difficult to answer. In Nick Robinson’s view:

[A] new 50% top tax rate for those earning over £150,000 is designed to put the Tories on the spot - do they back it or pledge to reverse it? Since it will be introduced before the next election, they will have to say.

If they attempt to swerve this political trap they will face criticism from some in their own party and in the Tory press who will demand that they protect "our people".

He continued …

Stealth tax rises are out. Overt tax hikes on the rich are in.

Why?
• In the name of fairness.
• To cheer Labour's supporters.
• To wrong-foot their opponents.
• To distract the media.
• Oh, and to raise money (although the Institute of Fiscal Studies has questioned whether increasing the top tax rate will raise much).

Their hope is that tomorrow's headlines will be dominated by questions about Labour's breach of their manifesto pledge and that the Tories will be asked for months to come whether they will reverse that tax rise or not.

What they know is that opinion polls show that higher taxes on the rich are now popular in the way they once were not.

What they also know is that David Cameron and George Osborne will come under pressure from the Tory press and Tory bloggers to promise to reverse this measure.

What they also know is that that is a more comfortable place to be politically than answering questions about why the chancellor's just confirmed the deepest recession, the fastest rise in unemployment and the biggest rise in borrowing since the war.
[…]

stealth spending cuts have replaced stealth tax rises as the principal tool of the Treasury. […]

stats suggests that that headline grabbing rise in the top rate of tax will actually raise less than increased fuel duty (up 2p a litre in September) and the squeeze on public spending.

And something that will not be too high on the news agenda - the terror plot that probably wasn't.

For more on the 2009 budget see

• 'Andrew Neil on the 50% income tax rate for higher earners'
  
• 'Labour & press relations'
• 'The Guardian columnists' view of the budget'