December 07, 2007

Supermarker Collusion.

Recently Sainsbury and Asda admitted to fixing the prices of milk and cheese to high prices (e.g. +3p of a pint of milk, +15p for a quarter-pound of butter, +15p for a half-pound of cheese). This was after an OFT (Office of Fair Trading) investigation, and now they have agreed to pay fines totalling at least to £116 M. Tesco and Morrisons are also under investigation, although they haven’t admitted to anything yet.

However apart from this being a simple case of a nasty capitalist conspiracy to rip off the consumer, I think the case well reflects the complexity of the modern economy; where it is characterised by nexuses of strategic decision making power.

A play of many actors.
In recent years, because of foot and mouth, British dairy farmers have been having a bad time. The supermarkets has said that their actions were to help give British farmers more money. Lobbying by interest groups could have led to this seemingly altruistic act. Dairy Crest (also part of the plot, fined: £9M) said: “The implementation of these initiatives was very well publicised at the time and received widespread support including strong political backing”.

Its common knowledge that the farming community is very well politically organised (i.e. CAP). Thus it isn’t implausible to imagine that during this industrial depression rural MPs spent their efforts trying to lobby supermarkets. Indeed the National Farmer’s Union has refused to comment on the OFT’s hearing, perhaps because they want to hide their dirty hands?

OFT as a clunking fist?
The OFT’s mandate is to break up collusive agreements that leads to higher prices for the consumer. Thus witnessing this agreements they have, regardless of the broader welfare consequences, exploited their power to break the collusion up. But it shouldn’t be forgotten that the OFT is a de facto politically accountable organisation. If the rural MPs were politically strong enough then it’s likely that they could have guided the OFT to be much more sympathetic.

For instance it’s doubtful whether the competition commission would have behaved similarly in France. Plus if the case was the military and BAE systems, instead of milk and the supermarkets, it’s likely that OFT would be much more sympathetic again, as the government would be much more accountable to the industry in question.

November 21, 2007

Northern Rock: am I missing something?

Many of the front pages of the front pages of yesterday’s newspapers had the following headline: of yesterday’s newspapers had the following headline:

‘Taxpayers could face a multimillion-pound bill for the rescue of Northern Rock, after Alistair Darling refused to give a guarantee that the £24 billion Bank of England loan will ever be fully repaid.’

But what is the big deal?

Northern Rock had a bank run. This meant they lacked the liquidity to give all their depositors their money back. However this doesn’t mean that they didn’t have the assets. The loans that Northern Rock held are still good. Thus then government lent the bank this money in order to provide them with this liquidity, and then when the loans mature the bank will have the money in order to pay their government loan back. No problem

The only circumstance in which the loan couldn’t be paid back was if there was mass defaulting on loans. This could happen if there was a severe recession in the economy or if there was a severe drop in house prices (thus causing people to have negative equity on their homes). Most economists appear to predict a slowdown in growth in coming years; hence the first scenario won’t happen. In the US average house prices has recently fallen by 8%; thus the second scenario is a possibility.

But surely if there is going to be a massive bursting of the house-price bubble this would make a more interesting headline then noting that the government’s loan won’t be paid back?

Indeed what if this ‘giveaway’? In practice all it really will mean is that a lot of government money is, instead of being spent by the government, is being given to the Northern Rock depositors (i.e. a large group of randomly chosen people) so they can spend it instead.

November 19, 2007

ICA newsletter, Week 8

This week:

• Two of the main candidates for the Democratic nomination clashed in a debate, over rumours over ‘scandalous information’ possessed by the Clinton electoral team about Barack Obama. This follows a row about planted questions in one Clinton rally in Iowa, and Clinton has been accused of not giving ‘straight answers to tough questions’ by Obama. So are the Democrats playing into the hands of the Republicans with infighting? And more generally how do we think the US electoral process is going to pan-out? – Guide to the US electoral process – Quick guide to the candidates

• President Sarkozy is facing up to the first challenge to his Presidency in the form of striking public sector workers. Sarkozy was elected on a package of reforms, but the workers are striking over pension reforms. Sarkozy may be comforted by polls showing 55-60% of French opposing the strikes, but a poll in Liberation showed 79% believed that Sarkozy had failed to deliver on his central economic pledges. So is this a key moment in the Sarkozy economic project? And can a French President successfully stand-up to strikes?

• Foreign Secretary David Miliband has suggested that the EU should expand beyond Europe, to include Russia, Middle Eastern and North African countries. He claimed that EU enlargement was ‘our most important tool’ for extending stability, seeing the EU less as a potential superpower and more as a bargaining chip in persuading countries to reform and adhere to global standards. So is an ever expanding EU feasible, given the anti-immigration feelings brewing in some sectors of many European countries? And would countries from the aforementioned regions actually wish to join the EU?

Also in the news:

• Elephant football in Thailand –
• Blondes make men act dumb –
• Ahmadinejad dismisses dollar –

November 05, 2007

ICA newsletter – Week 6

Hi all, hope you’re enjoying reading week if you’re so blessed, anyway some of the main stories this last week:

• Pakistan seems to be at crisis point after General Musharraf imposed emergency restrictions in order to prevent Pakistan ‘committing suicide’. The stated reason for the restrictions was to control jihadists who have been mounting increasingly regular attacks in Pakistan for the past few weeks. However, the restrictions seem to have extensively targeted Musharraf’s political opponents, including former Pakistan cricketer Imran Khan under house arrest. In total over 500 lawyers, politicians and human rights activists have been arrested. This has led critics to suggest that the General is simply attempting to prevent the Supreme Court from declaring his Presidency illegal. So what will be the outcome of the current protests, if any? Is General Musharraf’s position untenable, even from within the army?

• New head of MI5 Jonathan Evans has claimed that Al-Qaeda is specifically targeting people as young as 15 to carry out terrorist acts. He also claimed that the Al-Qaeda ‘franchise’ was spreading and expanding their activities in Somalia, Algeria and that the division in Iraq aspires to promote activities outside of Iraq. His comments come as the government seems set to seek an extension of the time limit under which suspects may be held from 28 to 56 days. After 90 day detention was rejected in the last Parliament is an extension needed? Do our police really need 56 days, when Spanish police are limited to 10?

• The Metropolitan Police have been found guilty of endangering the public over the fatal shooting of John Charles de Menezes. The force was found to have broken health and safety laws and was fined £175,000 plus costs. However, no-one was convicted of personal responsibility for the death. Should Sir Ian Blair pay a, even symbolic, price? Or is the verdict fair?

Also I seem to remember Scott at least wanted to talk about Saudi Arabia so if others do as well we can carry that over from last week. Also women can vote in Iran, as they can in most Middle-Eastern countries, Saudi Arabia being a notable exception.

Also in the news:

• Supermodel rejects dollar pay –
• Mother dies after refusing blood –
• Chadian adoption scandal –

October 31, 2007

Project for New American Century.

Today in the ICA meeting a member told us about the Project for a New American Century. It’s a think tank (set up in 1997) that aims to significantly increase US military spending and intervention in the world so to ensure US interests are promoted. On its foundation a statement of principles was a collection of signed supporters, below are a few of its signatories:

Jeb Bush: Governor of Florida (1999-2007) and George Bush’s brother.
Donald Rumsfeld: Secretary of Defense (1975-1977, 2001-2006).
Paul Wolfewitz: Deputy Secretary of Defence (2001-2005), President of World Bank (2005-2007).
Dick Chaney: Vice President (2001-).
Dan Quayle: Vice President (1989-1993).
Zalmay Khalilzad: Ambassador; Afghanistan (2003-2005), Iraq (2005-2007), UN (2007-).
Steve Forbes: CEO Forbes Inc (publishes Forbes magazine).

October 29, 2007

Two Americas?

The two maps here shows which states would have voted which way in the 2004 presidential elections. The first shows if only the votes of poor voters were counted, and the second if only rich people were counted; with blue signifying democrats. What we see is one of class warfare, the poor votes democrats and the rich votes republicans. However reading the newspapers gives the impression that America is fundamentally divided, since the 1960s, between liberal Vs Conservative line, such as in: Abortion, Gay marriages, War on terror, etc. Short term policies designed to divide the working classes so that the elite can control the economic agenda.

ICA newsletter, week 5

ICA newsletter – Week 5.

Hi all, my calendar tells me it’s another new week again so here’s another ICA newsletter:

• First story of the week is that the US has stepped up sanctions on Iran to target the finances of the Revolutionary guards, and three state owned banks. These sanctions also extend to the guards business interests. Condoleezza Rice claimed Iran is pursuing technologies ‘that can lead to a nuclear weapon’, but reiterated her commitment to a diplomatic solution, offering to meet her Iranian counterpart, ‘anytime, anywhere’. Such a position is a stark contrast from that of US Vice-President Dick Cheney, who is believed to be lobbying for a military intervention. With Iran’s position similarly hardening also, after the resignation of Ali Larijani and his replacement with the more hard-line Saeed Jalili, is there actually any hope of a peaceful solution? Or will America and/or Israel replicate the Syrian operation? (If we believe the satellite analysis). – also it appears that it is perfectly ok for Egypt to build nuclear plants for power??

• Second, with the visit of King Abdullah, the first visit to the UK by a Saudi monarch in 20 years, ministers seem keen to stress the ‘shared values’ between the two states. One of the most important of those values seems to be the weapons industry, with the Saudis buying 72 Eurofighters from the UK in a deal worth £20 billion including maintenance and training. Lib Dem Vince Cable has boycotted the King’s visit, citing the Kingdom’s human rights record, and saying that the King should not have been invited. So should the UK press the Saudis harder on their human rights record? Or are the contracts and the jobs they bring just too good to resist?

A UN expert has condemned the growing of crops to produce biofuels as a ‘crime against humanity’, calling for a five year ban on the practice. Production for biofuels has helped to push food prices higher. The IMF recently voiced concerned that a rise in the reliance on grain as a fuel source could have serious implications for the worlds poor.

Also in the news:

• Lets all hide monkeys under our hats….
• Human race to split in two –, along with artists impression
• Absence of goats made me speed –

October 23, 2007

ICA Newsletter, week 4.

Hi and welcome to week 4 with ICA. Obviously this week has seen a few sporting failures for England whether through toes going into touch, technical problems or just plain uselessness, but we’ll just gloss over those….

First of all, 12 soldiers and 32 PKK, (Kurdistan Workers Party), rebels have been killed in clashes close to the Iraq-Turkey border. These clashes occurred just days after MPs in the Turkish parliament had voted overwhelmingly in support of a motion to allow the
military to launch cross-border offensives against rebels based in the mountainous areas of northern Iraq. The heightening of tensions along this border comes after an increase in the frequency of attacks by PKK guerrillas on targets in the south of Turkey. There has been increasing pressure on the Turkish government to act against the rebels, but the Iraqi and US authorities are against any incursion into Iraq for fear it may destabilise Iraq’s most peaceful region. Can the Turkish justify an incursion into foreign territory to prevent terrorism? And would such an attack work anyway, or would it be another Lebanon?,,2196707,00.html

EU leaders have reached an agreement over the new EU treaty, (not a constitution, honest), after objections from Italy and Poland were overcome. The treaty includes the creation of a new longer term president of the European Council and an EU foreign policy chief. Gordon Brown said that the so-called ‘red lines’ declared around various policy areas had been protected, but still faced pressure to call a referendum on the treaty. So does the treaty really matter? And what would be the long-term consequences to Britain’s position within Europe if there was a ‘No’ vote?

Former Mozambique President Joaquim Chissano has one the inaugural, $5 million, Mo Ibrahim Prize rewarding a retired African head of state for ‘excellence in leadership’. Mr Chissano brought Mozambique from civil war to peace and progress during his 19 years
in office. However, with many of his competitors for the prize having less than glorious records in office, is such a prize actually an incentive for good governance? And to what extent is poor governance an explanation for Africa’s development problems?

other news:

Iran’s nuclear negotiator resigns -

Global stocks see sharp
decline –

Dumbledore outed -

Sarkozy gets a divorce -

Send in the ladybirds -

October 21, 2007

Its Politics, stupid!

Not exactly current affairs, but interesting nonetheless. The graph (from a entry last month from Krugman’s new, and very good, blog) show the proportion of US income that goes to the richest 10% of American’s. As clearly shown, there is increasing inequality in the US.

What is most interesting however from this graph is that, if anything, it’s a cry to arms for political activists (of any allegiance). Being an economist I often here the idea that the markets determines the distribution of income, etc, and there is little that the government can actually do that isn’t superficial.

However the massive decrease in inequality we can see that was achieved in the 1930s appears to be proof that the motivated intervention by the New Deal activists really did manage to achieve a real change in the distribution of income. Furthermore the reactionary conservative movement of the 1980s managed to sweep away the New Deal legislation and hence lead the economy to the previous levels of inequality. In the first case it took 5 years, in the second about 15 years, but either way the conclusion is the same. A strong and concentrated political movement can lead to very real movements in the nature of our society.

October 17, 2007

BBC Job Cuts.

BBC management are planning to enforce 2,000 compulsory redundancies, this is equivalent to cutting the BBC BBCworkforce by 10%. The cuts are necessary because of a distinct fall in planned future government funding. Anger amongst the BBC workers (including Jeremy Paxman, as it seems that many of the cuts will be in the News departments) has led to many to imply that future strike action is very likely.

The classic debate is will these cuts improve efficiency sufficiently enough to justify the fall in quality. Naturally the BBC journalist has cried that the sky is falling and that the quality of BBC programming will fall dramatically. However the management seems to be planning to synthesize the News radio, television, and internet departments, thus this gives them a way to argue that actually the cuts will be on useless management and duplicative journalists; hence quality will not be damaged.

But (putting my conspiracy hat on) what has led to the government cutting expenditure so much? One would imagine that efficiency improvements would be done naturally; it wouldn’t require the government to enforce it. Could it be in order to appease Rupurt Murdoch? Gordon Brown would remember Murdoch’s responsibility in causing Labour to lose the 1992 election, could this be an attempt to buy Murdoch’s support…

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