Now that inflation — as measured by the Consumer Price Index — has risen to 3.5%, Mervyn King has had to write a letter to the Chancellor, Alistair Darling, to explain himself.
Helpfully, the Adam Smith Institute has drafted it for him. “Dear Al, as you are aware, the Bank of England recently printed £200 billion of new money.
“This new cash was used to plug your Government's record-breaking budget deficit, and pumped into the economy via public spending. You also raised VAT by 2.5% at the end of 2009, pushing up retail prices. Are you really that surprised that we are seeing inflation? Lots of love, Merv x.”
Published in the Evening Standard here.
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Written by Dr Madsen Pirie
The Tobin Tax, which is now dubbed the "Robin Hood Tax" in an attempt to increase its appeal, has attracted the support of "350 economists from across the world". They have written to G20 leaders calling on them to introduce a financial transactions tax on speculative dealings in foreign currencies, shares and other securities.
This assembly of opinion calls to mind the letter sent to The Times in March 1981 and signed by 364 economists. They denounced the Conservative governments anti-inflation policies, saying they would never bring economic recovery. The 364 represented one for every day of the year (yes, they got that wrong, too). It is now a matter of record that what they said was impossible occurred soon afterwards.
Their modern successors call for the tax to be levied at 0.05 percent, which they say makes it a tiny tax that will raise big revenues of $400bn. This is indeed a substantial amount, representing more than half of the profits of the worldwide banking industry ($788bn in 2006). They also say that it will hit only the rich, since it will not affect the retail banking sector.
This fails to recognise that taxes are always passed on to the customer. Many of these financial transactions are done as insurance, to guard the value of contracts against possible adverse currency changes. The notion that an industry will blithely accept the confiscation of half its profits belongs in fantasy. Banks will pas it on, and ultimately it will fall on those with mortgages and loans, changing foreign currency, or saving in insurance or pension funds.
Capital will be made more expensive if this tax ever comes about, hitting the ability of poorer countries to raise investment funds. Fortunately the tax is not likely to come about, since it would require the agreement of every tax jurisdiction to make it work, and the record of international consent, as illustrated by the stalled World Trade talks, is minimal.
Without that consent, traders would simply move to where it was not levied. The "Robin Hood Tax" might look superficially attractive, but it would do profound damage to the world economy and, far from hitting "the rich", it would be the world's poor who suffered most. This could be one reason why Bank of England Governor Mervyn King described it as "bottom of the list" of options.
If campaigners want to spend charitable funds on these campaigns, they would be more effective in calling not for higher taxes, but for the end of the protectionist tariffs that prevent poorer countries from selling their goods.
Published on Telegraph.co.uk here.
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Written by Ephraim Hardcastle
Latest pensée from Eamonn Butler of the Adam Smith Institute, this one about the Toyota debacle: 'Apparently the problem is that the accelerator sticks on and the brakes don't work. On those grounds, we should have recalled the British government long ago.'
Published in the Daily Mail here.
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Written by Roy Mayall
During the course of the programme we were offered the views of three commentators. There was Richard Hooper, author of a report that provided the basis for Peter Mandelson's suggestion last year that the Royal Mail be part-privatised. There was Dr Madsen Pirie of the Adam Smith Institute, which last year published an article suggesting that the universal delivery obligation should be abandoned. And then there was Jonathan DeCarteret who, in the words of the programme, "helps companies switch from Royal Mail to rival operators".
Published on guardian.co.uk here.
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Continuing global economic growth "is not possible" if nations are to tackle climate change, a report by an environmental think-thank has warned.
The New Economics Foundation (Nef) said "unprecedented and probably impossible" carbon reductions would be needed to hold temperature rises below 2C (3.6F).
Scientists say exceeding this limit could lead to dangerous global warming.
"We urgently need to change our economy to live within its environmental budget," said Nef's policy director.
Andrew Simms added: "There is no global, environmental central bank to bail us out if we become ecologically bankrupt." None of the existing models or policies could "square the circle" of economic growth with climate safety, Nef added.
'No magic bullets'
In the report, Growth Isn't Possible, the authors looked at the main models for climate change and energy use in the global economy.
They then considered whether economic growth could be maintained while "retaining a good likelihood" of limiting the global average temperature to within 2C of pre-industrial levels.
The report concluded that a growth rate of just 3%, the "carbon intensity" of the global economy would need to fall by 95% by 2050 from 2002 levels. This would require an average annual reduction of 6.5%.
However, the authors said that the world's carbon intensity had "flatlined" between 2000 and 2007.
"For each year the target was missed, the necessary improvements would grow higher still," they observed.
The findings also suggested that there was no proven technological advance that would allow "business as usual" to continue. "Magic bullets - such as carbon capture and storage, nuclear or even geo-engineering - are potentially dangerous distractions from more human-scale solutions," said co-author Victoria Johnson, Nef's lead researcher for the climate change and energy programme.
She added that there was growing support for community-scale projects, such as decentralised energy systems, but support from governments was needed.
"At the moment, magic bullets... are getting much of the funding and political attention, but are missing the targets," Dr Johnson said.
"Our research shows that to prevent runaway climate change, this needs to change." The report concluded that an economy that respected environmental thresholds, which include biodiversity and the finite availability of natural resources, would be better placed to deliver human well-being in the long run. Tom Clougherty, executive director of the Adam Smith Institute, a free-market think-thank, said Nef's report exhibited "a complete lack of understanding of economics and, indeed, human development".
"It is precisely this economic growth which will lift the poor out of poverty and improve the environmental standards that really matter to people - like clean air and water - in the process, as it has done throughout human history," he told BBC News.
"There's only one good thing I can say for the Nef's report, and that's that it is honest. It's authors admit that they want us to be poorer and to lead more restricted lives for the sake of their faddish beliefs."
Published on the BBC here.
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Written by Ephraim Hardcastle
Eamonn Butler of the Adam Smith Institute - which is named after the sensible, 18th century Scottish economic sage - sees one reason to be sanguine about the latest terror tactic: 'What zealot wants to go down in history as an underpants bomber?'
Published in the Daily Mail here.
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