Tuesday, 2 September 2014

London Airport

A plan for a brand new airport for London championed by the city's mayor has failed to secure the backing of a commission studying how to add hub capacity in the UK. The commission found that the likely "obstacles to delivery, high costs and uncertain benefits" are in line with today’s thinking that a London airport in deepest Kent is pointless, as well as outrageously expensive.

The commission said “While we recognise the need for a hub airport, we believe this should be a part of an effective system of competing airports to meet the needs of a widely spread and diverse market like London's. There are serious doubts about the delivery and operation of a very large hub airport in the estuary. The economic disruption would be huge and there are environmental hurdles which it may prove impossible, or very time-consuming to surmount.”

Time and public money should never have been spent on a project whose costs have been put at up to £100 billion. This is more than what they want to spend on HS2! The proposals must be cost-effective and offer value for money. There needs to be a credible funding mechanism based on realistic forecasts and today's passengers must not be expected to pay for tomorrow's infrastructure.

London, with five main commercial airports, has struggled with Heathrow, the U.K.'s principal long-haul airport, which has little margin to absorb operational or weather-induced disruptions. Advocates of more capacity have said an inability to accommodate new flights to routes into growth markets such as China puts the U.K.'s economic development at risk.

The rejection of the estuary scheme will leave just three options - two additional runway plans at Heathrow and one at Gatwick - still on the table for consideration by the commission, which is charged with recommending where airport expansion should come.

Expanding Gatwick will ensure the U.K. is served by two successful world class airports. It can liberate hub capacity at Heathrow and open up the opportunities for affordable long haul travel to emerging markets for the benefit of everyone. It already has an excellent connection to London with first class rail travel taking a mere 30 minutes from London Victoria. There is more than enough room to expand without disturbing the local populous.

Sunday, 31 August 2014

World growth

I always thought that China was in place to overtake the west with recent growth patterns, however the world bank says the experts have been getting carried away with bogus data using PPP [Purchasing Power Parity] rather than on actual exchange rates.

PPP based measures of GDP [Gross Domestic Product] (per capita) might make sense if we want to measure how much an average citizen can buy for given an average income, however, it does not make sense when we want to measure the size of the economy. There we have to use measures based on actual exchange rates and if we do that then it turns out that the Chinese economy is still significantly smaller than the UK or US economy.

My argument is that it makes no sense to use nominal exchange rates to compare the size of economies. Perhaps it makes sense if you want to look at the impact on global trade [China exports far more than the UK or US], but surely not if comparing domestic production. Take the US as an example, I recall the Euro being about 85 cents around 2002, then by 2008 it peaked around $1.60, and yet the US and Euro zone had roughly similar NGDP [Nominal Gross Domestic Product] growth rates over this 6 year period. Does anyone believe that comparing non-PPP adjusted GDPs would have given a meaningful comparison of the relative size of these two economies? Did the Euro zone suddenly go from having an economy much smaller than the US to one far larger, in six years? Maybe.

Now consider the effect of tax regimes. Suppose you adopt a VAT that provides revenue equal to 20% of GDP. Your nominal GDP at market exchange rates will suddenly jump by 20%, even though nothing has happened to the real size of your economy. Indeed the European VATs are one factor that explains why Europe often looks better against the US if you don’t adjust for PPP.

Saturday, 30 August 2014

Ashya King

I have just read that an arrest warrant has been issued for Ashya King's parents!

Unless I have missed something, I thought Mr & Mrs King had taken Ashya from a hospital against medical advice, not advisable perhaps, but an offence! What offence?

I have no idea why they did it and I am not going to pre-judge as I suspect there is more to it than has been reported, but is it really possible to arrest someone from taking a relative out of a UK hospital?

I am stunned.

Friday, 29 August 2014

The crumbling conservatives

Yesterday Tory MP Douglas Carswell announced at a special press conference that he is defecting to Ukip.

The Tory whips move into action mode by saying that the Conservative party will contest the by-election vigorously, to ensure that the people of Clacton have a strong Conservative voice in this Parliament and the next.

As well as saying his decision is regrettable and counterproductive, the other Tory response to this morning’s shock defection by Douglas Carswell is to point people to instances where Carswell has said that only David Cameron as Prime Minister in 2017 will guarantee a referendum. It is clear that Douglas Carswell no longer believes this to be the case, so much co that he is prepared to leave the party he has been fighting for to join another.

Douglas Carswell’s defection today to Ukip is terrible for David Cameron. But it is also deeply inconvenient for his band of eurosceptic brothers. He was a key member of a powerful ‘cell’ of MPs who met regularly to discuss strategies for pushing the Conservative leadership further on European policy.

But what happens to that eurosceptic cause now? They had been discussing how to get more detail out of the Prime Minister, and presumably Carswell had been a block to any ‘shenanigans’ on this. But just because he has left the building and seriously shaken up the Tories, it doesn’t mean that Carswell’s defection is helpful to the eurosceptic cause.

On the other hand, I expect Nigel Farage to have an extra pint today...

Wednesday, 27 August 2014


The report is out now we need action and what do we get? Denial!

What do we want? Prosecutions.

Who should be doing this?

Parliamentary Under Secretary of State for Communities and Local Government, and this is Stephen Williams MP.

Is it going to happen? Probably not.

What should happen is Stephen Williams should travel to Rotherham with his usual entourage, sack the lot, have them thrown out of the Town Hall and then they should be arrested, questioned and charged.

Can you see that happening?

Monday, 25 August 2014

Foreign student immigration

Apparently the government includes foreign students arriving from abroad to attend our universities and business schools in their immigration figures. Why?

The Office for National Statistics estimated that net long-term migration to the UK was 212,000 last year. Prime Minister David Cameron has pledged to reduce net migration to less than 100,000 a year by 2015, while Home Secretary Theresa May has spoken about reducing it to tens of thousands.

Students come to the UK to study and then graduate and return home whereas people who were seen as part of the immigration problem often had limited qualifications, do not have a job and put a strain on national resources.

I do not believe they should be included.

Sunday, 24 August 2014

European hot spots

Recently Germany has been in the spot light for underperforming industry & financial figures but it is not the only one. Italy is now going through what has been officially termed a triple dip recession.

This is an interesting theoretical nicety, but in fact what is happening in Italy at the moment goes a lot further than problems faced by a recession dating committee. The real issue that arises in the context of the Euro Area at the moment is a far more specific one. Will the ECB [European Central Bank] do QE [quantative easing]?

Everyone knows that Italy is back in recession following the 0.2% GDP contraction in the second quarter. Not only did this result suggest that Italy was now in a triple dip recession [or a twenty year decline], it also meant that GDP [gross domestic product] was back at the same level it had in 2000, when the country entered the Euro currency union, this is a surprise. The problem is that Italy has an appallingly low trend GDP growth rate [possibly negative at this point] and nothing which has happened since the financial crisis ended suggests it is going to improve radically anytime soon, in fact there are good reasons to think that  growth could  even deteriorate further.

The combination of low inflation and low growth means that it is the evolution of nominal GDP that really matters now. Nominal GDP is non inflation corrected GDP [or GDP at current rather than constant prices]. If inflation remains low or even becomes negative, then nominal GDP will hardly increase and may even continue to contract [as has happened in Japan]. The result is bound to be that the gross government debt to GDP ratio rises above the 135% it hit in March.

One of the arguments frequently advanced about how this dynamic could be turned around would be for Italy to run a “large” primary budget surplus. Now the emphasis here is on large since the country has in fact run a primary surplus [income / expenditure before paying debt interest] since the early 1990s, but that has not stopped the weight of the debt climbing and climbing.

Italy’s debt now looks certain to climb towards 140% of GDP and beyond [maybe hitting that level as early as Q1 2015], meaning someone somewhere in the official sector should be able to recognize that it is not on a sustainable path. The so called AQRs [bank asset quality reviews] are probably not going to generate too many surprises, but what about doing some realistic DSA’s [debt sustainability analyses]?

So EU leaders and the ECB now face a dilemma. Trying to make Italy comply with its EU deficit and debt obligations may well mean that the deficit comes down but in all probability the debt level will go up given the weak nominal GDP effect.