b) the pensioners who’re hit by fuel poverty are the few really poor ones reliant on benefits (by ‘few’ I mean that pensioners are less likely to be in extreme poverty than non-pensioners, partly because they get more generous benefits than everyone else); the ones who benefit from rising BP share prices are the others.

That’s a moronic point – BP isn’t a chap in a top hat smoking cigars, it’s several million people’s pension funds.

It amazes how many of you criticising the tax that oil companies have to pay when a company like BP makes £6.75 billion a year, a 23% increase on last year. Wait a minute, what BP makes in an hour, someone on the minimum wage would need to work over two years to make the same amount.

The windfall tax will fall mostly on the petrol companies because demand for oil is more elastic than supply. The proceeds for the tax will make energy cheaper (i.e. investment in better insulation) and more sustainable (i.e. investment in renewables) for people. The cost of insulation and renewable energy is much more elastic than the cost of petrol (unless you think the UK can buy off OPEP and at the same time prevent any externalities affecting the cost?), so with greater investment to make sustainable energy solutions cheaper, people will see which energies are the most cost-effective for them. Unless the cost of oil goes down, private investors will be more likely to put their money in these solutions too, especially if they aren’t as affected by externalities that petrol is impacted by. I forgot, this also creates jobs in that sector…

Obviously, windfall tax isn’t the only answer, we could also introduce smart tariffs for energy where people would get access to cheaper energy up to a reasonable level and then charge higher rates if you consume more than that.

Royal Dutch Shell, BP, Gazprom, Aramco are indeed all making stupendously large amounts of money out of $120 oil, because their job is to get oil and gas out of the ground and sell it to other people. EDF, RWE and EON are not, because their job is to pay the first lot the market price for oil and gas, convert it to electricity, and sell it to us.

Oil and gas companies in the North Sea are indeed taxed at an enormous rate, and North Sea tax revenues does indeed increase dramatically when oil prices are high. But we can’t tax the foreign oil and gas companies who get oil out of the ground in foreign countries – and they’re the ones who’re doing most of the syphoning.

That would be the governments in taxation. Either through the State owned companies that actually do a lot of the pumping (Aramco etc) or through royalties and profit taxes on those private sector companies. British Gas, for example, pays 75% profit tax on it gas from the North Sea. North Sea oil pays royalties plus (I think) 50% profit tax.

It is a fallacy to suggest that it is redistributive in any meaningful sense because the underlying conditions remain the same, unless the one-off tax becomes part of the regular practise of budget measures punishing acceptable behaviour for having unacceptable consequences – in which case it isn’t either a ‘windfall’ or a one-off.

Historically speaking Income Tax was considered acceptable only on a one-off basis – that is until the political elites discovered that it was politically expedient to bow to the pressure of growing proletarian power for the state to provide social services. Exactly how many wars have been stopped by widespread tax rebellions?

The fact is that taxation does nothing to effectively redistribute direct power because power is based on the ability to create wealth not wealth itself and taxation limits economic choice, so supporters of this petition are wrong if they do so on a redistributive basis.

Like Thomas I’m less interested in the economics of this situation, given that I understand now you’re talking not about long term solutions it’s clear how political this is. I’d be able to support the idea of a windfall tax if it wasn’t for the government taking with the other hand from the poor at the same time.

Giving the government the authority of public pressure to introduce more taxes (this time on corporations) while they’re happy to siphon off an increasing amount of money from the social housing market (£200mil this year), and raise taxes that disproportionately affect the poor, you’re not solving the problem of funding a strategic future and security for energy. But then I guess in line with Thomas’ point it is hard to simply hold Brown to ransom if you’re actively going out there and making a big deal about how Labour are no longer about being “fair” to the poor and have no wish to be?

The point I’d raise is that the politics of Neal Lawson and Co producing a petition for a winfall tax are far more interesting than the economics.

Whether or not the petition succeeds in getting what it calls for is less important than satisfying the demand for Labour to be seen to be helping the poor (ie those in fuel poverty), whether the facts bear out the theory or not.

The supporters of a windfall tax are those on the left of Labour and they know they have to play to their constituency in order to win their votes come the election. So this is effectively holding the leadership of the party to ransom while threatening to coalesce potential rebels who might form a breakaway group or mount a coup to overthrow Brown.

Ultimately which side wins control of the leadership comes down to pure political calculation whether there are more votes on the left than in the centre, but one thing is certain it shows how weak Brown is.

For the (I’m not sure, is it the 4th or) 3rd time now, golden parachutes are not a “market” anything. They can be seen by you and me as a company failing, but they are not a market policy. Shareholders rights could well be increased, but this is already happening, without extra regulation.

“My point here is two-fold: that right-wingers say very little about this kind of market failure”

When you’re mis-characterising a corporate policy as “market failure”, they probably get tired of repeating themselves.

“This sounds a bit like when left-wingers try to blame crime entirely on social conditions.”

I’m not blaming it entirely on anything, as you might have noticed. I gave a list of people who could be considered to blame. There are specific cases where it hasn’t happened for reasons of national macroeconomic stability, but in general the biggest losers have been shareholders in the financial companies. Not the “grannies” I keep hearing about.

“More regulation would do that.”

More regulation would not stop boom and bust. That’s getting rather silly.

“And all the arguments against it (my grannies shares will fall! People will throw that money away on fuel bills!) are pretty lame.”

Or.. it’s just a bad policy that won’t actually achieve its aim. But then, never let logic get in the way of a rant.

“but it can prevent markets tipping over, as clearly would have happened”

No, regulation would not have prevented this current bust.

“if Freddie Mac and Fannie Mae were allowed to go bust. I suppose you’re also opposing the Feds supporting them?”

I believe we’ve been over this. I didn’t support the creation of F/F, and their leeway to leave their original brief (low-end mortgages) was dangerous and myopic. While you see their fall as “death to free-market theory”, a free-marketer wouldn’t have created them in the first place, and most certainly wouldn’t have let them become general-mortgage-sucking behemoths.

“No, my point was that right-wing thinking is pretty much exhausted right now”

To be fair, the only person calling me right-wing is.. you. If we were talking about changes to personal income tax, or sales tax, or most other issues, I’d probably fall slightly left of centre. But, I understand that drawing me as some hard-right type makes it easier to dismiss my arguments.

“markets will self-correct painlessly and that everyone will come out happier.”

Wrong, and wrong. Where did I mention “painlessly” or “happier”? Readjustments are always painful, and rarely create happiness. However, they are necessary. And, yes, the market will correct itself, as it is already in the process of doing. All I’m saying is that emotionally-driven, hasty legislation in the aftermath of downturns very rarely turn out to be sensible. If you want to clip the tails of business, it makes more sense to do it on the way up.

“no way as dangerous as various people are making it out to be”

Not dangerous, just stupid.

I’m perfectly aware of basic economic theory, thanks, I did spend four years studying it at University. My point here is that you should occasionally try economic reality instead of just theory.

So for example:

You’re obviously correct that the market hasn’t “self-corrected” this but if you knew a little more economics you’d know that this isn’t something that right wingers ignore.

Great! If you could point me to the reams of outrage about the massive pay-offs and fatcat salaries I’d be grateful.

It’s also not unique to private business: an MP or a Minister gets a pay off when they lose office, that’s a reward for failure, isn’t it?

And I’m opposed to that too, but ministers usually get the equivalent of redundancy payments which don’t amount to tens of millions of dollars/pounds. So the scale is completely different. Besides, isn’t this an admission then that the private sector is worse than the public sector?

Thus the entire increase in the price has indeed been as a result of an increase in demand. But then that’s economics….

This is what I mean by wishful thinking. No doubt strong demand from China has played a part, but you don’t think uncertainty in the Middle East and the Iraq war has played a part? This simple demand / supply equation is fantasy.

No, Tim is assuming that the money taken from gas companies would be spent on finding gas: and that oil on oil but….there is also the point that by reducing the profits of those already in the industry you deter new entrants.

The oil companies make most of their profits from oil exploration anyway – so there’s very low possibility they’ll stop this anytime soon.

Secondly, the abnormally high profits in fact make it harder for new entrants to come in and compete on equal terms. This is also basic economic theory.

They’re a signal to hte market that extra profits are available in a certain sector.

Yes…. because it signals to the market that there isn’;t enough competition in that sector. Get with the programme Tim.

No, when the Bear Stearns shareholders, as the Northern Rock ones, were wiped out, that’s when us free marketeers (who you bizarrely seem to think are right wingers) began to win the argument

NOt sure what your point is here. The Bear Sterns collapse caused enough ripples that had the potential to bring down the financial system to ruin, otherwise the Fed wouldn’t have to step in. Meanwhile, there was barely a squeak from free-marketers, or nothing substantial that reflected the real world.

Similarly, the bailing out of Freddie Mac and Fannie Mae says that the pure free marketers lost the argument: clearly the market doesn’t correct early enough, and that the whole system itself was in danger of going under given market conditions.
If it had been allowed to go under, as many free marketers would have advocated (is that what you’d advocate?) then free marketism would be as popular as the bubonic plague over the coming decades.

Sticking a windfall tax on utilities is less sensible, given that they’re paying more for the gas they buy – the problem is that oil and gas are more expensive, not that E.ON and RWE are fatcats. If we are going to do it, we should certainly spend it on energy efficiency – and not on allowing people to use more energy that they shouldn’t be using.

What’s wrong with wearing a jumper in the winter, anyway?

It’s an interesting example of a completely untrue meme becoming received fact, certainly.

The primary practical consequence of a windfall tax on energy companies now would be that investors would expect it to happen again when they made good profits in energy. They will therefore invest less in finding new, profitable energy sources; renewable or non-renewable. Energy prices will therefore stay higher than necessary.

I am infavour of substantial taxes on energy, but for heavens sake do it in a considered way taking the long view. Lashing about with a windfall tax will only do harm.

At a time where the government and the green lobby is constantly moaning about energy companies not investing enough money in renewables and cleaner energy sources (which is going to cost them billions), how can a windfall tax be justified?

By all means tax these companies to death, but don’t blame them when they turn to cheap coal and increase our dependence on foreign oil.

http://lettersfromatory.wordpress.com

“My point here is two-fold: that right-wingers say very little about this kind of market failure, and that markets don’ always self-correct.”

Us “right wingers” have said a great deal about this for many years. It’s called the principal agent problem. It’s well known, there’s reams and reams of work on it. You’re obviously correct that the market hasn’t “self-corrected” this but if you knew a little more economics you’d know that this isn’t something that right wingers ignore.

It’s also not unique to private business: an MP or a Minister gets a pay off when they lose office, that’s a reward for failure, isn’t it?

“As I said above, increased demand has probably played a negligible effect on the higher prices. Prices don’t jump from ten dollars a barrel to 150 just because of demand.”

Erm, oil production is no lower this year than it was last. Or the year before. There has been no reduction in supply. Thus the entire increase in the price has indeed been as a result of an increase in demand. But then that’s economics….

“Secondly, Tim is assuming the money taken away from gas companies will be spent on extracting oil.”

No, Tim is assuming that the money taken from gas companies would be spent on finding gas: and that oil on oil but….there is also the point that by reducing the profits of those already in the industry you deter new entrants. Want to go and look up how much new money has flowed into oil and gas companies via the LSE and AIM over the past few years as people chase those high profits?

Further, we’ve actually done this before. A couple of years back Brown increased the profits tax on extraction from North Sea oil fields. Yes, production did fall the next year. The Guardian reported that it was because of the higher taxes. That’s economics you see….when you tax something you get less of it.

“But is oil a normal good? It has vast unpriced (and mostly unmeasured) externalities which are mostly negative, and have to be taken into account.”

Whether oil is a normal good or not has nothing to do with whether there are externalities.(which of course there are). A normal good is any one that the demand for it increases with rising income: ie, a positive income elasticity of demand. Yes, oil is a normal good…..I do love it when you socialists try to discuss economics.

“Besides, abnormally high profits are a sign of market failure anyway”

Err, no. Firstly the phrase is excees profits (defined as above the natural risk adjusted rate) and no, they’re not an example of a market failure. They’re a signal to hte market that extra profits are available in a certain sector. So get your cash into this business guys! Not a new idea, Adam Smith laid it all out in 1776…..

“When Bear Stearns collapsed, they lost the argument.”

No, when the Bear Stearns shareholders, as the Northern Rock ones, were wiped out, that’s when us free marketeers (who you bizarrely seem to think are right wingers) began to win the argument. If you as a shareholder invest in a well run business that makes profits then you get the profits, if you invest in a dud then you lose your money. All as it should be. If you invested in a company that found a huge oilfield (say, in recent years, Cairns Energy) then, because people want and need oil then your gamble pays good dividends. If you invest in something that people don’t want, say, mortgages that aren’t going to be paid back, then you lose it.

But then that would be economics.

I am unapologetic about the fact that there are significant dangers in moving to Nuclear energy that need to be confronted. Its likely we’ll have to put some eggs in that basket, but I’d rather we move faster towards renewable energy too.

Hi Synergy:
Golden parachutes are not a market anything. They are a private company decision. You and I might well sit here and call them silly, (which I do), but if a company and its shareholders choose to waste their money on inept management and misguided incentives, that’s their issue.

They’re a product of market failure because they indicate not only that managers are being awarded for failure, but that shareholders are (very frequently) unable to do anything about it.

My point here is two-fold: that right-wingers say very little about this kind of market failure, and that markets don’ always self-correct.

The credit crunch was not caused because a few CEOs got £40m instead of £40k.

No, it was caused because CEOs had little to worry about in terms of renumeration when they failed or were chucked out, so they had an incentive to take abnormal risks.

That, combined with not enough regulation and oversight.

It’s a market retraction, it happens. Much as no person or company can be “blamed” for market falls from the Wall St. Crash to the dot-com bubble, neither can this one.

This sounds a bit like when left-wingers try to blame crime entirely on social conditions. There are identifiable companies that created opaque derivative instruments that were not regulated properly. There are companies that lent recklessly and borrowed even more recklessly.

Swinging tax hikes will not help the readjustment.

I never said a windfall tax would solve the problem. More regulation would do that. The point about a windfall tax is merely a redistributive one.

And all the arguments against it (my grannies shares will fall! People will throw that money away on fuel bills!) are pretty lame.

What have you got against the Hindu faith?

I’m not a fan of praying. Thankfully Hinduism isn’t all about that.

Yes, it didn’t stop the bubble bursting, but if you think enough regulation can stop boom and bust, you’re fundamentally misunderstanding the market.

No, but it can prevent markets tipping over, as clearly would have happened if Freddie Mac and Fannie Mae were allowed to go bust. I suppose you’re also opposing the Feds supporting them?

I do find it interesting that I’m debating the credit crunch with someone who only brought it up to infer that because I don’t hate Chief Executive Officers, my views on the actual topic here (windfall energy taxes, if anyone had forgotten), are somehow irrelevant.

No, my point was that right-wing thinking is pretty much exhausted right now on global economic developments, other than some lame shreiks from the likes of Tim Worstall, who seems to believe, like you, rather naively, that markets will self-correct painlessly and that everyone will come out happier.

In this case a windfall tax won’t solve long term problems, but it is in no way as dangerous as various people are making it out to be,

Golden parachutes are not a market anything. They are a private company decision. You and I might well sit here and call them silly, (which I do), but if a company and its shareholders choose to waste their money on inept management and misguided incentives, that’s their issue.

“So at what point do you accept that there is something wrong with how companies are renumerating their CEOs,”

If what you’re getting at is “do you think CEOs get too much”, then I fear we have a deep divide. You get what shareholders think you’re worth. If they’ve overpaid, that’s (once again) their issue. The credit crunch was not caused because a few CEOs got £40m instead of £40k.

“the incentive for them to be more careful in running operations”

The forward-thinking companies (which, in the long-term, will likely be the most enduringly successful) are always improving the link between remuneration and company performance. You are welcome to buy a single ‘A’ share of a company who’s management remuneration you disagree with, and bring it up at the AGM.

“What do you blame the credit crunch on then?”

Well, the answer to this question could be huge, but it’s late and I’d like to summarise. I don’t really think “blame” is the right word to use here. It conjures up images of a criminal trial, with readily identifiable defendants. The problem is, no individual or group of individuals “caused” the credit crunch. It’s a market retraction, it happens. Much as no person or company can be “blamed” for market falls from the Wall St. Crash to the dot-com bubble, neither can this one. I’m sure, if you wanted, you could invent bogeymen. Alan Greenspan, for keeping federal inter-bank rates too low for too long, fuelling the housing bubble. Ben Bernanke, for seeing his mistake but not instantly correcting it. You could blame the global housebuilding industry, firing up homes that could only be sold for as long as the bubble continued. You could blame investment banks for basing investment models too heavily on the unusually low interest rates. You could blame American lenders for encouraging, or at least not discouraging, people to lie about their incomes. You could blame American borrowers, for lying about their income. You could blame governments, for not anticipating the bursting of the bubble. You could blame regulators, for not doing enough. You could blame George Soros and Warren Buffett, for figuring out in 2003 that this was almost inevitable, but not doing enough to warn people. You could blame our society’s obsession with credit. You could blame.. I’m getting bored. In short, you could blame just about everybody. Swinging tax hikes will not help the readjustment.

“Yeah sure. You may as well become a Hindu, invite over a pundit and start the bhajans because right now your hands-off approach is likely to be just as effective.”

And now you’re being childish again. What have you got against the Hindu faith? The approach has not been hands-off, even if it hasn’t been as hands-on as you might like. Yes, it didn’t stop the bubble bursting, but if you think enough regulation can stop boom and bust, you’re fundamentally misunderstanding the market. I’m simply calling for tweaks here and there to take into account what we’ve learned over the past few years, and moving on. Hasty, populist moves in the wake of financial crises are rarely successful.

I do find it interesting that I’m debating the credit crunch with someone who only brought it up to infer that because I don’t hate Chief Executive Officers, my views on the actual topic here (windfall energy taxes, if anyone had forgotten), are somehow irrelevant. Que sera, sera.

And “highly, glowing, rotting” mean what precisely? See, you’re at it again. My faeces is radioactive. as is yours – whether its dangerous or not is an entirely different matter – scaremongering – and you are unapologetic. Yes, Chernobyl was horrendous – but why? Because of a secretive regime that wouldn’t share best practice. Apart from that, point to another major event with substantial casualties? Or a proven substantive effect on the local population?

I don’t want to “invest in nuclear over renewables”, I wanted to invest in what is viable now (renewables certainly have their problems, particularly wind) -now we should balance what is economic against what is able to fulfil demand, surely?