Stepping back

Lots of comments about how exchange rates and equity-price movements show that the UK is (a) doomed or (b) well-placed post-Brexit. Movements and values over a few days tell us nothing except the climate of hope or fear in those few days. How do things stand on a broader perspective? Let's compare:

A. Currencies: USD vs GBP vs EUR

B. Markets: FTSE100 vs FTSE250 vs Dow vs DAX

The biter bit

In this week's MoneyWeek (best economic journal out there at the moment), an article by Simon Wilson on the risk of a "City exodus", prompted by Darling's special bankers' bonus levy, included the following sentence:

"The confusion over whether certain businesses will end up paying this tax is symptomatic of the wider problem faced by the City of London - increased uncertainty and political risk."

Good! It's called "sovereign risk", and I hope they choke on it. The rest of us have been swimming in it for years, thanks to the micro-managing, targeted mechanisms that successive governments have deployed and repeatedly modified, in order to encourage preferred technologies and outcomes (i.e. "pick winners"). And which group of organisations were most instrumental in advising the government about which winners to pick and how to incentivise them? That's right: their corporate pals, and in particular the financiers and consultants in the City. The banding of the RO, and the EU-ETS farrago are classic examples, but there are many others in the energy sector alone.

It's tempting to hope that this might be a salutary lesson that teaches them to oppose targeted intervention, but there's as much chance of corporates, consultants and pin-stripes renouncing rent-seeking and admitting the limits to their knowledge and intelligence, as there is of Gordon Brown admitting he screwed up.


Schumpeter wins, we lose

I've been angry for years about the level of economic ignorance amongst politicians, civil servants, journalists, financial professionals, intellectuals, the public, and, above all, the mainstream economics profession. Though every experience provides new evidence of our collective stupidity, after a while it is hard to keep raging. It's not that the anger has gone, it's just that the utter futility of expressing it yields eventually to weariness and frustration.


The limits of the laws

There is something rotten in the rugby world, and it's not Dean Richards. The sanctimonious twaddle being spoken on the subject of Harlequins' "bloodgate" by commentators and former professionals is nauseating. Rugby, they would have you believe, is a saintly game whose halo has been tarnished by the diabolical Richards.

Nonsense. Rugby has always been about seeing what you could get away with. A flanker's job is, near enough, to see how much he can frustrate the opposition with unseen cheating. If the ball comes out slowly from every opposition ruck and maul, he will be lauded by players and commentators. Skid-marks down your back where you have been rucked out of the way are worn with pride. If you can create a hole by distracting the opposition (a tug, nudge or foot on the laces) and get away with it, you will be congratulated as much as the try-scorer (privately, in the changing room after the game, if your team-mates are sensible). Rugby afficionados will talk knowingly of "getting your retaliation in first", and never fail to raise a smile at mention of the "99 call".

But there are degrees of cheating, which rugby players understand without it having to be codefied. Whatever you can do to gain advantage without excessive danger is OK (not when it's being done to you, but grudgingly in retrospect, even if you are on the receiving end of it). Players may punch each other without opprobrium, if sufficiently provoked and face-to-face (a "Mendez" is another matter), unless they are stupid enough to get seen by the referee and let the side down with their dismissal (it is the yellow card, not the flying fist, that is the real sin). But high tackles, spear tackles, taking the man in the air, eye-gouging, sharpened studs (remember that, you commentators talking of a more decent past?) and so on are infra dig. They are not manly, honest give-and-take - a contest of brutal force (e.g. shoulder in the stomach of the ball carrier or tackler) that pits man against man. They are sly attempts to disable the other player, risking longer-term injury or worse to the opponent for the sake of temporary advantage, at small risk to the villain.

Two considerations discourage the use of dirty, dangerous techniques, while allowing for the merely naughty, cunning or intemperate. One is the ability to recognize that it is just a game, and while you should leave nothing on the field in your attempt to defeat the opposition, you will hope to enjoy a drink in the bar with them afterwards. But probably more important is the thought of what the game would descend to if these techniques became commonplace. Rugby players understand that, if you dish it out, you have to expect to receive it too. If one of the opposition tries something dirty on one your team-mates, it is understood that you (probably at least two of you) will seek to inflict something at least as unpleasant back on him (if you can do it legitimately - say a two-up crunch tackle - all the better). The use of really dirty, injury-threatening techniques is therefore avoided by sensible rugby-players, for fear that the game would descend to a retributive quagmire where the description of the game as a "war of attrition" won by "the last one standing" would be more literal than figurative.

So a sensible honour code has evolved that serves the interests of players who observe it. The code is based around long-established rules (the "laws" of the game), and is able to distinguish between the mischievous and the malicious. But this code is thrown into confusion when the rules are changed. Whatever their intent, rule-changes usually throw up new opportunities for illicit advantage.

The game has been afflicted in recent years by ever greater legislation (e.g. the ELVs) by micro-managing officials who think you can perfect human nature, or at least control it, through increasingly detailed and complex rules. It tries to replace mutual defence, self-reliance and judgment with prescription, intervention and authority. It has caught the health-and-safety disease.

The result is a game in flux, trying continuously to work out how to respond to the latest changes, what the opposition might do to take advantage of them, and whether you can afford not to do the same. No precedent has been established for whether a particular abuse of a law is acceptably cunning or unacceptably dangerous. So tricks are tried, and, if caught, punished. It cannot have been obvious in advance that Harlequins' sin would fall into the "unacceptably dangerous" category, and I would be very surprised if Harlequins are the only club to have stretched this particular law. Indeed, a limping exit is not uncommon. The fake blood may have been novel, but is that really what differentiates between gamesmanship and heinous crime?

Don't blame those who are testing the limits of authority. People always will. Blame the people who thought it was in the interests of rugby to confuse the hell out of it. Blame the people who, now remote from the playing field, take out the aggression and frustration for which they no longer have an outlet, by demonstrating their power to manipulate the laws of the game. Blame the people who think they know best what is good for other people whose activities are controlled by the laws they impose, based on an arrogant assumption of superiority and perfection of knowledge. Blame the people who assume that other people will be automatons who do exactly what they intended, rather than human beings who behave unpredictably, imaginatively, cleverly or stupidly.

Does it sound like a lesson for life and legislature?


Merton doesn't Rule, OK

One way that politicians and civil servants have tried to drive the uptake of renewables is through the application of what became known as the Merton Rule (after one of the first councils to introduce the measure) to planning policy. The Merton Rule stipulates that developers must include a certain proportion of on-site renewable-energy production (typically 10 or 20 per cent, depending on the council) within the fabric of the buildings they are developing.

Why a particular proportion should be encouraged is not clear. Faced with a choice of a technology that could supply a notional 10% of the property's energy needs for £X at an operating cost of £Y/MWh, or another technology that could supply 80% of the property's energy needs for £2X at an operating cost of £0.1Y/MWh, the rational developer focused on the bottom line (and they mostly are) will install the former as the most cost-effective way to meet the Merton Rules.

Nor is it obvious why one would want to target incentives at new-build, rather than providing equal incentives for the existing housing stock, which is vastly more significant. In one way, older buildings offer greater potential, as the lower energy-efficiency results in more energy-consumption (relative to its size), which means higher utilization of any renewables installed, which means faster recovery of the capital cost.

Nor is it fair to assume, as the planners do, that one knows how much energy a particular technology will contribute in particular circumstances, and how much energy will be consumed in total in that property. It's an arbitrary measure that rewards bullshitters (those who provide inflated claims for how little energy will be required for the building or how much energy their technology will produce).

But let's say that they really could plan and assess this accurately. The system would still encourage perverse outcomes. As a supplier of wood pellets, we are seeing at first hand one of the more perverse consequences.

For individual properties, solar panels (thermal or PV) are probably the winning option for many developers. But for larger properties, such as blocks of flats, installing a pellet-boiler that could meet part of the heat load is often a good option.

To minimize cost and maximize convenience, the pellet boiler will be installed to feed the hot-water buffer tank in tandem with one or more gas boilers. Because the Merton Rule is satisfied regardless of whether the equipment ever runs (it requires only that it should produce a certain amount if it were run), and because gas (and oil) are currently cheaper as fuel than pellets (because of stupid energy policies designed to keep domestic fossil fuels as cheap as possible), the developer has no interest in installing a pellet boiler that will run effectively because the plan is for it to rarely run at all. It will be undersized (because you only need renewables to be able to supply a fraction of the properties' energy, and heat is such a big proportion of the whole). It will be the cheapest model available, regardless of whether that model will give trouble-free and efficient operation. It will have an inadequately-sized fuel store, which further pushes up the cost of running, as many suppliers will not supply small loads, and those that will (such as us) will charge much more per tonne for small, frequent deliveries than large, infrequent deliveries. The fuel-store will be located wherever suits the architect, regardless of whether it is practical to get the pellets to that location. The flange, to which the delivery-lorry connects in order to blow the pellets into the store, will be positioned wherever is convenient to the architect and developer, regardless of whether the delivery lorry can get near it, or can stop there (e.g. on double-yellow and red lines). The reality is that no one intends to run the boiler, so who cares?

Recently, this logic may have taken a step further. A developer is touting around a pair of "barely used" pellet boilers of the cheapest, nastiest type, which he is taking out of one of his sites. Are we seeing the start of the next wave, where developers will install the obligatory renewables just long enough to get signed off by the planners and Building Regulations officers, before taking them out and selling them on for installation in the next development that needs to meet the Merton Rule targets? A handful of boilers and solar panels could deliver multiple permissions and positive SAP ratings. The authorities' figures will show that large numbers of properties are running on renewable energy, while in reality most of those properties carry on being as dependent on fossil fuels as ever. The figures for numbers of properties where renewable boilers were installed will no doubt be presented as a tremendous success, and the authorities will be mystified when our fossil-fuel consumption figures once again don't fall in proportion to the displacement that has supposedly been achieved (just as for EEC/CERT/CESP). There will be more head-scratching, and then someone will come up with an even more complex and perverse scheme to encourage displacement of fossil fuels whilst keeping the costs of those fossil fuels as low as possible. And so the cycle continues...

It's very simple. If you want people to use less of something, you need to make it more expensive. If you try to make them use less of it by pushing efficiency-improvements at them whilst keeping the price cheap, demand will rebound - it's an effect well-known to economists as the Rebound Effect. The purpose of these policies is to get us to reduce our fossil-fuel dependence, whether for environmental, economic, social or energy-security reasons. And yet the Government persists in trying to keep domestic energy prices as low as possible while promoting these policies aiming to reduce our consumption, and all the opposition parties and most of the commentariat support them. We really are cursed with one of the dumbest intellectual classes of any nation on earth.


Poor consumers

Speaking of the IEA (see previous post), Richard Wellings, their excellent Deputy Editorial Director, has posted a piece on their blog, on the recent slew of climate-change policies and targets from the Government. It is mostly well-judged, but there is one point where we diverge. I need graphics to illustrate why he is mistaken, so I'm posting here rather than in the comments section on his site.

Richard rightly criticizes the impossibly ambitious targets, the delusional claims about the benefit to the economy, and the impact on what remains of our industry of increasing the costs of energy. But he overstretches when he brings domestic consumers into the picture:

"Then there is the impact on the less well off. People on benefits, for example £64 per week Jobseeker’s Allowance, may already be using around one third of their (non-housing) incomes to pay utility bills inflated by existing environmental policies."

Actually, we have the cheapest domestic energy of the EU-15 countries. Here is the comparison for gas (from European Commission, DG TREN Staff Working Document, Report on Progress in Creating the Internal Gas and Electricity Market, 11/3/1009, SEC(2009) 287):

EU gas prices 2008 

Notice that only 6 New Accession countries had cheaper domestic gas than us (on old, unsustainable, subsidised Russian prices), so not only all the other EU-15 countries were dearer, but several of the New Accession countries as well. And notice that the reasons why domestic gas is so cheap are not only that the untaxed price is competitive, but significantly that we apply less tax to our domestic gas than any country except for Latvia. Doesn't look like domestic gas prices are too inflated by existing environmental policies, does it?


Judged and found wanting

This week's Spectator includes an article by Elliot Wilson about nuclear power and Barbara Judge, one of the great-and-the-good, chair of the UK Atomic Energy Authority (amongst many senior roles), and wife of Sir Paul Judge (he of The Jury Team). The article contains the following passage:

"If there's a model to follow, it is the French one... In the wake of the first global energy crisis, the goal was to find ways to wean France off Arab oil... the plan work[ed] blindingly well - four fifths of French energy needs are now provided by 59 nuclear plants..."

I have written to The Spectator, quoting this passage, and pointing out that this is yet another repetition of the nuclear lobby's lies on this subject.

According to the International Energy Agency, nuclear energy provides 43 per cent of France's Primary Energy Supply, and 17 per cent of their Final Energy Consumption. Oil provides 33 per cent of their Primary Energy Supply and 49 per cent of their Final Energy Consumption. Their consumption of oil has reduced by 3 per cent since 1970. Over the same period, consumption of oil in the UK has reduced by 17 per cent.

France's lips are still wrapped firmly round the petroleum teat. Nuclear energy is not a substitute for oil. But when have the nuclear lobby ever let the facts get in the way of their propaganda? 

Mr Wilson has made the classic mistake, on which various rent-seekers in the energy sector rely (including the wind and solar lobbies, as well as the nuclear crowd), of failing to distinguish between electricity and energy. It's not the first time this fundamental error has appeared in The Spectator, as in many other parts of the media. It's a particular favourite of Michael Portillo and Bernard Ingham. But journalists who are not aware of this basic distinction ought not to be writing on the subject. 

Coincidentally, Sir Paul also has a track record of "economy with the truth" on this sort of subject - in his case, providing misleading claims about BA's carbon-offsetting facility. Perhaps it's a conjugal thing.


Construction as leading economic indicator

The core business of our family company is producing aggregates (sand and gravel) for the construction industry. I focus on our energy activities, and don't have much to do with gravel, so wouldn't normally comment on it.

However, what I have just learnt seems to have broader significance. I understand that, after a brief pick-up earlier in the year, demand for aggregates has fallen back, at a time of year when normally it would be picking up. The Ready-Mix Concrete plant that operates from one of our sites (not run by us) has just had its worst month ever, and it has been there for decades. The only demand still going strong is public-sector infrastructure projects.

Construction has always been a leading indicator of economic activity. And it is obviously linked in particular to the prospects for the property market. So the first obvious point is that this suggests that the recent optimism that the property market is close to the bottom is misplaced.

You might say that this also proves how important it is that the Government maintains its Keynesian policy of trying to pump-prime the economy through infrastructure spending. But I would look at it another way.


Tax sovereignty

Tim Worstall covers the efforts by Dan Mitchell to persuade the American government to step back from its efforts to clamp down on tax havens. This is picked up and expanded at Sounds in the Hickory Wind (nice blog, added to the blog roll).

I agree with a lot of this, as I have already posted. But I think some nuance is needed.

Where do you draw the line on honouring sovereign rights and encouraging tax competition, which I agree with, and preventing complicity in the sheltering of criminal proceeds? We are investing in Switzerland at the moment, and the tax position is one of the many attractions, but that is a legitimate transaction, which I feel no need to conceal. Is not some degree of international cooperation to deal with illicit transfers warranted, and would not some degree of transparency be a part of that?

For instance, should we be pushing for a system where a foreign government would present evidence of criminality to a court in a tax-haven country, and if the court were satisfied that the evidence did demonstrate criminality, details of that person's transactions would be provided to the petitioning government, who would be able to launch proceedings in the tax-haven's courts for recovery of the funds, on an agreed basis? Wouldn't some treaty to that effect respect sovereign rights sufficiently, but cut down the rampant laundering that is going on in some of these locations?


The prudential cost of the financial crisis

"Borrowers have been warned they face higher mortgage rates for up to nine years as banks hit customers with the cost of tighter regulation."

So begins the lead article in the Money section of this week's Sunday Times. The problem, it seems, is that the regulator has ordered them to increase their capital ratios.

So it's the regulator's fault, is it? Nothing to do with the imprudent lending in the lead up to the crisis? Prudence has been restored, not because the banks realise they made mistakes, but because they have been ordered to be more prudent. The guilty party is the one ordering prudence. And the cost is the cost of regulation, not the cost of good banking practice. Anyway, don't worry, because prudence will last only as long (nine years) as necessary.

And what happened to reserve requirements? Banks are in the business of borrowing money from some people (savers) and lending it to others (borrowers). The system cannot work efficiently if they have to rely on their own cash to lend (unless banks own most of the economy, they won't have enough of their own cash to meet demand from borrowers). But that is what the drive to increase capital ratios is trying (partially) to achieve.

There are two options to improve our financial stability. They are not mutually-exclusive, but they do have very different implications. Banks could improve their reserve ratios and/or they could improve their capital ratios.

  1. To improve their reserve ratios, they would have to offer higher savings rates to match the higher borrowing rates, until the two balanced. The gap between the two rates should not expand significantly - they would rise in parallel.The prudent (savers) benefit. Borrowers pay. Banks' margins remain similar, but volumes fall (because of the cost of borrowing) and therefore so do banks' profits (and bonuses).
  2. To improve their capital ratios, they have to increase the gap between saving and borrowing rates, to increase their margins on their activities. Savings rates fall as borrowing rates rise. Banks' clients of both types (saver and borrower, prudent and imprudent) suffer, though savers suffer more and borrowers suffer less than if greater emphasis were placed on increased reserve requirements. The banks (and their bondholders, shareholders and employee bonuses) gain.

Clearly, after our debt binge, we need to increase our savings rates to restore some degree of equilibrium. But we are pursuing option 2 almost exclusively. Rates for borrowers go up, for savers go down, and banks pull in the difference.

The argument of the intelligentsia, amongst whom this is widely agreed to be the right approach, is that to increase reserve requirements now would take money out of the economy at a time that it can least afford it. But increasing capital ratios takes money out of the economy too, and from both groups (savers and borrowers), rather than just from the people who need to tighten their belts (borrowers). This is actually the time that we can least afford not to do it.

Of course it will be painful, as borrowing gets even more expensive and less available, more businesses go to the wall, jobs are lost, and the economy shrinks. But these changes have to happen anyway. There is no avoiding a return to a more sensible equilibrium between borrowing and saving. The question is whether we let it happen, take the pain and then start again more sustainably, or whether we try to prevent the inevitable, ameliorating the immediate pain but prolonging its duration and extending the damage. And whether the ones who should suffer most pain (which is coming one way or the other) should be those who were less, or those who were more prudent.

The latter is the solution of America of the Great Depression and New Deal and Japan of the Lost Decade. Contrary to the journalists and economists who state blindly that "the recovery began in 1932", it didn't, and it won't work this time either. If somehow our governments and central banks manage to reinflate the economy (e.g. by printing money) without correcting this balance, they will only be preparing the ground for an even bigger crash later.

At some point, we have to accept that there is a natural balance in these things, that the interest rate reflects and corrects the changes in this balance, and that centralized direction cannot overcome this basic law. The impositions of regulators only reflect our attitudes and responses to this law. They do not create the costs, they just influence who incurs them and when, and thereby the lessons that people take from economic developments. Are we teaching the right lessons at the moment?


Name our Tea Party

There is a movement developing in the States to send tea-bags to senior Democrats (including the President) and to hold local "Tea Parties", in reference to the Boston Tea Party, in objection to the massive Obama programme of bail-outs and public "investment". One could quibble about the precision of the analogy, but in essence it's a nice way of using American history to draw people together and illustrate the dangers of heavy-handed government. The Americans intuitively treasure this tradition and distrust the state.

I was trying to think what historical event we would use in the UK if we wanted something similar to symbolize the people rising up for liberty and against tax-unfairness and oppression by an overmighty state. After thinking about this for a couple of weeks and discussing it with a few friends, I don't think we have such an event in our history. Which tells you something about Britain, doesn't it?

I reckon a couple of factors are significant: (a) our establishment has generally known just how far they could push their authority without causing rebellion, and (b) where there was resistance, the opposition was usually led by another bunch who were just as authoritarian. There are probably many other factors, but whatever they are, they all combine to make us a particularly supine (what we might like to think of as "phlegmatic") lot.

The upshot is that British classical-liberalism is like the frog in the slowly-warming pot. And the water is reaching boiling point.

Can anyone think of a suitable event?


Scottish pots and Swiss kettles

Gordon Brown wants us to make a mental connection in some way between our financial troubles and the competitive tax regimes in countries like Switzerland.

I have just come back from Switzerland, where we are looking at investing. The attractions are many, but include the fact that Switzerland is not in the EU (and if the opinions of my contacts are representative, are likely to remain so), the stability of the economy, the security of one's money from expropriation, the more rational attitude to planning, the highly devolved nature of its democracy, and the relative restraint they show in government expenditure.

The Swiss tax-take as a proportion of GDP is a good five percentage points lower than ours. When you consider the obstacles they face in the provision of public services, and the much higher quality and better value in those services, that is amazing.

Imagine how expensive British government would be if every village had to be reached by miles of winding hairpin bends up precipitous slopes, assaulted with snow and salt in winter, and Mediterranean temperatures in summer.

Imagine what the bus services would be like.

Imagine how our trains would run, and what they would cost, if most of our major cities were separated by vast mountain ranges requiring tunnels many miles long. 

Imagine the excuses of the politicians for the state of an economy that enjoys few natural resources, no direct access to the sea for trade, and wholly surrounded by a mammoth competitor determined to inflict the costs of its social model on you.

And yet, with few of our advantages and many disadvantages, the Swiss run a more successful economy, with better public services, lower taxes, a higher quality of life, and greater social cohesion, than we can dream of.

How do they do it? Gordon would like us to believe that it is because money is pouring in from abroad because of the tax regime. And the tax regime in parts of Switzerland is certainly cheaper than ours (each canton sets its own tax levels in significant aspects, so there is no universal rate). In particular, inheritance tax can be low (zero in some areas) and tax on employment is generally lower than ours. That may have something to do with their high levels of commercial continuity and reinvestment of capital, and high levels of employment.

But those low taxes are not particularly funded to a greater extent by inward capital flows than are our more plentiful government extortions. As one of my contacts pointed out when I compared the level of investment in Austrian and Swiss ski resorts, the Austrian government has ploughed hundreds of millions of schillings and euros into supporting investment by their tourist industry, and yet find themselves facing a repeat bill as the equipment ages and needs replacing before the nation has begun to recover its costs. The Swiss, if they want to build a lift, have to raise the finance privately. Hence, they build less, but they try to build only what is viable. That (and similar attitudes across the economy, other than in agricultural support, where they are more profligate even than the EU) keeps the tax bills down, at the cost of placing a greater responsibility on the Swiss population not to be self-indulgent at taxpayers' expense and only to pursue investments that can be justified in hard economic (rather than woolly social) terms. How unreasonable of them to make themselves an attractive destination through the illicit means of prudence and hard work.

In any case, Gordon shouldn't be throwing stones in his highly-elaborate fiscal glasshouse. Under Gordon's watch, Britain enjoyed a huge surge of inward "investment", largely based around the City's financial services to Russians, Arabs and others who had been notably successful in exporting the loot from the expropriation of their countries' natural resources.

Two sure signs of massive in-flows of wealth into a country are asset-price bubbles and a strong currency. On that basis, until the bubble burst, the UK was clearly being more successful (with the help of monetary, fiscal and regulatory policy) at attracting dodgy money into the country. While our property prices were nearly doubling to reach absurd levels, Switzerland's property values increased on average by under 20%.

The reality is that Gordon and his European pals are not motivated by righteous indignation, but by the pressing need to eliminate the few examples of countries whose more prudent economic management stands as a glaring reproach to our Great Leader's incompetence.

And this is the man that some European and British politicians are reported to want to make leader of an international financial regulatory body. In earlier, better times, he would have been left in a quiet room with a loaded pistol for what he has done to our country. Can we at least not reward the greatest incompetent in our political history with an extension of his powers? Surely there is some unoccupied Scottish island, from where he can cause no more trouble, on which he can be dumped and left to rot?


"Do nothing" conservatives

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action... No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times.

Barack Obama in a couple of years' time? Gordon Brown now, if only (as he surely thinks would be best) he were running America too?

No, Herbert Hoover in 1932, talking about the magnificent programme of government-intervention that had prevented the Crash from deteriorating into a Depression.

When our intelligentsia talk about the current circumstances being the result of laissez-faire and the cure being a massive dose of interventionism, we appear to be in the "second as farce" iteration of history.


British bullshit for British voters

The latest spate of humbug surrounded the "British Jobs for British Workers" strikes.

Even the application of the term "strike" was a piece of humbug. The protesters didn't work there, so how could they go on strike? This was secondary picketing, but no one dared to call it by its real name.

Why has there been no comment on whether there were issues over foreign workers at the sites where sympathy action was taken? If so, were these contracts excluding local workers suddenly awarded in a spate at power stations around the country? Or had no action been taken at these sites previously because (a) there weren't many foreign workers there, and (b) people didn't have a problem with the foreign workers at those sites until they were prompted by the protest at Lindsay? Unless there was a very strange set of coincidences going on, weren't the sympathy actions entirely illegitimate secondary action, against companies unrelated to the Lindsay strike, by people with no previous inclination to protest against those companies, with no obvious achievable objective at those locations?

And what about the original letting of the contract to the foreign firm? Several contractors bid for the work. Labour costs would have been a major component of their bids. Cost and expectations of quality of work would have been major factors in Total's decision. The foreign firm was able to put in a winning bid because, by employing foreign workers, it was able credibly to promise a decent-quality job at lower cost than the British contractors who priced in the costs of using British workers. Should we be surprised about this? Should we criticise Total for taking the obvious business decision? Or should British contractors and British workers be asking themselves if they aren't overpricing themselves? If most of the politicians, commentators and businessmen involved hadn't been so feeble in failing to point about this fundamental reality, this could have been a painful but useful lesson in the realities of the labour market in an economic contraction. Instead, our "leaders" behaved as though they believed the protests to be justified, and allowed it to become a debate about how much and what type of action should be taken to try to buck the market.

All the same, I have sympathy with the protesters and the vast majority of British people struggling to make ends meet: not because there is an iota of sense in the claims that we should somehow try to ring-fence jobs and rates for British workers at a time when the economy is collapsing (the fastest way to repeat the 1930s experience in America, which seems to be the direction of policy in most countries anyway); but because they have been slowly trapped, by 15 years or more of lousy policy and hopeless management of the economy, into a situation where the average British worker can barely afford to live on the average British wage. Many of them were, of course, complicit in this development, not only because they voted for the idiots who mismanaged our affairs, but also because they happily racked up the debts, luxuriated in the bloated public services, and developed a sense of entitlement from the vast amount of over-protection provided to the under-deserving by the state. But whether or not they were complicit (and those who were not are in no better a position than their profligate compatriots), their situation is almost untenable now, and that is not anything you would wish on anybody, let alone a whole nation.

Just consider one component of the economic choice of the contractors. Look at the barge that the foreign workers are living on, and compare it with the typical cost of rent or mortgage to live in a British house. Of course the foreign workers can afford to bid a lower price for their labour. We have created a situation where we can't afford to work at wages that would be competitive even against other developed nations, let alone developing nations. We can't afford to take lower wages, but we can't compete at the wages that we need for even the most menial quality of life.

No wonder the pound has collapsed, and thank goodness it has and that we have a currency that allows that adjustment. Without realising it, every Briton has in the past year effectively taken a 40% pay cut, in international terms. And the value of all our assets, including our homes, have been similarly cut, even before we take into account the falls in prices. Yet, even now, we are not competitive. Does that give some idea how fat, complacent and lazy we had got? And of the pain we are in for if (as looks likely) the pound now strenthens again, and with it the costs of our labour and assets increase?

I won't go in to the stupidity of Gordon's use of the term "British Jobs for British Workers", and the disingenuity of his claim that the phrase was intended to be interpreted as referring solely to the question of training. Nor will I discuss the absurdity of the internal debate within the Labour party and parts of the media about whether European law is to blame, is right or wrong, and ought to be changed, knowing full well that there is not a hope of changing it, and that plenty of Britons have been on the other side of this fence and taken advantage of these freedoms. These true but somewhat facile points have been well-dissected by our commentariat.

But I am tempted briefly to point out that this yet again demonstrates that the supposed "far-right nationalists", to whom our struggling working classes are supposedly attracted by this sort of problem, are actually far-left nationalists. Lefties are always amazed that it is their voters who most easily cross over to the BNP. Like Billy Bragg on tonight's This Week, they claim that these people have leapt across the political spectrum, from Labour on the left to the BNP on the right, for some reason not pausing en route to consider the LibDems and Conservatives who supposedly lie in between.

Of course, to those of an Austrian persuasion, who define the left-right political spectrum as being from more (on the left) to less (on the right) bureaucracy, authoritarianism, and expectation that the state is all-seeing, all-knowing and will make everything right, the step from Labour to BNP is an easily explicable, small progression for people to make. By voting Labour, they expressed the hope that government could solve all their problems. When government fails to do so, they look for other parties who claim that still more draconian government action is needed. They take for granted that their travails are other people's fault and other people's job to put right. If other people (i.e. the government) try but fail to put things right, it must be because some evil forces are preventing the government's interventions from working. It has nothing to do with the unsuitability of the government's measures, the impossibility of achieving these ends by these means, or the individual's failure to help himself. It is all down to powerful, mysterious, external forces. And who are more mysterious, external, and easy to blame than people who are different to us?

The far-right extreme is not fascism, it is anarchism. Fascism and communism sit side-by-side on the authoritarian, socialistic extreme left (remember, the Nazis were National Socialists). They are distinguished mainly by their emphasis on a nationalist or internationalist scope to their ambitions, not by any fundamental differences of philosophy. But our intellectuals (in the Hayekian sense) persist in placing them at opposite ends of the spectrum, and then create all sorts of convoluted arguments and analogies (perhaps the spectrum isn't a straight line, it's a circle or a cross) to try to explain away the repeated anomalies thrown up by their failed paradigm. Some do it from simple intellectual laziness, others do it to justify their socialistic bias (after all, anything that is opposite to fascism must be right, mustn't it?). But whatever their motivations, it is pure humbug.

Between the points that the media have picked up on, and those that they never would, the analysis of this dispute was a real pick-and-mix of glistening, tooth-rotting, bloating, nutritionless confectionery.