Will the UK contribute to South Africa's energy crisis?

For the past two years South Africa has faced a serious electricity crisis. Demand has been exceeding supply, with the reasons for this being multi-faceted:

- Electricity generation remains dominated by a state owned company (Eskom), which has been severely undercapitalised (so not investing in new capacity) as the Government refused to inject capital into a company it was seeking to privatise. State ownership without the state seeking to invest;

- Electricity tariffs have been generously subsidised (described by the Chairman here), so that the price of electricity is around a third of the cost of generating it. The reason being the political desire to supply cheap electricity to the population Eskom makes a substantial loss, so cannot finance expansion from its own revenue. Socialism is crippling electricity generation (although tariffs are increasing by 30% to start to address this);

- Privatisation of Eskom has been stalled for political reasons and because no new owner would want to buy a company that loses money without the power to increase tariffs to address this;

- The government deregulated the electricity market, but there is no foreign interest in building new capacity whilst the state continues to bear Eskom's huge losses as it continues to price electricity well below cost.

So South Africa has been stuck, with ample coal reserves, but without the capital investment to translate this into electricity generation, and pricing a scarce resource so cheap, it gets rationed through blackouts.

Now the appropriate answer to all this is to split Eskom into three or more companies, privatise them one by one, letting each privatised one set its own tariffs. This would effectively allow new entrants to decide how to invest in new capacity and match price and demand.

In the meantime, South Africa has sought a World Bank loan to help pay for a new power plant for Eskom. Setting aside whether this should happen at all (it should not), the UK government is apparently considering vetoing it at the World Bank. Why?

Not for economic or financial reasons, but because Greenwar, Foes of the Humans and Christian Aid oppose it as the new power station would be coal fired.

They want money into so-called renewable energy, even though the cost would be twice as much per unit. Not that these organisations are planning to build and fund power stations themselves. No, they would rather South Africans endure blackouts and keep their economy crippled than to let some coal be burnt.

Why is the UK interested? According to the Times, Gordon Brown is looking for a way to capture the "Green" vote, though it is interesting to see how this clashes with the interests of some of the poorest on the planet.

So if the UK vetoes the World Bank loan, it will be about pandering to a Green agenda - it wont be about incentivising South Africa to engage in serious reform of its electricity policy.

After all, even if South Africa did privatise and reform electricity, the anti-human environmentalists would no doubt continue to oppose new coal fired power plants, also oppose more nuclear power, and want to force taxpayers in wealthier countries to subsidise "renewable" energy.

Five more years? Not likely

Gordon Brown has threatened that if Labour is elected again he will serve out another full FIVE year term.

I don't think saying that will have the effect he wishes.

Look at the comments under the Times article about this, find any POSITIVE ones...

Gordon Brown is not a true Keynesian

A budget deficit of 12% of GDP is apparently "right" so says Gordon Brown. This is a Keynesian view apparently.

Well setting aside whether Keynesian is right or wrong (it's wrong, but that's for another day), Allister Heath in City AM has written today about how this was never Keynes's view:

John Maynard Keynes, whose work is often cited as justifying our fiscal incontinence, would in fact have been horrified at the scale of the deficit and our over-sized state sector, which the OECD puts at 52 per cent of GDP. Keynesians argued that governments should allow the budget to go into the red in a recession by a few percentage points of GDP, with 3 per cent usually the maximum – perhaps 4 per cent if things were truly desperate. Nobody ever claimed one could prudently rack up three or four times that level – and crucially, proper Keynesians supported budget surpluses in the good years. Brown’s constant structural deficits even at the height of the bubble would have been anathema to them.

So even if you believe in big spend ups during recessions, what Brown has done is THREE TIMES the scale of deficit spending that Keynes himself argued, and that during times of growth, budget surpluses should be run (which would then pay down debt). Gordon Brown only ran budget surpluses twice as Chancellor of the Exchequer, primarily due to inheriting a prudent Tory budget in 1997 and windfalls from selling mobile phone radio spectrum.

Furthermore, cutting budget deficits is positive because it:
- Reduces transfers from taxpayers to foreign sovereign debt holders;
- Reduces the crowd out of the state in the debt markets, reducing the cost of debt to the private sector.

In addition, the best way to do this is to reduce consumption, not increase taxes and not reduce spending on the few areas of positive economic expenditure like roads (which in the UK are grossly underfunded).

One European Commission survey of 49 countries that cut their deficits found that 24 of these fiscal consolidations promoted growth even in the short term – even when deficits were considerably lower than 12 per cent of GDP. The higher the deficit, the more likely that cutting it will boost growth immediately – a conclusion implied in a February 2010 study from the European Central Bank which found that the crisis has caused markets to punish irresponsible fiscal behaviour even more severely than before.

It’s quite simple: we need to cut the budget deficit as fast as possible by reducing spending. That, rather than messing around printing yet more money, would provide the best, most effective stimulus for the UK economy.

So in short, Gordon Brown has screwed up big time, the UK is only avoiding Greek like concern because UK governments don't default, UK savers have had their cash assets devalued as the pound drops, and the UK government hasn't lied like the Greeks.

To treat Labour as if it has been a profound saviour of the British economy is a joke - it has wasted money, running deficits during the good years and is now running up public debt that will hold down the UK economy for many many years.

It is a good enough reason to kick Gordon Brown out in utter disgrace.

Gordon can't have it both ways

Now if you believe in Keynesian economics, and think that the government pouring money into the economy is “good” for it in prime pumping demand, and consequent economic activity, you think that when the government spends more it is a good thing.

Presumably, you would argue that reducing taxation would similarly be good, as it would leave more money in the hands of private citizens to spend or save (the latter typically in banks or repaying debt).

Well according to Gordon Brown the answer is no.

You see he constantly accuses the Conservatives of wanting to “wreck the economy” by cutting spending more quickly than Labour. Yet when the Conservatives promise to NOT increase tax (a form of income tax labelled National Insurance) as MUCH as Labour, it is doom and gloom because it means the budget deficit will be a problem?

Who is right Gordon?

If the economy should have more money in it, then the state taking less makes sense right? If the budget deficit is a bigger concern, then the state spending less makes sense too?

The ONLY reason you can support more state spending, and more tax is nothing to do with economics, but everything about what you think the role of the state is – to do ever more.

Tony Blair’s “New Labour” which long ago promised to contain spending, following on from Thatcher’s modest degree of fiscal prudence, has clearly disappeared. Labour is now the party of ever bigger government.

A libertarian voting in a UK General Election

So “I saved the world” Gordon Brown has finally called 6 May as the date for the next UK General Election. It is worth noting how electoral terms in the UK are longer than in most countries. The last election was nearly five years ago, and that was a shoo in for Tony Blair and Labour, against Michael Howard and the Conservatives (which barely picked up a handful of extra seats). In coming weeks this will be my primary blogging topic for obvious reasons.

The UK election is likely to be close. Recent polls have put the Conservatives ahead by between 2% and 10%, with 7% needed for an overall majority (bearing in mind the UK has a First Past the Post electoral system). Some pundits are picking the Conservatives winning a plurality of seats, but short of a majority, so requiring the support of others to govern (which currently is mostly the Liberal Democrats, the Scottish and Welsh nationalist socialists and the Ulster sectarians).

The big issue for me is who to vote for (or to vote at all). The Libertarian Party UK is more like ACT in NZ, and probably wont have a candidate in my constituency in any case. It may come down to Conservative vs. UKIP, in both cases there are a long list of reasons to say “no”, with maybe only one or two reasons to say “yes” to either. It goes without saying that Labour is beyond redemption as a party of ever growing nanny state in both regulatory and financial terms, and the Liberal Democrats are just a different version of Labour. There is every reason for the Labour government of Gordon Brown to be consigned to the proverbial dustbin of history, but little reason for the Conservative Party of David Cameron to be given the chance to tinker with the nanny state, and slow its growth. Voting for the Conservatives means removing Gordon Brown, but is it right to endorse a different way of cooking the same dish? Poison laced with chocolate instead of lemon is still poison. Is it better to vote UKIP to send a message to the Conservatives that compromising on your principles costs you support? Or is the populist nationalist rant of UKIP so unconscionably awful that it doesn’t deserve endorsement? Should I simply choose based on the candidates themselves (a good small government minded liberal if any exist)?