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      The Iberian Solution Could Offer Europe More Gas

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      Never has the question of where Europe’s foreign gas supplies come from, and whether there are alternatives to the continent’s dependence on Russia, been so much debated as in recent weeks. A subject that is usually the preserve of specialists has become the focus of endless discussion. Are there other sources of gas supplies for the European Union?

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      The immediate answer is there are very few today outside of Russia itself, hence the large rise in gas prices witnessed lately. Over the medium term, however, Libya and Algeria have ample opportunity to increase their supplies to the EU.

      Supplies From Libya and Algeria

      Libya boasts proven gas reserves of 1,500 billion cubic meters (bcm). Its production is a modest 16 bcm. Algeria has 4,500 bcm of proven reserves and 20-25 trillion cubic meters (tcm) of unconventional gas reserves, the third-largest in the world after the United States and China (and Argentina whose proven reserves tie with Algeria). How much gas that could produce is anyone’s guess, but we are speaking of a figure in the tens of bcm.

      Algeria today produces 90 bcm, of which 50 bcm were exported. Another feature of Algeria is the huge storage capacity — 60 bcm — of the Hassi R’Mel gas field, its oldest and largest compared with the EU’s storage capacity of 115 bcm.

      Pierre Terzian, the founder of the French energy think-tank Petrostrategies, points out that four underwater gas pipelines link these two producers directly to the European mainland: the first links Libyan gas fields with Italy; the second Algerian gas fields to Italy via Tunisia; the third Algerian gas fields to southern Spain; and the fourth the same gas fields to southern Spain via Morocco.

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      The latter has been closed since November 1, 2021, due to deteriorating relations between Algeria and Morocco, but this has not affected the supply of gas to the Iberian Peninsula. Algeria also has two major liquified natural gas (LNG) terminals, which adds flexibility to its export policy. Its exports to France and the United Kingdom are in LNG ships.

      The leading cause of the current crisis is structural as, according to Terzian, EU domestic gas production has declined by 23% over the last 10 years and now covers only 42% of consumption, as compared with 53% in 2010. That decline is the result, in particular, of the closing of the giant Groningen gas field, which is well underway and will be completed by 2030.

      Europe has done a lot to expand the gas transmission grid among EU countries, but some major gas peninsulas remain. In 2018, it was suggested that connections between the Iberian Peninsula and the rest of Europe needed developing. Spain boasts one-third of Europe’s LNG import capacity, much of it unused, and is connected to Algeria by two major pipelines that could be extended.

      As Alan Riley and I noted four years ago, the “main barrier to opening up the Iberian energy market’s supply routes to the rest of the EU is the restricted route over the Franco-Spanish border. Only one 7-bcm gas line is available to carry gas northwards … The main blocking factor has been the political power of Electricité de France, which is seeking to protect the interests of the French nuclear industry.” An Iberian solution, we added, would not only “benefit France and Spain, but also Algeria, creating additional incentives to explore for new gas fields and maybe kick start a domestic renewables revolution,” which would encourage a switch in consumption from gas to solar in Algeria.

      Germany, the Netherlands and Italy

      Germany, for its part, has never put its money where its mouth is with regard to Algeria. In 1978, Ruhrgas (now absorbed in E.ON) signed a major contract to supply LNG to Germany. Germany never built the LNG terminal needed to get that contract off the ground. So far, it is the only major European country to have no LNG import terminals, although it can rely on existing facilities in the Netherlands and Belgium.

      In 1978, the Netherlands also contracted to buy Algerian gas. Algeria dropped the contract in the early 1980s because of Germany’s refusal to go ahead. Later in the 1980s, Ruhrgas again expressed its interest in buying Algerian gas, but the price offered was too low and because Ruhrgas wanted to root the gas through France, which insisted on very high transit fees. By discarding Algerian gas, Germany has tied itself to Russian goodwill.

      Italy, like Germany, a big importer of Russian gas, has positioned itself much more adroitly. In December 2021, Sonatrach, Algeria’s state oil and gas monopoly, increased the amount of gas pumped through the TransMed pipeline, which links Algeria to Italy via Tunisia and the Strait of Sicily at the request of its Italian customers. This followed a very successful state visit by Italian President Sergio Mattarella to Algeria in early November. On February 27, Sonatrach confirmed it could pump additional gas to Europe, but contingent on meeting current contractual commitments.

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      Relations between the Italian energy company ENI and Sonatrach are historically close because of the important role played by the Italian company’s founder, Enrico Mattei, in advising the provisional government of the Republic of Algeria in its negotiations with France, which resulted in the independence of Algeria in July 1962.

      The pursuit of very liberal energy policies since the turn of the century by the European Commission overturned the policies of long-term gas and LNG purchase contracts, which were the norm in internationally traded gas until then. Yet security of supply does not rest on such misguided liberalism. New gas reserves cannot be found, let alone gas fields brought into production if producers and European customers are, as Terzian points out, “at the mercy of prices determined by exchange platforms which have dubious liquidity (and can be influenced by major players).” This is an attitude, he adds, “that borders on the irresponsible.”

      German energy policy has mightily contributed to the present crisis. It has blithely continued to shut down the country’s nuclear plants, increased its reliance on coal in the electricity sector and with that a consequent increase in carbon emissions.

      Serious Dialogue

      When considering Caspian gas as an alternative to Russian gas, I would add another country, Turkey, which has a very aggressive and independent policy as a key transit for gas. However, few observers would argue that such a solution would increase Europe’s security.

      Engaging in serious long-term strategic dialogue with Algeria would provide Spain and the EU with leverage. This could help to build better relations between Algeria, Morocco and also the troubled area of the Sahel. When trying to understand the politics of different nations, following the money often offers a good guide. One might also follow the gas.

      *[This article was originally published by Arab Digest, a partner organization of Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Tackling inflation is ‘top priority’, says Biden in State of the Union address

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      Tackling inflation is ‘top priority’, says Biden in State of the Union addressPresident acknowledges ‘too many families are struggling’ as climbing prices hit him in polls Getting runaway prices in America under control is “my top priority” Joe Biden told Congress on Tuesday in his first State of the Union address.Soaring inflation – now at a 40-year high – has hurt Biden in the polls and the US president bluntly acknowledged “too many families are struggling to keep up with the bills. Inflation is robbing them of the gains they might otherwise feel”.Tell us: how are rising US prices changing the way you shop, work and live ?Read moreThe US has added 6.6m jobs since Biden took office and the unemployment rate has dropped to 4%, down from a pandemic high of 14.8% in April 2020. But soaring inflation has overshadowed his economic successes, rising at an annual rate of 7.5% over the year through January.Biden said he would cut energy costs, the price of prescription drugs, and childcare in the US while ​​increasing competition between companies and making sure “corporations and the wealthiest Americans start paying their fair share”.“Economists call it ‘increasing the productive capacity of our economy’. I call it building a better America,” said Biden.Biden’s plans face heavy headwinds. On Tuesday, oil prices spiked again, passing $100 a barrel again as the war in Ukraine escalated. The rise will further increase costs for US consumers who are already paying high prices at the pump due to Covid 19-related issues. The average gallon of gas in the US was $3.61 as of 1 March, compared with $2.72 a gallon one year ago.Many of Biden’s initiatives will also struggle to pass in a deeply divided Washington as the US heads into midterm elections this November, with polling suggesting Republicans could take control of Congress.TopicsJoe BidenInflationUS politicsEconomicsUS economyDemocratsnewsReuse this content More

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      ‘Leaders lead during crises’, White House says, as Biden polling plummets

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      ‘Leaders lead during crises’, White House says, as Biden polling plummetsPress secretary promises ‘optimism’ in face of war and inflation despite worrying Post-ABC poll two days before State of the Union

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      Two days ahead of his first State of the Union address, with war raging in Ukraine and inflation rising at home, Joe Biden’s approval rating hit a new low in a major US poll.US inflation is at a 40-year high. Russia’s war will only make it worseRead moreThe survey from the Washington Post and ABC News put Biden’s approval rating at 37%. The fivethirtyeight.com poll average pegs his approval rating at 40.8% overall.Biden’s predecessor, Donald Trump, had historically weak approval ratings throughout his presidency but ended it, according to fivethirtyeight, at 38.6%.Jen Psaki, the White House press secretary, told ABC’s This Week Biden would acknowledge challenges but also project optimism when he speaks to Congress and the nation at the Capitol on Tuesday night.“If you look back when President [Barack] Obama gave his first State of the Union, it was during the worst financial crisis in a generation,” Psaki said. “When President [George W] Bush gave his first State of the Union, it was shortly after 9/11.“Leaders lead during crises. That’s exactly what President Biden is doing. He’ll speak to that, but he’s also going to speak about his optimism about what’s ahead and what we all have to look forward to.”The Post-ABC poll found that 55% of respondents disapproved of Biden’s performance, with 44% strongly disapproving. Partisan divides were evident, with 86% of Republicans and 61% of independents disapproving while 77% of Democrats approved of Biden’s performance in 13 months in office.The poll followed others which have sounded warnings for Biden, including a Harvard survey which found a majority of Americans saying Russia would not have invaded Ukraine if Trump was still in the White House.Fox News, meanwhile, found that more Democrats had a negative view of Trump and more Republicans disapproved of Biden than either did of Vladimir Putin.Biden faces strong political headwinds as midterm elections loom. The party in the White House usually suffers in its first midterm contest.According to the Post-ABC poll, 50% of Americans want Republicans – the party whose supporters attacked Congress on 6 January 2021 – to take control on Capitol Hill.Most analysts expect that at least the House will fall to the GOP, though intra-party divisions, particularly over Trump and his political ambitions, could yet damage Republicans in November.Biden has implemented wide-ranging sanctions against Russia and Putin himself, helped marshal world opinion against Russia and sent US troops to allies in Europe.Nonetheless, the Post-ABC poll found that 47% of respondents disapproved of the president’s handling of the Ukraine crisis.Russia invaded as the poll was being conducted this week.The knock-on effects of the Ukraine war on the US economy are widely feared. In the Post-ABC poll, Biden’s approval rating on economic matters stood at the same low level as his overall approval rating, 37%. Three-quarters of respondents rated the US economy negatively.The Post and ABC also said Biden’s approval on handling the coronavirus pandemic continues to slide, with 44% approving and 50% disapproving.The poll also asked about two Republican attack lines: that Biden is not tough enough to stand up to Putin and that at 79 he is not mentally sharp enough to meet the demands of the job.“On the question of whether he is a strong leader,” the Post reported, “59% say no and 36% say yes – closely aligned with his overall approval rating. Among independents, 65% say he is not strong.“On an even more personal question, 54% say they do not think Biden has the mental sharpness it takes to serve as president, while 40% say he does.”TopicsJoe BidenUS politicsInflationUkraineEconomicsEuropenewsReuse this content More

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      Why the White House stopped telling the truth about inflation and corporate power | Robert Reich

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      Why the White House stopped telling the truth about inflation and corporate powerRobert ReichStarbucks, McDonald’s, Chipotle, Amazon – all protect profits by making customers pay more. We need the political courage to say they can and should cover rising costs themselves The Biden White House has decided to stop tying inflation to corporate power. That’s a big mistake. I’ll get to the reason for the shift in a moment. First, I want to be clear about the relationship between inflation and corporate power.Share the Profits! Why US business must return to rewarding workers properly | Robert ReichRead moreWhile most of the price increases now affecting the US and global economies have been the result of global supply chain problems, this doesn’t explain why big and hugely profitable corporations are passing these cost increases on to their customers in the form of higher prices.They don’t need to do so. With corporate profits at near record levels, they could easily absorb the cost increases. They’re raising prices because they can – and they can because they don’t face meaningful competition.As the White House National Economic Council put it in a December report: “Businesses that face meaningful competition can’t do that, because they would lose business to a competitor that did not hike its margins.”Starbucks is raising its prices to consumers, blaming the rising costs of supplies. But Starbucks is so profitable it could easily absorb these costs – it just reported a 31% increase in yearly profits. Why didn’t it just swallow the cost increases?Ditto for McDonald’s and Chipotle, whose revenues have soared but who are nonetheless raising prices. And for Procter & Gamble, which continues to rake in record profits but is raising prices. Also for Amazon, Kroger, Costco and Target.All are able to pass cost increases on to consumers in the form of higher prices because they face so little competition. As Chipotle’s chief financial officer said, “Our ultimate goal … is to fully protect our margins.”Worse yet, inflation has given some big corporations cover to increase their prices well above their rising costs.In a recent survey, almost 60% of large retailers say inflation has given them the ability to raise prices beyond what’s required to offset higher costs.Meat prices are soaring because the four giant meat processing corporations that dominate the industry are “using their market power to extract bigger and bigger profit margins for themselves”, according to a recent report from the White House National Economic Council (emphasis added).Not incidentally, that report was dated 10 December. Now, the White House is pulling its punches. Why has the White House stopped explaining this to the public?The Washington Post reports that when the prepared congressional testimony of a senior administration official (Janet Yellen?) was recently circulated inside the White House, it included a passage tying inflation to corporate consolidation and monopoly power. But that language was deleted from the remarks before they were delivered.Apparently, members of the White House Council of Economic Advisers raised objections. I don’t know what their objections were, but some economists argue that since corporations with market power wouldn’t need to wait until the current inflation to raise prices, corporate power can’t be contributing to inflation.This argument ignores the ease by which powerful corporations can pass on their own cost increases to customers in higher prices or use inflation to disguise even higher price increases.It seems likely that the Council of Economic Advisers is being influenced by two Democratic economists from a previous administration. According to the Post, the former Democratic treasury secretary Larry Summers and Jason Furman, a top economist in the Obama administration, have been critical of attempts to link corporate market power to inflation.“Business-bashing is terrible economics and not very good politics in my view,” Summers said in an interview.Wrong. Showing the connections between corporate power and inflation is not “business-bashing”. It’s holding powerful corporations accountable.Whether through antitrust enforcement (or the threat of it), a windfall profits tax or price controls, or all three, it’s important for the administration and Congress to do what they can to prevent hugely profitable monopolistic corporations from raising their prices.Otherwise, responsibility for controlling inflation falls entirely to the Federal Reserve, which has only one weapon at its disposal – higher interest rates. Higher interest rates will slow the economy and likely cause millions of lower-wage workers to lose their jobs and forfeit long-overdue wage increases.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      Is Sustainable Finance More Hype Than Hope?

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      In recent years, and even more in the wake of the COVID-19 pandemic, it has become evident that finance must contribute to the development of a more sustainable economy. However, the current sustainable finance landscape is characterized by heterogeneous concepts, definitions, and industry and policy standards, which tend to undermine the credibility of this nascent market and open the door to greenwashing.

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      One of the challenges is to decide where to draw the line between sustainable and “normal” investments, and how to subdivide the universe of sustainable finance. The lack of clear rules on what can be labeled “sustainable” opens the door to unscrupulous companies and fund managers trumpeting their environmental, social and governance rating ratings — known as ESG — while simply relabeling existing funds without changing neither the underlying strategies nor the portfolio composition. As a result, some observers are concerned that “the overall prevailing mechanism is based on short-term maximization of financial returns, and [that] ESG is still essentially an idea.”

      Thus, the first step to improve the situation, according to Domingo Sugranyes of the Pablo VI Foundation, is to create “an accepted framework of definitions and metrics” at regional or global levels to identify high-level standards and align the actions undertaken by political authorities around the world. But it is also important to act on the other side of ESG, which is direct financing as opposed to the stock market. For example, the European Commission has adopted several regulations to support and improve the flow of money toward sustainable activities.

      Embed from Getty Images

      In addition, Archana Sinha of the Indian Social Institute suggests that broader structural reforms may be necessary “to fully integrate climate-aligned structural change with economic recovery.” Not only should the legal framework be changed so “that emissions generate costs,” says economist Ladislau Dowbor, but “international financial transactions must be taxed, so that they leave a trail, shedding light on tax havens while generating resources for sustainable practices.” Other measures, Etienne Perrot says, may include “central bank rediscount policy favoring sectors that do not use fossil fuels; active and pugnacious mobilization of the shareholders most aware of the ecological crisis; [and] monitoring of speculative drifts.”

      If sustainable finance is to become real hope instead of hype, then we will also need governments to step in to fix the rules, with a view to make any financial activity “sustainable by default,” says Eelco Fiole, an investment governance expert. Otherwise, Perrot warns, “the present enthusiasm around sustainable finance may well be short-lived.”

      By Virgile Perret and Paul Dembinski

      Note: From Virus to Vitamin invites experts to comment on issues relevant to finance and the economy in relation to society, ethics and the environment. Below, you will find views from a variety of perspectives, practical experiences and academic disciplines. The topic of this discussion is: What needs to be put in place in order to leverage the present enthusiasm around sustainable finance?

      “…the ‘present enthusiasm around sustainable finance’ may be short-lived… ”

      “Finance is only one of the means: directing public and institutional financial flows toward investments that exclude — or fight against — the carbon economy; central bank rediscount policy favoring sectors that do not use fossil fuels; active and pugnacious mobilization of the shareholders most aware of the ecological crisis; [and] monitoring of speculative drifts. However, whatever financial modalities are adopted, these ecological costs will necessarily weigh on financial profitability. Which leaves me to fear that the ‘present enthusiasm around sustainable finance’ is short-lived.”

      Etienne Perrot — Jesuit, economist and editorial board member of the Choisir magazine (Geneva) and adviser to the journal Etudes (Paris)

      “…labels should apply only to project financing related to clean energy… ”

      “All sustainable finance labels should apply only to project financing related to clean energy. Investment houses should not finance fossil fuel firms in any way to declare themselves deserving of a sustainable finance seal of approval. This also goes for green financing.”

      Oscar Ugarteche — visiting professor of economics at various universities

      “…ESG is still essentially an idea…”

      “The world produces an amount of goods and services amply sufficient to ensure everyone has a dignified life. We have the necessary technologies to produce in a sustainable way. And we presently have detailed understanding of the slow-motion catastrophe climate change represents. While the Paris conference presented the goals, the Addis Ababa conference on how to fund them reached no agreement. The overall prevailing mechanism is based on short-term maximization of financial returns, and ESG is still essentially an idea. The legal framework has to change, so that emissions generate costs. International financial transactions must be taxed, so that they leave a trail, shedding light on tax havens while generating resources for sustainable practices. The key issue is corporate governance.”

      Ladislau Dowbor — economist, professor at the Catholic University of Sao Paulo, consultant to many international agencies

      “…it is not clear that substantial public intervention is needed… ”

      “Sustainable finance is a broad umbrella, but nonetheless has a clear meaning as investment strategies and products that aim at fostering activities that promote environmental, social and governance improvements. The private sector has rapidly developed, having realized that there is a clear appetite by investors for investment with such priorities. Specific products have been created, as well as rigorous metrics and certifications. It is therefore not clear that substantial public intervention is needed (in fostering sustainable finance, by contrast to ensuring proper pricing of, for instance, CO2 where taxes are needed). Public intervention could focus on requiring disclosure of the sustainability dimension of investment by financial intermediaries to facilitate transparency.”

      Cedric Tille — professor of macroeconomics at the Graduate Institute of International and Development Studies in Geneva

      “…every financial decision should take climate risk into account… ”

      “Globally, the private sector needs altering processes, such that their investments do not worsen climate change. The Indian government needs to introduce guidelines to standardize climate-related revelations in all financial statements and push private companies to manage their exposure to climate risks in their tasks and processes. A lack of clarity about true exposures to specific climate risks for physical and financial assets, coupled with uncertainty about the size and timing of these risks, creates major vulnerabilities. It is suggested that the only way forward is to fully integrate climate-aligned structural change with economic recovery needing a fundamental shift in the entire finance system. Meaning that every financial decision should take climate risk into account and climate finance is integral to the transformation process.”

      Archana Sinha — head of the Department of Women’s Studies at the Indian Social Institute in New Delhi, India

      “…green rating for business firms…”

      “Rendering sustainable finance an effective, practical concept depends, inter alia, on (1) measures regarding definitions, sustainability reporting and regulation; (2) genuine commitment to mitigation of climate change; and (3) honest and sound assessment of outcomes. Under 1, [it] can be singled out the extension of the definitions and accounting essential to regulation, with special attention to the concepts of natural capital and of contingent assets and liabilities. Under 2, there is the need for senior bankers and other key decision-makers to evaluate and explain the charting and navigation of the new business routes required for mitigation. Under 3, there are roles for many different parties — governments, central banks, research institutions and NGOs. The roles could include development and application of green ratings for business firms and other relevant institutions, which draw on historical experience with credit ratings.”

      Andrew Cornford — counselor at Observatoire de la Finance, former staff member of the United Nations Conference on Trade and Development (UNCTAD), with special responsibility for financial regulation and international trade in financial services

      “…an accepted framework of definitions and metrics…”

      “The movement toward ecological sustainability is still in its infancy in the world economy. It is real and probably here to stay, but companies and governments will meet many economic, physical and human hurdles on the way, including raw materials bottlenecks and lack of specialized talent. ESG investment can be seen as an expression of demand for sustainability in society, pressing in the right direction. But to confirm their effectiveness and credibility, ESG-motivated investors will need an accepted framework of definitions and metrics (the ‘taxonomy’ being discussed at the EU level). Ideally, one would imagine a worldwide, self-regulated consensus about environmental cost, similar to the one which led to the international acceptance of the International Financial Reporting Standards (IFRS).”

      Domingo Sugranyes — director of a seminar on ethics and technology at Pablo VI Foundation, former executive vice-chairman of MAPFRE international insurance group

      “…a point of reference in public debate…”

      “A transition from enthusiasm to reality requires 3 steps:

      1: From the experts’ room to the public sphere. Sustainable finance cannot flourish without being a point of reference in public debate and a ‘visible’ concern in everyday life. Such a paradigm shift can only be initiated through a participatory, sociopolitical justification.

      2: Toward a glocal perspective. As it happens with every declaration, the 17 sustainable development goals (SDGs) and the Agenda 2030 provisions need to be part of the national and local development strategy both as aims and evaluation measures.

      3: From wishes to accountability. Various actions — mirrored in national and international law — are required to empower accountability: legislation initiatives that forbid hazardous products, give motives for ‘clean production’ and favor a circular economy, annual monitoring on sustainable practices, reduction of waste/emission and a regulatory framework for investment plans.”

      Christos Tsironis — associate professor of social theory at the Aristotle University of Thessaloniki in Greece

      “…any finance activity needs to be sustainable by default…”

      “Given that rational justice requires the current generation to have a fiduciary duty to the future generation, any finance activity needs to be sustainable by default. In that sense, we need to distinguish between finance and unsustainable finance, and [we] need to focus on diminishing unsustainable finance to the benefit of finance. This means finance needs to be defined as purposeful and needs to account for all interests at stake. This then needs to be coded into law and into incentive systems. While ESG data is important, assessing and certifying impact on a case-by-case basis gives true input for governance and direction toward social and environmental sustainability, all things considered. This requires a new moral psychology for leadership.”

      Eelco Fiole — investment governance expert, board director and adjunct professor of finance ethics in Lausanne and Neuchatel

      *[An earlier version of this article was published by From Virus to Vitamin.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The Fed is about to raise interest rates and shaft American workers – again | Robert Reich

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      The Fed is about to raise interest rates and shaft American workers – againRobert ReichPolicymakers fear a labor shortage is pushing up wages and prices. Wrong. Real wages are down and workers are struggling The January jobs report from the US labor department is heightening fears that a so-called “tight” labor market is fueling inflation, and therefore the Fed must put on the brakes by raising interest rates.This line of reasoning is totally wrong.Trump and his enablers unwittingly offer Democrats the best hope in the midterms | Robert ReichRead moreAmong the biggest job gains in January were workers who are normally temporary and paid low wages: leisure and hospitality, retail, transport and warehousing. In January, employers cut fewer of these workers than in most years because of rising customer demand combined with Omicron’s negative effect on the supply of workers. Due to the Bureau of Labor Statistics’ “seasonal adjustment”, cutting fewer workers than usual for this time of year appears as “adding lots of jobs”.Fed policymakers are poised to raise interest rates at their March meeting and then continue raising them, in order to slow the economy. They fear that a labor shortage is pushing up wages, which in turn are pushing up prices – and that this wage-price spiral could get out of control.It’s a huge mistake. Higher interest rates will harm millions of workers who will be involuntarily drafted into the inflation fight by losing jobs or long-overdue pay raises. There’s no “labor shortage” pushing up wages. There’s a shortage of good jobs paying adequate wages to support working families. Raising interest rates will worsen this shortage.There’s no “wage-price spiral” either, even though Fed chief Jerome Powell has expressed concern about wage hikes pushing up prices. To the contrary, workers’ real wages have dropped because of inflation. Even though overall wages have climbed, they’ve failed to keep up with price increases – making most workers worse off in terms of the purchasing power of their dollars.Wage-price spirals used to be a problem. Remember when John F Kennedy “jawboned” steel executives and the United Steel Workers to keep a lid on wages and prices? But such spirals are no longer a problem. That’s because the typical worker today has little or no bargaining power.Only 6% of private-sector workers are unionized. A half-century ago, more than a third were. Today, corporations can increase output by outsourcing just about anything anywhere because capital is global. A half-century ago, corporations needing more output had to bargain with their own workers to get it.These changes have shifted power from labor to capital – increasing the share of the economic pie going to profits and shrinking the share going to wages. This power shift ended wage-price spirals.Slowing the economy won’t remedy either of the two real causes of today’s inflation – continuing worldwide bottlenecks in the supply of goods and the ease with which big corporations (with record profits) pass these costs to customers in higher prices.Supply bottlenecks are all around us. Just take a look at all the ships with billions of dollars of cargo idling outside the Ports of Los Angeles and Long Beach, through which 40% of all US seaborne imports flow.Big corporations have no incentive to absorb the rising costs of such supplies – even with profit margins at their highest level in 70 years. They have enough market power to pass these costs on to consumers, sometimes using inflation to justify even bigger price hikes.“A little bit of inflation is always good in our business,” the chief executive of Kroger said last June.“What we are very good at is pricing,” the chief executive of Colgate-Palmolive said in October.In fact, the Fed’s plan to slow the economy is the opposite of what’s needed now or in the foreseeable future. Covid is still with us. Even in its wake, we’ll be dealing with its damaging consequences for years: everything from long-term Covid to school children months or years behind.Friday’s jobs report shows that the economy is still 2.9m jobs below what it had in February 2020. Given the growth of the US population, it’s 4.5m short of what it would have by now had there been no pandemic.Consumers are almost tapped out. Not only are real (inflation-adjusted) incomes down but pandemic assistance has ended. Extra jobless benefits are gone. Child tax credits have expired. Rent moratoriums are over. Small wonder consumer spending fell 0.6% in December, the first decrease since last February.Many people are understandably gloomy about the future. The University of Michigan consumer sentiment survey plummeted in January to its lowest level since late 2011, back when the economy was trying to recover from the global financial crisis. The Conference Board’s index of confidence also dropped in January.Given all this, the last thing average working people need is for the Fed to raise interest rates and slow the economy further. The problem most people face isn’t inflation. It’s a lack of good jobs.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
      TopicsFederal ReserveOpinionUS economyEconomicsUS unemployment and employment dataUS unionsUS domestic policyUS politicscommentReuse this content More

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      in World Politics

      Britain’s Still Got It

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      Since Brexit in 2016, the United Kingdom’s growth rate has been poor. Inflation is at its highest rate in 30 years. In December 2021, it had risen to 5.4%. Wages have failed to keep up and, when we factor in housing or childcare costs, the cost of living has been rising relentlessly.

      COVID-19 has not been kind to the economy. Rising energy prices are putting further pressure on stretched household budgets. To stave off inflation, the Bank of England is finally raising interest rates, bringing an end to the era of cheap money. Payroll taxes are supposed to go up in April to repair public finances.

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      The Resolution Foundation is predicting that “spiralling energy prices will turn the UK’s cost-of-living crisis into a catastrophe” by spring. The UK’s 2022 budget deficit will be larger than all its G-7 peers except the US. The beleaguered Boris Johnson government finds itself in a bind. At a time of global inflation, it has to limit both public borrowing and taxes. Unsurprisingly, there is much doom and gloom in the air.

      We Have Seen This Movie Before

      Since the end of World War II, the UK has experienced many crises of confidence. One of the authors move to the country in 1977. Back then, the Labour Party was in power. James Callaghan was prime minister, having succeeded Harold Wilson a year earlier. The British economy was the fifth-largest in the world but was buffeted by crises. In 1976, the government had approached the International Monetary Fund (IMF) when, in the words of Richard Roberts, “Britain went bust.”

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      From 1964 to 1967, the United Kingdom experienced “a continuous sterling crisis.” In fact, the UK was “the heaviest user of IMF resources” from the mid-1940s to the mid-1970s. The 1973 oil crisis spiked energy costs worldwide and pushed the UK into a balance of payments crisis. Ironically, it was not the Conservatives led by Margaret Thatcher but Labour led by Callaghan that declared an end to the postwar interpretation of Keynesian economics.

      In his first speech as prime minister and party leader at the Labour Party conference at Blackpool, Callaghan declared: “We used to think you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour, that option no longer exists.” After this speech, the Callaghan government started imposing austerity measures.

      Workers and unions protested, demanding pay rises. From November 1978 to February 1979, strikes broke out across the UK even as the country experienced its coldest winter in 16 years. This period has come to be known as the Winter of Discontent, a time “when the dead lay unburied” as per popular myth because even gravediggers went on strike.

      In 1979, Thatcher won a historic election and soon instituted economic policies inspired by Friedrich von Hayek, the Austrian rival of the legendary John Maynard Keynes. Thatcher’s victory did not immediately bring a dramatic economic turnaround. One major industry after another continued to collapse. Coal mines closed despite a historic strike in 1984-85. Coal, which gave work to nearly 1.2 million miners in 1920 employed just 1,000 a century later.

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      Throughout the 1970s, the UK was dubbed “the sick man of Europe.” People forget now that a key reason the UK joined the European Economic Community (EEC) in 1973 was to make the economy more competitive. Between 1939 and the early 1990s, London lost a quarter of its population. Yet London and indeed the UK recovered from a period of crisis to emerge as a dynamic economy. Some credit Thatcher but there were larger forces at play.

      There Is Life in the Old Dog Yet

      Last week, one of the authors met an upcoming politician of India’s ruling Bharatiya Janata Party (BJP). A strong nationalist, he spoke about the importance of Hindi, improving India’s defense and boosting industrial production. When the conversation turned to his daughter, he said that he was sending her to London to do her A-levels at a top British school.

      This BJP leader is not atypical. Thousands of students from around the world flock to the UK’s schools and universities. British universities are world-class and train their students for a wide variety of roles. Note that the University of Oxford and AstraZeneca were able to develop a COVID-19 vaccine with impressive speed. This vaccine has since been released to more than 170 countries. This is hardly surprising: Britain has four of the top 20 universities in the world — only the US has a better record.

      Not only students but also capital flocks to the UK. As a stable democracy with strong rule of law, the United Kingdom is a safe haven for those seeking stability. It is not just the likes of Indian billionaires, Middle Eastern sheikhs and Russian oligarchs who put their wealth into the country. Numerous middle-class professionals choose the UK as a place to live, work and do business in. Entrepreneurs with a good idea don’t have to look far to get funding. Despite residual racism and discrimination, Britain’s cities have become accustomed to and comfortable with their ethnic minorities.

      Alumni from top universities and skilled immigrants have skills that allow the UK to lead in many sectors. Despite Brexit, the City of London still rivals Wall Street as a financial center. Companies in aerospace, chemical and high-end cars still make the UK their home. British theater, comedy, television, news media and, above all, football continue to attract global attention.

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      Napoleon Bonaparte once purportedly called the UK “a nation of shopkeepers.” There is an element of truth to this stereotype. The British are a commercially savvy, entrepreneurial and business-friendly bunch. One author knows a dealer who trades exclusively in antique fans and a friend who specializes in drinks that you can have after a heavy night. The other has a friend who sells rare Scotch whiskey around the world and an acquaintance who is running a multibillion insurance company in India. Many such businesses in numerous niches give the British economy a dynamism and resilience that is often underrated. Everything from video gaming (a £7-billion-a-year industry) to something as esoteric as antique fan dealing continues to thrive.

      The UK also has the lingering advantage of both the Industrial Revolution and the British Empire. Infrastructure and assets from over 200 years ago limit the need for massive capital investment that countries like Vietnam or Poland need. Furthermore, the UK has built up managerial experience over multiple generations. Thanks to the empire, English is the global lingua franca and enables the University of Cambridge to make money through its International English Language Testing System. Barristers and solicitors continue to do well thanks to the empire’s export of common law. Even more significantly, British judges have a reputation for impartiality and independence: they cannot be bribed or coerced. As a result, the UK is the premier location for settling international commercial disputes.

      In 1977, the UK was the world’s fifth-largest economy. In 2022, 45 years later, it is still fifth, although India is projected to overtake it soon. The doom and gloom of the 1970s proved premature. The same may prove true in the 2020s. The economy faces a crisis, but it has the strength and track record to bounce back. The UK still remains a jolly good place to study, work, invest and live in.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More