Market futures are looking murkey

Don’t let the recent shock waves in the economy fool you we still haven’t figured out what the markets will do in 2016.
A drop in oil prices normally heralds a period of economic growth and the reasons are fairly obvious. We need oil literally greases the mechanisms of production. Lower fuel costs mean lower production costs, which in turn mean, theoretically, lower prices for consumers. As prices drop people buy more, which puts more money in the pockets of the people producing allowing them to either raise wages employ more staff. Either way it means more money being pumped into the economy which is good for everyone.
There is a problem though. When oil prices have dropped previously it has been due to an excess of supply, the more of something there is the lower its prices. This time round, however, it appears that the drop in prices is due more to a drop in demand. Oil just isn’t the commodity it once was. Not necessarily a bad thing, it does mean that people are paying attention to renewables more after all which is, hopefully, good for the environment.
For the markets though it poses a serious risk. Oil has been a strong base for many investors and the thought that it could collapse is putting the frighteners on more than one. Economists don’t like uncertainty and that is exactly what they are facing.
Coupling this with recent developments in China and the markets for 2016 are looking as though they are likely to be in for a rocky time. This has been evidenced this week by the drop in the Shanghai index, due in no small part to the drop in the price of oil.
These developments have not come out of the aether however. China’s rapid expansion and construction boom has longed looked like a bubble set to burst. What keeps it stable though is the influence of the government over the whole situation. Should the growth of industry, without the supporting infrastructure, we have seen in China have been attempted by America or Europe then it would be a dramatically different story. As it is the Chinese government is likely to impose measures to prevent the spiralling decent of its economy. It won’t be pretty but it may just be enough to stave off collapse.
The issue of oil prices however is one which may not have such a hopeful future. Large swathes of the global economy are built on high oil prices, whether directly or indirectly, in some cases without it being evident to the industries themselves until it is too late. A curtailment of supply may help to drive prices up slightly, however, it would be an illusionary fix which defeats the object. Investors know the oil is available it is just a matter of them waiting until they can access it.
For now the future is uncertain and likely to remain that way. The loss of revenue from oil is likely to create further instability in the Middle East and create a domino effect of devaluation. As the main beneficiaries of oil wealth withdraw their support from other enterprises the economy as a whole will feel the pinch.
Whether we like it or not oil is still the life blood of market enterprise and right now the markets need a transfusion.

A Christmas calculation

There is a simplicity to being cynical which cannot be denied. An easy way to sum up human interaction as nothing more than self interest. It is a view which personifies much of economics and which has shaped the world we live in.
Instead of trying to take that leap into the darkness, where we can see that not everything is motivated by greed and desire, we take the path of least resistance. We assume as a species that the actions of others will be to maximise their own gains with no regards to the repercussions on those around them. Logically it falls on each of us to only think of ourselves and try and get the best deal we can before the rest of the world catches up, otherwise generally known as backward induction where you use your knowledge of what the last move will be to work backwards in an attempt to ensure you get the best deal in each round.
The depressing notion of self interest falls down in one key respect though, it fails to take humanity into account.
The last 12 months have seen some of the most devastating scenes in our generation. The mass exodus from Syria, the attacks in France and Tunisia, bombings in Lebanon, wars and terrorism throughout Nigeria, Afghanistan, Iraq, Ukraine, Yemen, Gaza and Israel, Egypt and repeated mass shootings in America are all only a tiny fraction of the pain and misery the world has suffered through.
In the face of such acts of violence and callous disregard for the lives of others the principle of self interest is clear and understandable. Where it is undermined however isn't in the grand headline grabbing actions of a crazed minority. It is in the selfless acts, those who when the first shots were fired didn't run from the chaos but put themselves between the bullets and others. Humanity has shone through as people have fought to retain that glimmer of hope for those who need it most. Those who didn't shut themselves off against the storm but threw their doors open to refugees and those who still strive to do just what they can to make others lives better.
A focus on Game Theory demonstrates that self interest is not always the most profitable approach. By collaborating individuals may not achieve the Parreto optimal strategy, where you cannot become better off without someone else losing out, they can however achieve a dominant strategy, or more simply the best course of action for each player knowing what the other player will do.
Self interest is fine for modelling strategies but it is not realistic when applied to the real world.
At this time of year that feeling of collaboration should be stronger than ever. It is all too easy to see the holiday season as nothing but an excuse for even greater crass commercialisation than usual. For many western high street retailers it is a season where the laws of supply and demand are everything as sales account for approximately 40% of their annual earnings. It is so much more than that though. It is a time when we can think about what really matters. A time of reflection and peace. It is most of all though a time to realise that there is so much more to this world than the maximisation of self interest. If the old economics is to be overturned it won't be through campaigns against capitalism or shouting slogans. It will be about taking a moment from our own selfish ideals and thinking about others. If we act on those thoughts then just imagine the benefit to all.

COP21 must act as catalyst for construction industry

The success of the Paris Climate Change agreement must be tempered by a realisation of how difficult it will be to achieve.
For the construction sector in particular it provides a challenge which will be hard for some countries to overcome. At present the construction industry is responsible for more than 30% of the world greenhouse gas emissions. As the delegates at the climate change conference fly back to their home nations on private airplanes it will fall to the construction industry to ensure that they can meet the target of below two degrees for global warming.
Recent statistics have given rise to the prediction that the global population could be nearing 10 billion by 2050, about the same time that global greenhouse gas is expected to rise by 70%. With such a dramatic increase in population comes and equally dramatic need for construction. 10 billion people need homes to live in, hospitals to be born and treated in, schools to be educated in, factories and offices to work in, shops to buy goods in, roads to travel along and on and on. The construction industry is set for a period of growth, even taking into account that the majority of those born between now and 2050 will be in developing countries without necessarily having access to all of the facilities which would be hoped.
If the global construction industry is going to meet the needs of these dual issues then it is going to need to start adapting to new technologies and embracing some existing ones.
The construction of Passivhaus builds for example could become the norm as an increasing number of architects and contractors see them to being the solution to meet the current climate change targets. “With innovative new technologies and expected cost reductions, climate-damaging emissions can be further cut, leading to an eventual complete decarbonisation of the sector”, Oliver Rapf, Executive Director of the Buildings Performance Institute Europe (BPIE) writes on the subject in a publication for the think tank Friends of Europe.
The principles behind Passivhaus design are quite simple, and play nicely to the principles set out in the Paris Climate Change Agreement, Carbon Dioxide emissions are reduced as the energy consumption of these build is limited by their heat retention capability. Likewise in hot weather the buildings ability to maintain a constant temperature internally through its design prevents the need for air conditioning or other energy intensive measures. Even with a new focus on renewable energy the increased efficiency of Passivhaus builds is likely to be an area of growth in the future, after all preventing the need for the energy consumption is preferable to needing even green energy sources.
"Renewable energy is absolutely essential for climate protection, but better efficiency offers even greater potential", says Dr. Wolfgang Feist, Director of the Passive House Institute.
Forty-five years from now the world and the construction sector in particular will be a very different place. The evidence for this is simple just look at the construction industry in 1965 compared to today. By embracing new ecological and sustainable building practices the industry in 2050 can still be the driving economic force it is now, more importantly though it could potentially be the driving environmental one as well.

Sugar tax leaves a sour taste

THE figures are startling and should be cause for concern however imposing ill thought through taxes is not the answer
According to recent figures one in three children leaving primary school is overweight, or obese. This is not to say, as some newspapers have claimed, that this same proportion of children are obese, just that they are over the recommended weight for their size.
The Common’s Health Committee is now proposing a tax on sugary drinks to help combat the epidemic of obesity which they see as infecting the country. A pigovian tax on sugar in the UK would fail to do anything more than cause even more fear among those parents already aware of the dangers of too much sugar and penalize families from the lower end of the income spectrum though. At best it would create a temporary decline in the amount of sugary drinks being consumed as a result of the media coverage; however, the overall impact in the long term would be negligible on the consumption habits of individuals.
Much has been made of the impact a similar tax has had in Mexico. Proponents of the legislation are only relying on a micro focus rather than looking at the larger picture. In Mexico the tax is based on per litre servings of sugary drinks. While the data shows that there has been a drop in the consumption of larger bottles experts have calculated that this reduction can be explained by people shifting to purchasing smaller servings. One such study led by Emilio Gutiérrez, a professor at Mexico’s ITAM University calculated that this shift in consumption habits from larger to smaller servings could account for 60% of the documented drop, while not actually creating a decline in the overall amount of sugary drinks being consumed.
Pigovian taxes are intended to address problems associated with negative externalities in the market, such as the health risks linked to too much sugar. By imposing these taxes states hope to combat inefficient market outcomes by imposing a cost for negative behaviours. They are already used in regards to smoking and alcohol and it has been suggested that such taxes should be imposed on fatty goods as well as sugar.
One of the key problems in imposing them though is in ensuring that the negative social consequences of the good, or action being taxed, is correctly calculated to ensure that it is balanced against the rate of tax being imposed.
Due to the overall costs of sugary drinks the level of taxation on each bottle would result in minimal revenues and marginal, overall, increases cost of the end product. In Mexico the tax started at about 10c on the dollar before being reduced to 6 cents. This type of increase would in most case be absorbed by the producers, who will still be making supernormal profits on their goods, and in cases where it isn’t is unlikely to be enough to deter people from making the purchase.
The cumulative effect of the increase, in the cases where it is passed onto the consumer, is most likely to hit those at the lower end of the income threshold. The theory of the tax increasing the substitution effect fails to take into account behavioral triggers which drive particular groups to purchase specific goods. Certain labels have a cache about them which creates a system of conspicuous consumption, particularly among the young and less educated, which will not alter with the creation of the tax and won’t be altered by any amount of substitution factor.
The concept of the tax has been drawn up by well intentioned individuals who haven’t realised the real draw of sugary drinks. There is a reason why people buy Coke and not the supermarket own brand. It isn’t about the cost. If obesity is really to be tackled then taxes on sugary drinks won’t do it. Increased education about health issues and more exercise programmes in school may be the way to go, if only we could find a way to fund them.

Sugar tax leaves a sour taste

THE figures are startling and should be cause for concern however imposing ill thought through taxes is not the answer
According to recent figures one in three children leaving primary school is overweight, or obese. This is not to say, as some newspapers have claimed, that this same proportion of children are obese, just that they are over the recommended weight for their size.
The Common’s Health Committee is now proposing a tax on sugary drinks to help combat the epidemic of obesity which they see as infecting the country. A pigovian tax on sugar in the UK would fail to do anything more than cause even more fear among those parents already aware of the dangers of too much sugar and penalize families from the lower end of the income spectrum though. At best it would create a temporary decline in the amount of sugary drinks being consumed as a result of the media coverage; however, the overall impact in the long term would be negligible on the consumption habits of individuals.
Much has been made of the impact a similar tax has had in Mexico. Proponents of the legislation are only relying on a micro focus rather than looking at the larger picture. In Mexico the tax is based on per litre servings of sugary drinks. While the data shows that there has been a drop in the consumption of larger bottles experts have calculated that this reduction can be explained by people shifting to purchasing smaller servings. One such study led by Emilio Gutiérrez, a professor at Mexico’s ITAM University calculated that this shift in consumption habits from larger to smaller servings could account for 60% of the documented drop, while not actually creating a decline in the overall amount of sugary drinks being consumed.
Pigovian taxes are intended to address problems associated with negative externalities in the market, such as the health risks linked to too much sugar. By imposing these taxes states hope to combat inefficient market outcomes by imposing a cost for negative behaviours. They are already used in regards to smoking and alcohol and it has been suggested that such taxes should be imposed on fatty goods as well as sugar.
One of the key problems in imposing them though is in ensuring that the negative social consequences of the good, or action being taxed, is correctly calculated to ensure that it is balanced against the rate of tax being imposed.
Due to the overall costs of sugary drinks the level of taxation on each bottle would result in minimal revenues and marginal, overall, increases cost of the end product. In Mexico the tax started at about 10c on the dollar before being reduced to 6 cents. This type of increase would in most case be absorbed by the producers, who will still be making supernormal profits on their goods, and in cases where it isn’t is unlikely to be enough to deter people from making the purchase.
The cumulative effect of the increase, in the cases where it is passed onto the consumer, is most likely to hit those at the lower end of the income threshold. The theory of the tax increasing the substitution effect fails to take into account behavioral triggers which drive particular groups to purchase specific goods. Certain labels have a cache about them which creates a system of conspicuous consumption, particularly among the young and less educated, which will not alter with the creation of the tax and won’t be altered by any amount of substitution factor.
The concept of the tax has been drawn up by well intentioned individuals who haven’t realised the real draw of sugary drinks. There is a reason why people buy Coke and not the supermarket own brand. It isn’t about the cost. If obesity is really to be tackled then taxes on sugary drinks won’t do it. Increased education about health issues and more exercise programmes in school may be the way to go, if only we could find a way to fund them.

Inclusion trumps isolation in the war on terror.

The events in Paris have simultaneously brought out moments of the best and worst of humanity in the news. The demonstrations of solidarity throughout the world are incredible and should be supported. Never before has the overuse of red, white and blue neon lighting been so welcomed across the world.

Meanwhile, however, there is a growing feeling of isolationism and hatred which has started to take grip. It is no longer a surprise that Republican Presidential nominees have to take an anti-immigration stance if they want to appeal to the vocal right, what has been something of a surprise is just how vile some of the recent comments have been. When Donald Trump suggests that Muslims should have to sign a register or Ben Carson likens them to rabid dogs and they can still stand a chance at winning the nomination then there is something very wrong with the system.

As easy as it is to ridicule the Republicans and their increasingly isolationist ideas it isn’t just the American system of government which is taking an anti-refugee, anti-immigration stance. Across the world the fear of refugees has been growing and the attacks in France have just helped elevate the rhetoric of the right wing to new heights.

It is easy to explain that we should be helping people who need it. It is pretty obvious to most people that the majority for those who are fleeing for their lives are not planning terrorist attacks. The amount of news coverage has made it clear to the majority of semi educated individuals with an average GCSE reading age that the potential proportion of refugees who may harbour jihadist sympathies is such as small fraction as to be mathematically insignificant. Of course the risk of one individual with a bomb must be taken seriously and sensible measures taken to prevent them. Denying millions of the chance of a safe life away from the bloodshed is not the way.

New housing policies in the UK for example, ensuring that landlords have to get specific documentation and id from potential tenants, will not prevent people running to Britain. It may delay them from finding shelter, however, after living rough for months and spending all of their money getting there is unlikely to deter them for long. What it will do though is start to create isolated communities, communities which are willing to only accept people of the same religion, ethnicity, culture. Instead of protecting the country it allows for a sense of isolation to spread and from there the increased risk of radicalisation.

There are many other policies being suggested across Europe and the West and almost all of them will lead to an increase in the threat of radicalisation. Terrorism fails to flourish when people are educated about multiculturalism. It relies on a feeling of persecution and hatred, it is almost impossible for it to spread in an atmosphere of inclusion and understanding.

If governments are serious about stopping the spread of terrorism then they need to dramatically alter their current mindsets. Of course threats need to be identified and stopped but creating a persecution complex is not the way to do it. Only be promoting genuine understanding and tolerance can terrorism truly be defeated. Although isolating some of the Republican Presidential candidates may not be an entirely bad idea.

Cost of terror

The tragic events in Paris last Friday have left Europe reeling. Politicians have been clamoring to denounce the atrocity and by chance announce their latest round of measures to tackle any such threat in the future.
Social media has been inundated with people declaring their solidarity with the French. Others though have criticised the outpouring of emotion as a colonial attitude which should have been just as strong when a suicide bomber in Beirut murdered more than 40 people, or Islamic State allegedly brought down a passenger jet leaving Sharm el-Sheik.
Why have people not been so quick to share their sympathy? Of course there is the sad fact that many people do only care about things which happen on their doorstep . They know where France is and therefore it means more to them  This is not the reason for so much emotion over one event and not the other. The sad fact is that a suicide bomber in Beirut or a passenger jet being blown out of the sky aren’t shocking any more. We have become inculcated against the emotion response that they should engender.
This is a terrible fact to acknowledge and it has even more terrible consequences. As we become more used to a wider variety of terrorist actions then the terrorists will have to start becoming even more extreme if they want to maintain the same level of fear among the population.
Terrorism isn’t new. It isn’t about religion, ideology, politics, hate, or any of the multitude of different reasons which are trotted out. It has little to do with an influx of refugees, aside from acknowledging that these are the same people they are fleeing from. It is down to individuals. Individuals who believe that they are somehow better than other people. They may use religion as an excuse  it Islam has as little to do with IS as Christianity does with the Klu Klux Klan.
Terrorists have been around for hundreds of years and over that time their actions have evolved as people become less affected by what they see and hear. Their objective rarely shifts though and it is this which really should cause the fear.
Even in their deluded minds IS members probably do not imagine that they will be parading down the mall as part of the conquering army. If they are to bring down governments then they will do it be crippling the economy.
The bombing of the Russian airliner has already started a chain reaction which will see holiday resorts lose millions as tourists stay away for the time being. The attacks in Paris merely highlight to potential holidaymakers that they aren't safe anywhere and would be better of staying at home.
The full impact this will have on trade and currency is yet to be realised, however, the markets are already seeing the affect as stocks drop in value.
Meanwhile governments, already suffering from economic woes and looking to make cuts, are forced to expend more money than budgeted on increasing security, even though they know that this is mostly for perception rather than practical reasons.
Terrorism is a criminal rather than military action. To call then soldiers or declare war against them elevates them in people’s minds and increases the threat. They are murderers and thieves. If viewed as this then their impact starts to be diminished. Their effect on the economy minimised. It is only when we allow the fear they want to spread that they can harm us. Their greatest fear is that we unite, not just French and English, European and American but everyone, Syrian, Iraqi, Russian. We need to work together to create a strong global economy and remove their only hope of ever achieving close to their ambitions.