Thursday, 21 February 2008

Death Knell For Capitalism?

And the dream of those anti-capitalist types moved a little closer today with news that the company that hiked up our fuel bills by a record busting 17%, made a 500% profit last year.
Centrica, who owns British Gas, made a profit of £1.39bn which is not so much a slap in the face but more of a size 8 up the nether regions to its 13 million customers having to dig deeper to stay powered.
Company bosses may bleat about rising costs and their overheads and whatever else they may say to try and justify their money grasping ways, but what are we expected to think when we see our soaring gas and electric bills and then hear about the company responsible announcing record profits. Excuse me if i don't join in the hip hip hoorays to celebrate with them.
This comes after Shell announced a profit of £13.9b while UK motorists reel from paying a pound for a litre of petrol.
Can anyone come up with a convincing argument why we shouldn't be nationalising these companies and adding the profits to the pot for everyone instead of lining the pockets of the few bosses at the top of the chain who care more about profit margins then there increasingly squeezed customers?

15 comments:

Noah "Nog" M. said...

Are there that many ways for an entrepreneur to make big gains off of higher prices?

If everyone truly expected higher prices they would have bid up the price right near the break even point. So the only way (other than actually thieving, killing, or whatever) for an oil business to make a killing off of higher prices any more than lower prices is for it to make (comparatively more) correct predictions about the future wants of consumers. In simple terms, Shell, BP, ExxonMobil, and ChevTex are making bucketloads because other businessmen said the equivalent of "y'all are idiots for spending all of that capital investing in oil when you should be investing it in .com startups, American car companies, and US Dollars". The other businessmen did not serve the consumers as well and thus the oil companies, and more importantly the huddled masses of consumers profit greatly from their wise foresight.

The many have been served better and reward the oil men for their good work and understanding. What's the issue then with getting wealth for wisdom?

Anonymous said...

Lucy,

WOOHOO, my mutual fund went up too!!! Go Shell!! Go Exxon!! Go OPEC!!

Capitalism rises to a NEW LEVEL!!!

WOOHOO!!!

Q

Anonymous said...

Lucy,

You nationalise them and a bunch of lard arses will go to work there, it will become a cost center, your taxes will have to go up more to pay for the crappy administration, the benefits for the lard arses, and all the damn red tape that your elected officals will impose to protect the lard arses.

Sure. Nationalism sounds great to me. As long as they do it in the UK and not the U.S.

Q

Anonymous said...

I remember you from old Lucy and you were a dyed in the wool communist then and you still are. Your lot lost. Get over it.

Lucy said...

Like most of us Nog, i don't understand money markets, but what we do know is that our elec/gas/petrol bills have been put up by record amounts and then the gas/elec/petrol owners announce record profits. I don't think these bosses are getting much love back from its customers somehow.

As you are rich could you lend me a few quid then Q, my petrol light is on and i want to put my radiators on for a few hours tonight.

Don't make me throw my leather bound and gold trimmed copy of Das Kapital at you anon!

Anonymous said...

Lucy,

I thought the UK tax system took care of everyone? How would calamari make things better anyway?

San Antonio isn't that close to the Gulf of Mexico, but if you really need the squid I could make the trip...

Perplexed,

Q

Cody Bones said...

Ok, Lucy if I may, Centrica's results of EPS up 58% yoy at 30.6p and DPS up 17% yoy at 13.0p. The reason that the numbers look so good is that in 2006, Centrica LOST (.80)p. When moving from a loss to a profit, statistics can be magnified by sill people in the press who have no knowledge of economics. Centrica does NOT produce power, they simply buy it and deliver it, like Tesco if you would. They produce nothing, and they are hostage to the price of energy as much as we are. As I said before, Shell does not set the price of oil, it's set on the NYMEX. Just like gold miners do not set the price of gold, sometimes times are better for the commodity that they traffic in. I wonder if you were interested in helping the oil companies when oil was trading at $16 a barrel in the late 90's. These companies have to plan for the good times as well as the bad. As I look further, Centrica made some smart bets on hedging their costs, but still lost millions of customers who migrated elsewhere. This is a tough business, and if I were a U.K taxpayer, I wouldn't want to own it. It's a dog with fleas. The arguments against nationalizing this, or any company are legion, but you can expect less efficiency, higher costs, and poorer service, not to mention the moral hazard of the state stealing from private investors. You might want to ask your friend Hugo how that whole nationalization thing is working in South America with the wholesale emigration of his best oil workers to other countries, most notably Canada, where these people have decided that their individual interests trump those of the state. I always wondered why people fight to get out of workers paradises instead of fighting to get in. Oh well, probably a post for another time

Ookami Snow said...

I was going to say some of the same things as noah and cody.

the govt. taking over a business that is doing extremely well would destroy everyones will to work hard.

The only case you could hold against them is price fixing, but i think the high prices is due to demand, specifically from development of 3rd world countries...

we should have just left them in their huts.

Lucy said...

I hold my hands up and admit i know next to nothing about how the markets work and maybe i am just oversimplifying things in my mind, but here is my understanding and feel free to pull me up to a screeching halt.
Centrica, for example, after working out their incomings and outgoings are left with a £1.39b profit.
This £1.39 is paid out in bonuses etc to the owners and the shareholders etc.
If this was a nationalised company, the £1.39b would be put back into the pot and used for the good of customers to either subsidise cheaper fuel or buy more efficient machinery for example. At the very least it would be used for the good of the nations citizens (in an ideal scenario) rather than the pockets of the owners. The only people i see losing out are the sharholders and company owners and the only winners would be the other 99% of the population who do not work for Centrica.
Am i so very wrong and remember, i admit to being ignorant of how money markets work so keep it simple if you want to point out my failings.

Cody Bones said...

Ok, Lucy, here we go. First, if you want to nationalize Centrica, the government has to come up with a few billion pounds to buy the company that could have been allocated somewhere else. Unless you are talking about a snatch and grab, where the government confiscates private capital in the name of the "State". If this is done, not only is it against the rule of law, but any and all private capital will flee the U.K., depriving your precious "State" it's lifeblood, taxes, which leads me to point two, if nationalized, Centrica will not be providing any taxes to Her Majesty's Government, nor will capital gains taxes, on the trading of said stock, or the millions of other taxable transactions that generate revenue for the government. We are starting to get into the dreaded "law of unintended consequences" her, aren't we, and we still are far from finishing. Thirdly, The lawsuits brought by private investors would be legendary, and although I'm not a member of the Tort bar, I still think they have a point. Fourth, we would have a large issue with Moral Suasion, the financial system depends on faith, trust, respect of the rule of law, take this away, and you have an economic crash that will make the 20's look like a mild recession. The amount of people who would be put out of work, would need some help, and unfortunately, the government has all it's free cash tied up in Centrica. That's fine, lets just print some more, Ok, now inflation has reared it's ugly head. Never a good thing. Remember Lucy, the government has only finite resources, which is why it has to depend on private resources for the economy to grow and deliver goods and services. I think that brings us to our fifth reason, which is that government run businesses are inherently more inefficient than private ones. Lucy, please remember that governments do not create wealth, they redistribute it. The private sector is the only entity to create wealth, so that the government has something to tax. When asking yourself an economic question in the future, please remember the first law of economics. T.A.N.S.T.A.A F.L. whether you would like to attribute this to Robert Heinlen, or Milton Friedman, it still means the same thing. "There ain't no such thing as a free lunch"

Anonymous said...

Lucy,

I'll give a shot too.

When politicans get there hands on anything it isn't simple anymore.

They have to make it FAIR and EQUAL for EVERYONE and will come up with bizzare reasons to use the revenues in ways never imagined.

After all, you wouldn't want three legged, red headed, step children, of Cuban refugees to have to pay as much as you for a liter of petrol! Right?

Q

Anonymous said...

Lucy,

Here is another way of saying it. The Soviets tried communism and it failed. So did the Chinese - see what they are doing now?

How much is fair profit Lucy? Why shouldn't it be as much as the public is willing to pay? Why shouldn't businesses fail if they can't meet the need? Why should people pay more for petrol than they can afford.

I commute into San Antonio Texas (about 1.3 million people) 5 days a week - but I'm driving a van with 6 passengers that share a ride - we pass and are passed by thousands of cars/trucks each morning and afternoon with one person, the driver.

As consumers - at least in the U.S. - we can still vote with our behavior and it is what I advocate. Don't drive when you can walk or bike, don't go alone when you can share a ride.

Q

Noah "Nog" M. said...

Lucy,
The social sciences are absolutely essential to answering this question. Unfortunately for the Marxists of the world, Marx' economic and historicist theories and thus essentially all of his works have been utterly refuted for over two hundred years (yes, before he wrote them).

What do I mean by this?!?

1) The labor theory of value is refuted.
2) The iron law of wages is refuted
3) The zero-sum fallacy is refuted
4) Hagel's historicism is refuted
5) The supposition of "consumers as price takers" is refuted
6) The possibility of pure socialist/authoritarian economic calculation is refuted.
7) The possibility of the abolition of the human condition has been refuted.
8) The ability to quantify (measure in cardinal numbers) value is proved impossible.
9..) I could go on.

The point being that the anti-liberal, mercantilist, Marxist, and Keynesian schools have been throughly disproved in every significant aspect of the social sciences.

The social sciences can and do give objective and scientific answers to problems involving human action. Given a set of ends, there is an "objectively best means" which can be scientifically determined. In a very real sense, political, social, and economic questions are no more or less subjective than questions about physics. The laws of thermodynamics aren't going away just because I feel that they are unjust. I for one detest the idea that we'll never get rockets past 300,000 kilometers per second. Nature doesn't care what I think of it's laws.

Though the exact same principle applies to the broad field of human action, it is admittedly much harder to see and this definitely enables many folks to continue to hold economic fallacies true in ways that would be far more difficult in their understandings of the natural world.

Most authentic economists (as opposed to pseudo-economist polemicists) are free marketeers not because they are evil scheming plutocrats (well maybe some of them are) but because they value what every left-liberal values: human happiness, the alleviation of suffering, general enrichment, social fairness, etc. And they know objectively that allowing the consumers (or as Marx would say it, the proletariat) as opposed to governments or cartels to dominate the economy is the only viable means to achieve their noble ends.

And further I should warn against calling The United States "capitalist" and Sweden "socialist" as if they can be compared as platonic forms of those two economic systems. One must look at things closely. Aren't wars government programs? Couldn't one even say that the United States are more socialist/statist/anti-market than Sweden & co due to the trillions that they spend on frivolous and destructive wars.

These things often take more thinking than anyone wants to give them. But as the great economist Frederic Bastiat said, "we are reduced, quite frankly to an appeal to reason".

Anonymous said...

Nog,

Just one word: Ouch...

Q

Noah "Nog" M. said...

Q,
Well science is science. And nobody has ever been better at ruthlessly keen economic satire than Frederic Bastiat. Try his "Candlemaker's Petition".

But, yes, most folks are rather taken aback when I say "your politics are scientifically refutable". Most free market economists are ultra-left ultra-liberals who happened to have learned that there are better and worse ways to achieve their socially conscious ends.

Nog