“European Union Agrees on Plan to Limit Banker’s Bonuses”

Last Thursday, the European Union took a huge step toward putting strict limits on the bonuses paid to bankers, hoping to discourage the risk-taking behaviour that set off the financial crisis. If this measure, part of a package of banking regulations known as Basel III, becomes a European law, the covered bonuses that many bankers receive would be capped at no more than equal to their salaries or up to double the remuneration if the bank’s shareholders approve, starting next year.

Although, the agreement on the proposed banking rules reflects the global backlash against the lavish compensation in the financial sector that many politicians say rewarded risky trading and investments that trigged the credit crunch, these actions has often been portrayed as pitting Britain against the Continent. In addition, the agreement would also apply to those working at overseas and is a potential blow to Britain’s economy, which partly relies on generous remuneration packages to ensure that the City of London remains the biggest financial centre in Europe and serve as an overseas base for big banks from United States and Asia. Moreover, the limits would also apply to bankers employed by EU banks but working outside the bloc, in New York, for example, and separate rules to restrict remuneration at private equity firms and hedge funds are being drafted by EU authorities.

Senior City figures commented that the EU’s plans to introduce a cap on bank bonuses will increase risk, drive up redundancies, encourage US and Asian firms to move their best staff out of London and could even lead some banks to move their headquarters out of EU. David Cameron said Britain would “look carefully” at the financial proposal before deciding how it would address the issue with other European governments, adding: “We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the UK”. Mayor of London Boris Johnson called EU plans “possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire”, adding: “People will wonder why we stay in the EU if it persists in such transparently self-defeating policies”.

In order to keep a certain level of stability in the banking sector it is crucial to set a cap on the bounces received by top bankers. There are multiple principles which have to be applied to anyone who participates in the system. Additionally, the European countries are not in a position to assume any risks in this economic environment of slow growth. The European Union should have implemented Basel III before the recession. Now that they missed the chance to prevent the recession, they should wait until the market becomes more stable. In addition, implementing the Basel III is not the best single way to mitigate risk-taking activities.

Moreover, George Osborne has already proposed measures for reducing “unsafe actions”, introducing a policy that will allow the government to take control of moving money around the banking system away from the self-regulated Payments Council and stiff sanctions will be imposed on any bank that sought to circumvent the safety rules aimed at ring-fencing retail and corporate services from riskier activities, which make it harder to implement more drastic changes to the current regulations. It is clear that the immediate reaction by top bankers is to seek performing their activities in other countries such as USA, China or Russia where regulations are less stringent. At this stage the best course of action for the Britain is to go against European Union’s decision.

  In collaboration with Karin Koleva

High – Speed 2 (HS2) Project

The Labour party established High Speed Ltd and started a project called High-Speed 2 (HS2) in 2009, high-speed rail line that will connect London to North England via Birmingham. According to David Cameron, prime minister, the so-called High Speed 2 link ‘would spread wealth and prosperity’ across Britain, closing the north-south divide.

 Last week it was announced that the costs of HS2 has jumped over 2bn just in 12 months. In addition, the government is planning to delay HS2 project with two years. Furthermore, the first phase of HS2 from London to Birmingham, which is due to be open first in 2026, is expected to cost £16.3bn, bringing the total cost to £34.5bn.

The government is expecting HS2 to boost annual economic output by 17bn to 29bn in 2040 and also to save a lot of time for travelling. Going in detail, the capital costs and operating costs of 59bn (over 67 years) would outweigh the revenue of 33bn and this would leave 26bn costs left for taxpayers. In addition, transport economists warned that costs could spiral further as the plans go through a consultation process that is sure to see local communities along the route demand modifications to mitigate the environmental impact.

Delaying HS2 railway’s operation and miscalculating costs could lead to another government failure. It raises questions whether HS2 project had a better performance if a private sector carried it out or does High Speed Ltd need to merger with other private companies such as Network Rail Ltd. This company is a private company without shareholders run along commercial lines run by a board of directors and profits from its operations are invested in the infrastructure. Since there is no profits to keep and no political aims to achieve within this company there are more incentives for them to be efficient and hold on to the budget

 However, railway industry is regarded as a Natural Monopoly Myth where competition cannot persist in the industry and cooperating of both private sector and the government may raise other costs and eventually end up with lower revenue and or a loss.

References:

http://www.ft.com/cms/s/0/465a3cd8-691b-11e2-b254-00144feab49a.html

http://www.cnplus.co.uk/news

United States presidential election

There are two major political parties in the USA; Republican and Democratic. The Republican Party is one of the two main political parties in the United States which holds a majority of seats in the House of Representatives. It was founded by anti-slavery activists in 1854. Since then, 18 elected presidents have been Republican and the most recent was George W. Bush.  Early Republican ideology was reflected in the 1856s slogan “free labour, free land and free men”; Republicans started their activities by fighting against slavery in USA. Republicans emphasize the role of free market and individual achievements as the primary factors behind economic prosperity.

Willard Mitt Romney had won caucuses and primaries to become the party’s presumptive nominee, and on 28^th of August 2012 the Republican National Convention made him the official nominee.

The Democratic Party is the other major political party which is an account of the oldest political party in the United States. This party was founded in the 1828s and this party was especially effective in building a network of newspapers in the major cities to broadcast its statements and editorialise its policies. 

Barack Hussein Obama won the Senate election in November 2004, serving until his resignation following his 2008 presidential election victory. He won his party’s nomination. In the 2008 presidential election, he defeated Republican nominee John McCain, and was inaugurated as president on January 20, 2009. Nine months later he announced that he would be running for re-election in 2012.

 Barack Obama’s position on the economy is repealing Bush’s tax cuts for households earning more than $250,000. His policies include reduction of taxes on manufacturing industry and Stimulus spending and tax cuts to grow the economy. Furthermore, he plans to cut spending and raise taxes on wealthy to reduce deficit whilst Mitt Romney wants to make Bush’s tax cuts permanent and lower corporate tax rate across the board to 25% and cut taxes and regulation to encourage business. Moreover, he wants to cut “non-security discretionary [government] spending” by 5% to reduce deficit.

 

In my opinion, despite the fact that the government tax revenue will drop due to the slow economic growth in the USA, it requires to cut taxes. Thus US economy will be able to speed up the economic growth and as a result unemployment rate will reduce.  Any increase in taxes will result in reduction of new employment. Hence reducing taxes such as corporation taxes is an effective method to increase economic growth and reduce unemployment rate.

Socialism: Making Everyone Equally Poor Since 1917

Thomas Sowell on Intellectuals and Society

Thomas Sowell on Intellectuals and Society

Sowell’s “Intellectuals and Society”

Intellectuals and Society book cover

Thomas Sowell is an American Economists who writes from an economically laissez-faire perspective.  Currently Thomas Sowell is a senior fellow member at the Hoover Institute in Stanford, Calif.

The book “Intellectual and Society” is written by Thomas Sowell that demonstrates a great vision of the USA and the world economy in different eras. He criticises the socialists and the interventions of the governments. Moreover, he criticizes the fettering of information by the media and academic constitutions.

I believe the main object that this book delivers is that we must compromise polices and rules based on their results rather than their aims. It is deniable that the economics growth in China, Hong Kong and India was due to the free-market and this led to lower level poverty in the last few decades.

What I enjoyed the most while I was reading this book was how Sowell distinguishes the differences between intellectual with great ideas and experts like engineering that their results are outputs and they are not necessary referred as an intellectual.

“An intellectual’s work begins and ends with ideas, however influential those ideas may be on concrete things- in the hands of others”

This book is written based on adequate statistical evidences therefore it is a great book to read. This book is must read for anyone who is interested in Macroeconomics.