Comment

Chris Cook

The Office for Budget Responsibility is going to irritate lots of people this week. When it comes out with its assessment of the Budget, its multipliers and assumptions will come under attack. After years now (years!) of phoney arguments about the deficit, this will be A Good Thing. Indeed, all the Labour leadership candidates should embrace the new institution.

First, it should improve the credibility of the fiscal framework. No Briton can credibly claim that any fiscal rules could have any real disciplining effect: only an institution that can nip at the government can do that now. This framework offers the golden combination of clear red lines for governments and the flexibility to respond to as-yet-unforeseen economic circumstances.

Second, farming out forecasting should improve the quality of projections that inform fiscal decisions. As an excellent Social Market Foundation pamphlet puts it, an independent forecaster would help overcome some problems with internal forecasting:

  • Organisational bias in projection-making: promotion, reward and status may be linked - most likely implicitly – potentially excluding valuable contrarian opinions from influencing fiscal projections. This effect may be particularly strong if fiscal decision-makers have significant powers over the institution. Indeed, academic research has shown that in several European countries, official growth forecasts used for fiscal policymaking are biased toward being over-optimistic.
  • Policymakers risk being subject to group-think where all elements of fiscal policymaking are housed in the same institution with no institution charged with an “official challenge” role. For example a shared belief in what is actually unsustainable growth may be self-reinforcing and amplified if all the functions of a fiscal policymaking are combined in the same institution.
  • When combined with the credibility associated with longstanding institutions, such as that of HM Treasury, this can also lead to another behavioural economic phenomenon known as anchoring, whereby other, non-governmental organisations take the cue for their economic forecasts from HM Treasury. This is particularly likely to occur since no institution wishes to stand out against received wisdom: for any independent forecaster it is far less reputationally damaging to be wrong with everyone else than to be wrong on their own.

At the moment, being seen to have credible forecasts is particularly worthwhile: investors have, in recent months, fixated on suspect growth forecasts. But all of those benefits rely on the OBR actually becoming independent – something it currently is not.

The body – now established on an interim basis – is a Whitehall beast. Sir Alan Budd, OBR chief pro tem, leads a team of Treasury lifers, based in the Treasury, running Treasury models. This is all forgiveable: the apparatus was set up rapidly and has yet to find its feet.  It is important, however, that it does not become a permanent feature of the OBR.

The most important aspect of the institution’s independence is staffing. OBR staff cannot be borrowed from the chancellor, going back to the Treasury at the end of a stint at the slide-rule. Otherwise they will still be creatures of their political masters. The OBR needs its own recruitment stream. (I’m sure George Osborne will be alive to this issue: he has long had an interest in the independence of Bank of England monetary policy committee members.)

As David Miliband has written, the OBR should, moreover, answer to parliament – not to the Treasury. Furthermore, MPs and peers should be allowed to submit written questions to the institution and it should be ultra-transparent.

Ian Holdsworth

My musings last week on “peak oil” drew a fair number of comments, not least a wonderfully thought-provoking essay from “Oil Lady” arguing that energy availability controls the market – not the other way round. The post that particularly caught my eye, though, came from a bon viveur commenting on someone else’s blog: “I’m more worried about peak wine than peak oil.”

This time last week I wasn’t convinced that we face “an irrecoverable fall in global oil supply by 2015 at the latest”, which is the view of the UK’s Industry Taskforce on Peak Oil and Energy Security. So have I changed my mind?

Well, not on that precise point. But, at the risk of stating the obvious, peak oil is not the issue. The real danger is the “oil crunch” that could well happen even if the world’s oil supplies plateau in the next few years rather than fall off dramatically.

Whatever the level of global oil production, the industrialisation of China and other developing countries is likely to open up a big gap between supply and demand. A “convulsive shock in the global economy”, as Oil Lady puts it, seems entirely plausible. Is this crunch almost upon us – as she and other campaigners warn?

I’ve been running through some arguments that offer reassurance.

Here’s the first … “we’ll just move on to other energy sources”. In the same way that “the stone age didn’t end because of the end of stones, the oil age will not end because of the end of oil,” Erik Haugane, chief executive of the Norwegian oil company Det Norske, told the BBC’s Newsnight programme last week.

Second, “there is enough coal to buy us time”. Oil’s share as a percentage of total world energy consumption is in decline – and the deficit is being made up mainly by coal. It will last another 119 years, according to BP’s Statistical Review of World Energy 2010, published last week. (This assumes last year’s rate of production – which, of course, may be surpassed.)

Third, “have you heard how shale gas is about to change the world?” Technological breakthroughs mean that many of the economic and technical concerns about exploiting America’s huge shale gas reserves are being dealt with, Gideon Rachman wrote in the FT last month:

“The rise of shale gas, which can be used to produce electricity, reduces dependence on domestically produced, but dirty, coal. If cars powered by electricity or gas improve, shale gas would also reduce reliance on Middle Eastern oil.”

So nothing to worry about then? Not as such. There is inertia in the system – it takes time for fledgling technologies to take on global proportions. As analyst Gregor MacDonald puts it on www.gregor.us:

America “is still running on coal and oil. And the intractability of this infrastructure is why energy transition is so hard. It is [not] serious therefore to say that it will be easy or quick to start running it on different energy sources.” (Hat Tip: Norman Talarud-Bay)

Managing the transition to new sources of energy will require solving problems of scalability and infrastructure. But even if coal takes up some of the slack, we still might not escape an oil crunch. This is because oil is not just a fuel – it has two other important markets.

As Oil Lady points out, it is also a feedstock for the production of manufactured goods, including plastics, computer components, and exotic alloys and materials. And, the nitrogen/petroleum component of the super-fertilisers and super-pesticides used on today’s giant farm-factories:

“At the moment, oil is still plentiful enough to service all of the above roles all at the same time with no conflict, But once global oil supplies start falling even just a tiny bit short of what our planet-wide industrial machine is used to, then a convulsive see-saw effect will happen whereby oil will not be able to service all three at the same time, not in as generous portions, and not consistently. When any of those three start suffering, the other two also suffer. We can try and shore up just one of them with alternatives, but there is no way we can shore up all three at once, not with today’s skimpy menu of alternatives that are just barely at our very limited disposal, and not with such precious little time left before the systemic convulsions to the global economy begin.”

So we’re stuck on oil whether we like it or not.

I’ll be visiting friends in Dorset soon. Maybe I’ll cheer myself up with a trip to the nodding donkey at Kimmeridge Bay, close to the site of a new land-based oil strike. According to the BBC, David Brunell, who owns an exploration company, has discovered seven potential multi-million barrel oilfields at the site which he believes could be “a very, very commercial situation for all people involved”. This is what is so good about onshore, he adds. “It’s quick, it’s clean, it’s easy. There is risk, but there’s less risk.”

Ian Holdsworth

I once came across a letter to a newspaper from someone who had calculated that wind turbines and tidal power might damage global weather patterns by extracting too much energy. Another reader suggested, not without sarcasm, that he should put away his solar calculator to avoid draining the sun.

Some other energy scare stories are not so easily dismissed. “Peak oil” campaigners warn, for example, that the world’s supplies of oil are about to peak and then quickly enter an irreversible decline – causing a global oil crunch. Among their number is solar power pioneer Jeremy Leggett, who this week wrote in the FT that “premature peak oil would be quite as bad as the credit crunch”.

Mr Leggett is a member of the UK’s Industry Taskforce on Peak Oil and Energy Security, which fears “an irrecoverable fall in global oil supply by 2015 at the latest”. The taskforce fears that “if oil producers then husband resources, a global energy crisis could abruptly morph into energy famine for some oil-consuming nations,” Mr Leggett says.

There are people on YouTube who believe peak oil has already arrived. Yet, in their annual reports, many oil companies continue to state every year that they are finding at least as much oil as they are producing. If you believe such data, reserve bases aren’t shrinking and peak oil could even be receding.

Yesterday, BP published its Statistical Review of World Energy 2010. There’s a table saying that at the end of 2009 the world’s proved oil reserves totalled 1,333.1bn barrels , which should last 45.7 years if production continues at the 2009 rate.

Such figures won’t impress Mr Leggett:

“Every year, peak-oil worriers say that they doubt the Opec oil producers’ reserve statistics echoed in BP’s review, that technology can only slow depletion not reverse it, that rising oil prices do not help when it takes so many years to extract new oil from increasingly exotic locations and that global supply is heading for an imminent fall.”

I’m no energy expert, but it seems only wise to me that we should take peak oil seriously, and I’m glad that the report produced in February by Mr Leggett’s taskforce was well-received by the UK’s Department of Energy and Climate Change. Still, I don’t see how the world can be in danger by 2015.

Some of the 1,333.1bn barrels in BP’s report will be deep under the ocean, but this fact is unlikely to precipitate peak oil. Despite President Barack Obama’s moratorium on new deepwater drilling since the Gulf of Mexico disaster, such projects will eventually resume and will continue for as long as oil companies find them profitable.

The oil price will therefore be a big factor in determining when peak oil arrives. If the price goes up as supplies dwindle, then the industry will continue to explore increasingly difficult areas, and peak oil will recede. But if it goes down, then peak oil may come sooner. The only way that prices will go down if supply goes down is if demand also goes down.

This brings me back to the winds and the tides – and some wishful thinking. Leaving aside China’s growing industrialisation, a green revolution could one day cut the price of oil. With lower prices, the industry will be unable to push the boundaries of its exploration, and peak oil will be ushered in just as we drive off in our electric cars.

I’ve learnt a few things in writing this. Most notably it seems that my letter-writer may have been on the right track. Apparently wind farms can change the weather.

Chris Cook

The resignation of David Laws over his use of expenses has caused sadness among the commentariat – more than any other expenses-related casualty. This has baffled some in the blogosphere, who believe he broke the rules and so had to go.

The first reason for grief is simple: Mr Laws was an exceptionally able man with a staggering sense of public spirit. He left a serious City job to work in the Lib Dem research department. He appeared, as George Osborne put it, to have been put on Earth to take a job at the Treasury. By contrast, when Jacqui Smith was caught out, few cared enough to defend the not-very-convincing home secretary.

Ian Holdsworth

An FT reader ignited a Big Bang on our letters page a couple of Saturdays ago, raising some intriguing questions about space-time – and sparking other readers to offer their thoughts on bosons and super-symmetry as well as chickens and eggs.

Kenyon Bradt from Muncie, Indiana lit the blue touch paper by asking about the “primordial locus” of the Big Bang:

Would it have had any spatial extension or temporal duration before the outburst? … Is it possible for there to be an existence that is non-spatial and non-temporal?

These are excellent questions for my favourite fictional theoretical physicist, Dr Sheldon Cooper. With two doctorates, a master’s degree and an IQ of 187, Sheldon is the ultimate uber-geek. If anyone can help Mr Bradt probe the nature of space and time it is Caltech’s dazzling prodigy, the frighteningly obsessive Nobel-prize-winner-in-waiting from “The Big Bang Theory”.

It’s just a shame that Dr Cooper always plays Klingon Boggle at this precise time of day, which means we must turn, for the time being, to real-life “quantum gravity” physicist Carlo Rovelli of Marseille. I’m sure you won’t be disappointed, though. Professor Rovelli’s ideas are quite startling enough.

Prof Rovelli says that time may not exist at all – at least at the quantum level. In an article by Tim Folger in Discover Magazine , he says: “It may be that the best way to think about quantum reality is to give up the notion of time – that the fundamental description of the universe must be timeless.”

Time, he says, could be an “emergent property” that comes into being only when you look at the bigger picture. (A good analogy is temperature, which doesn’t exist for an individual molecule but emerges as a collective property when lots of molecules bump around together.)

I can feel my inner Sheldon stirring, but Prof Rovelli hasn’t finished yet. In the article, he also does away with space:

If time and space are one day shown to consist of quanta, the quanta could all exist piled together in a single dimensionless point. “Space and time in some sense melt in this picture,” says Rovelli. “There is no space any more.”

So much for the final frontier, I hear Sheldon say - and just when I was putting the final touches to a grand unified theory of everything.

(Bazinga!)

Prof Rovelli’s theorising is only one way of interpreting quantum reality and, at first blush, killing off time and space may seem somewhat extreme. But it’s hardly unprecedented: you only have to look at the history of western philosophy. In several centuries of metaphysical thinking there’s a lot less to space and time than meets the eye. As often as not, both are explained – or explained away – in terms of our mentality.

Neither time nor space is substantial for Gottfried Leibniz. Rather similar to Prof Rovelli’s “single dimensionless point” is the “monad” – the non-extended, immaterial, indivisible entity that Leibniz believed to be the ultimate building block of the world; a mental atom.

For Immanuel Kant, space, time and causality are projections of our cognitive apparatus and have no reality independent of human experience. They are not part of the underlying nature of “things in themselves”, the noumenon, to which we can have no access.

Yet, according to Arthur Schopenhauer, who held similar views to Kant on space and time, there is a way to explore “things in themselves” – and that is to look inside one’s own self. He did – and claimed to glimpse ultimate reality in a unifying, homogeneous, ghastly impulse, which he called the “will”.

I suspect Sheldon would be kicking up a fuss at this point: “Oh dear Lord! Philosophical argument is no match for ‘Rock, paper, scissors, lizard, Spock’. Just think what these great men could have achieved if they’d spent less time navel-gazing and more time concentrating on comic books.”

(Dr Cooper is slowly unravelling the mystery of humour and sarcasm, which for him is much more difficult than string theory.)

There is a serious point here though … about whether in the 21st century we want to be materialists, idealists or dualists; and the relative importance we give to mentality.

Consciousness is a conundrum – both for quantum physicists (cf the much misunderstood Schrodinger’s cat) and for neuroscientists. Some of the latter are happy to equate consciousness with neuronal activity, but no one can yet explain why the physical firing of neurones should be accompanied by the subjective experience of awareness. “Why aren’t we zombies?” in the words of philosopher David Chalmers.

And consider this circularity. On the one hand we are told that our thinking arises in some unexplained manner from the activity of electrons in the brain synapses. On the other, electrons themselves are probability waves that exist as localised particles only when they are measured or observed – and what is observation but an act of consciousness?

So the nature of consciousness is wide open. Is it primitive? Or derivative? Or in some ways, both? (There may be different kinds, after all.) To my mind, mathematical thinking seems unchangeable, universal, elemental, fundamental, timeless; while our sensory notions of time and space could be “emergent” – but who knows from what?

What we think about consciousness will affect how we think about space and time. Kant talks of his own philosophy as a sort of Copernican revolution in reverse – putting human cognition at the centre of things. Both he and Schopenhauer agree that, without an observer, the universe is devoid of space and time.

But perhaps our misapprehension of existence goes even deeper.

In his ontological philosophy, Martin Heidegger says we have forgotten what it is to exist – what “being” is. Primarily, we are not subjects trapped inside ourselves looking out at a world of external objects. Rather, we are beings existing in a world of being. Most of the time we are too busy getting on with our activities to pay much attention to things like tables, chairs and door knobs. We pay them full attention only when things go wrong or we feel in contemplative mood. The rest of the time such objects have a sort of transparency for us.

Now that I’ve had my mind expanded by Leibniz, Kant, Schopenhauer and Heidegger, not to mention Sheldon, the Big Bang seems rather beside the (single, dimensionless) point unless hooked up to our present perception and thought. If our universe existed on its own for several billion years before conscious life, it lacked the reference points that human minds bring to it: there was no sense of relative scale; or of time passing. Time might as well run through such a place all at once – on extreme fast-forward.

Did the Big Bang make a noise? This is a cosmological variant of that ancient puzzle, “When a tree falls over in the woods and nobody’s there, does it make a sound?”

The answer to the Big Bang version of this question is “Yes” … but only because we are still “hearing” the noise today in the form of background microwave radiation. I’ve always been convinced that the answer with respect to trees is “No”, provided no one left a recording device in the woods.

So back to Mr Bradt’s primordial questioning. Is it possible for there to be an existence that is non-spatial and non-temporal? I’d say that, even though we sometimes think spatially, any idea “inside” our minds – such as “justice”, “pi” or “Sheldon’s mother” – is not actually extended in Euclidean space or in non-Euclidean space-time. Yet our non-extended minds somehow endow the universe with extension, duration and scale as well as separateness or objectivity. The world “out there” is neither big nor small, old nor young, except for our perception. Take our emergent sense of appearances out of the equation and space-time loses its scaffolding, like closing a children’s pop-up book.

I hope you had a happy “Star Wars Day” yesterday, Mr Bradt. May the 4th be with you!

Ian Holdsworth

I never realised I was such a hard-hearted brute until I tried out the online “deficit-buster” on FT.com.

It allows you to play chancellor and simulate the UK’s next three-year spending review. You swing the axe – and the deficit-buster tells you all the gruesome consequences in terms of human discomfort.

Before I knew it, two million families with an income of more than £24,400 had lost a benefit worth around £1,000. And all because I thought “means-testing” child benefits was an easy option.

James Mackintosh

I am sad to say I will be leaving this blog, as I will shortly be starting a new role as Investment Editor, writing a daily column on financial markets. Thank you to all readers and commentators.

There will be a pause of a few weeks on the blog until my successor takes over as Comment Editor, running the blog and the comment page. Please bear with us.

From the FT’s comment section:
Philip Stephens: Britain’s election debate is rewriting the political rules
Samuel Brittan: The sad return of state worship
George Soros: America must face up to the dangers of derivatives
Chris Huhne: Voters should not give in to Tory blackmail
Gerald Curtis: Japan’s leaders must show leadership
Jurek Martin: South Carolina Tea Party fails to take off
Editorial: Obama moves on financial reform
Editorial: Korean tensions
Editorial: Counsel of despair
Global Insight: Tony Barber, EU architects survey cracks in monetary union
Market Insight: Gillian Tett, Challenges to Goldman are still kept to a whisper
Notebook: Robert Shrimsley, Ash clouds,human tides, pointless panic
Lex: The agenda-setting column on business and finance

James Mackintosh

Nick Clegg’s newfound twin status as political wonder boy and hate figure of the Tory press seems to have made the British Liberal Democrat leader even more popular with the Twittering classes. The second-most popular topic on Twitter right now is “#NickCleggsFault“, mocking the Daily Mail, Daily Telegraph and Spectator for their rabid attacks on the previously-ignored politician.

My current favourite, from a long list, is the last of these three:

@BarneyRonay: In tomorrow’s daily mail: clegg thrashes oap with stick. Drunken clegg vomits on diana memorial. And clegg: my squirrel porn shame

The question is whether voters will like Clegg more because he’s under attack, or like him less because they buy the Mail’s (nonsensical) likening of him to a Nazi, the Telegraph’s assault on his expenses and political donations or the Conservative attempt to take on his policies and character.

Early indications are that the Twitter parody is already having an effect: the Telegraph has been put on the defensive, with Benedict Brogan denying orchestrated efforts by the press to “smear” Clegg. (EDIT: Just come across the Daily Mail-o-matic headline generator, further parodying the paper’s attacks on Clegg by producing random but intelligible Mail-esque Clegg headlines.)

At the very least, the ad hominem attacks must raise his stature. Ken Clarke, Tory former chancellor of the exchequer and now shadow business secretary, wrote in the FT today that Clegg “is a perfectly nice chap but he is not a prime ministerial candidate”. The fact that the Tories have to unleash one of their few remaining Big Beasts to deny that Clegg could be prime minister is extraordinary: even after beating the Tories in some polls, Clegg presumably doesn’t have such delusions of grandeur.

Much of the sudden bounce in the polls must be down to the public finding that actually they rather like Clegg once they see him – for the first time, the televised debate let him make his point directly to a big TV audience, and he did it well. But equally, a 10-point jump cannot be sustainable; he’s bound to slip back, and some of the mud thrown by the Tories will stick.

Any slippage in the polls will be seized on by the media as the bursting of the Clegg bubble (a classic newspaper strategy: build him up, knock him down). But all the Lib Dems need is to take 25% of the vote, well below the 30% they are polling, and they will be back to their 1983 highs (they scored 22% at the last election). That would be a phenomenal outcome for the Lib Dems. Still, some in the party must have fingers and toes crossed in the hope that the bubble lasts to May 6 and the party tops the popular vote; even then, though, the Lib Dems will probably come out third in number of MPs, and Clegg certainly won’t get to be the first Liberal prime minister since David Lloyd George.

From the FT’s comment section:
John Gapper: Greed is not good for Goldman
Kenneth Clarke: A hung parliament would be a tragedy for Britain
David Pilling: Tokyo wobbles on the American alliance
Ed Clark: It is time to press on with bank reform
Michael Pettis: Bad loans could take their toll on China’s growth
Claire Fox: Politics as talent show does nothing for informed debate
Editorial: Prepare for the next ash plume
Editorial: European Union is no blessed plot
Global Insight: Chris Giles, IMF needs no sympathy over bank taxes
Markets Insight: Marek Belka, Why we need a resolution authority for Europe’s banks
Notebook: Jonathan Guthrie, The name’s Bond, Junk Bond     
Lex: The agenda-setting column on business and finance

FT dot comment

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Politics, economics, high finance and morality – this blog addresses the issues being considered by the FT’s comment team, and their thoughts.

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Christopher Cook is an FT editorial writer. Before joining the FT in 2008 as a Peter Martin Fellow, he worked for three years for the Conservative party.

Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.

Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.


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