Markets work shock

In a week that tends to be characterised by economic illiteracy its good to see a healthy dose of commonsense coming through in a poll in today's Times: most people think the Budget was pretty sensible, won't make much difference to them and that the government could do relatively little in the face of global economic trends. (sorry Clive - still can't do hyperlinks).  Which puts into perspective the yelps of the brewing industry that 4p on a pint will finish off large numbers of pub - and the emotion on either side of the 2p on fuel debate.

The interesting thing about listening to the news apart from the budget is how much prices are now an issue -- and just how big some of those price movements are.  From oil now over $ 100/ barrel - up by $80 since January 2002 to wheat prices more than doubling since the beginning of 2006 and iron ore prices sextupling since 2003.  To add some degree of scale -- that price rise in oil is eight times the implicit tax on carbon through the current variant of the EU emissions trading scheme.

These massive price shifts are sending signals that governments would never manage to get together the political constituency to impose as taxes -- whether that is to drive more fuel efficient cars, recycle virgin materials or stop wasting grain on animal feed, or the need to pay more for your pork or stop eating bacon butties. The only (and not insignificant downside) is that the beneficiaries of the price hikes are those who happen to have invested in oil or mining companies or arable farmers -and overcautious governments who missed the boat on the agenda see what could have been useful additions to the national coffers instead transferred to the people who were savvy or lucky enough to be holding the parcel when prices began to soar.

Of course prices can go up as well as down. The US department of agriculture is already saying that current high grain prices are a temporary blip as more land will be planted and pig farmers might take solace in that diagram [Cobb-Douglas? or is it cobweb? if only I hadn't rashly thrown out my first year economics notes in a once in thirty year cleaning frenzy last year --i Knew they would come in handy some time]that features in first term economics to show how the Chicago hog market never came into equilibrium - but in the long-run its hard to see how 3bn more people with the majority wanting western style resource intensive living standards won't put a bit of upward pressure on finite natural resources.

So the green movement might just have to start waking up to the market as friend rather than foe -- and the smart move might be to suggest to governments - and voters - that getting ahead of the curve and grabbing a piece of the action makes sense.