George Monbiot does rather misunderstand things
The latest bright idea from George Monbiot is that we must, in order to beat climate change, force people to leave fossil fuels in the ground. On the basis that it is necessary to attack supply as well as demand:
Imagine trying to bring slavery to an end not by stopping the transatlantic trade, but by seeking only to discourage people from buying slaves once they had arrived in the Americas.
It's an interesting example of his faulty logic. Because of course the transatlantic trade was at first banned in 1803 and then gradually extended to non-British ships and so on. But slavery lasted in the US until 1865 and into the late 1880s in Brazil, long after that supply was both legally and effectively banned. The solutions were variously more and less bloody but they were actually that people were dissuaded from purchasing slaves rather than that people were dissuaded from supplying them anew from Africa.
So it is, we're sorry to have to say, with fossil fuels and their associated emissions. We are not all victims of the evil capitalists (and, given that governments actually own the vast majority of fossil fuel reserves and resources, it's definitely not the capitalists to blame) who are forcing us to use such fuels. Rather, we the people rather like what we can do with such fuels: travel, heat our homes, heat our food and so on. It is the demand that needs to be changed (assuming that you want to consider climate change to be a problem), not the supply.
After all, banning the production of psychedelic drugs has proved so successful hasn't it? So too the supply of prostitution services where such is illegal. It really is worth recalling that while Say's Law (that supply creates its own demand) might not be entirely true the opposite, that demand calls forth supply is.
The answer to climate change, as above assuming that you think it is a problem and one that needs a solution (we do, even if not as immediate and cataclysmic as Monbiot does), is as it always has been. Either cap and trade or a carbon tax, plus research into non-CO2 emitting forms of energy production, in order to curb demand. Just as Bjorn Lomborg, the Stern Review, William Nordhaus, Richard Tol and everyone else who has actually looked at the economics of the problem has concluded.
Logical Fallacies: 17. The dilemma
https://www.youtube.com/watch?v=3Yy7dDHDlCs
Watch 'the dilemma', the latest in Madsen Pirie's series on logical fallacies.
You can pre-order the new edition of Dr. Madsen Pirie's How to Win Every Argument here
Economic Nonsense: 24. Strong laws are needed to curb the activity of speculators
The villains of the piece change as the economy changes. At one time it was money-lenders, then corn merchants. In modern times speculators are up there with bankers in popular dislike. Speculators are commonly perceived as people who add nothing to a product, and often as people who profit from the hardships endured by others. They are seen to buy cheap in the hope that the price will rise, then sell at a profit without having added to or improved whatever it was they speculated on. In fact speculators often provide a useful service. They can take the burden of risk that others might find difficult to deal with. The speculator who buys a farmer's crop in advance gives the farmer the certainty of a price. Farming is an unpredictable activity, and the market price when the crop I harvested might be higher or lower than that agreed price. The speculator hopes it will be higher and takes the chance, but the farmer prefers the certainty of a known price that enables him to plan his affairs.
When speculators buy or sell commodities hoping to profit from price changes, they dampen some of the fluctuations. If they bet on a future shortage, they will buy now in the hope of selling for a higher price. If enough of them do it, the effect of buying now is to raise the price now, signalling to users to curtail their use, and to producers to bring out more supply. The same happens in reverse if they bet on a future glut by selling.
Businesses that sell to other countries face the uncertainty of not knowing what their goods might fetch in foreign currencies at the time of their delivery. They can smooth this by buying or selling currencies in advance from speculators prepared to take a punt on future changes in exchange rates.
The invisible service that speculation adds to goods is risk management. It is a valuable service, but because people cannot see it, they see it as money for nothing. Always there will be populist politicians prepared to trade on their resentment and propose tough laws to curb an essential service that helps markets to work more efficiently.
Believe it or not, people actually like smoking and eating fatty food
Public information campaigns and nutritional labelling are good at informing people about what’s healthy and what isn’t, but don’t seem to have much impact on what they actually eat. That’s what a comprehensive review of 121 'healthy eating' policies found, and I think it should make us rethink more heavy-handed policies to do with unhealthy food, tobacco and alcohol. There are benefits as well as costs to every activity that public health groups want to discourage. We know there are benefits because people do them freely. But we know there are costs as well, like living a shorter and less healthy life.
The liberal view is that each person’s cost-benefit calculation is different, because they enjoy and dislike things differently. In this view there’s no case for stopping people from doing things unless they don’t actually have the information they need to make a judgement. We should want to make people’s lives better as they themselves understand ‘better’, not according to a single measure we’ve decided on, like lifespan.
So telling people that sugar makes them fatter may be a good policy, if they didn't already know that. And policies that do that do seem to make people more informed. But what’s interesting is the impact they have on people’s diets – usually not much, and sometimes an unexpected one.
For example, a 2008 study found that people who used nutrition labels had big increases in fiber and iron intake, but no change to their total fat, saturated fat or cholesterol intake. The UK’s ‘five a day’ campaign about fruit and veg was very successful at getting people to think about eating more fruit and veg, but increased people’s intake by an average of 0.3 portions a day (which was not viewed as being a very good improvement). 44 studies of similar campaigns in the US and EU have shown about the same size effect.
To some people that might make it look like we need to do more. To me it looks as if people view the costs of changing their diet to something less enjoyable or convenient as being quite important, and are willing to forgo some level of health to avoid that.
Maybe this tells us something about cigarette regulation too – there is some evidence that smokers actually overestimate the risk of smoking and some that they underestimate it. If they do overestimate the risks, we’re ‘informing’ people so much that it’s become misleading.
It would be fair to respond to this that people have no real way of doing a proper cost-benefit analysis about eating sugary foods or smoking, but because the state can’t measure the benefits – that is, the pleasure – it is just as limited.
The fact that people do change their habits about iron and fibre, but not fats, suggests that they aren’t ignorant, they just don’t want to eat less fat! If that’s the case and we’re working to improve people’s lives on their terms, there is no case at all for more heavy-handed policies like taxes, ingredients restrictions and advertising bans.
The Spending Plan, courage, and politicians
A ring-fenced National Health Service, a bill poised to commit future governments to spend 0.7% of GNI on international aid, a triple lock on pensions, senior military figures pushing for commitments to higher defence spending: these are inauspicious times in which to contemplate cutting the UK’s £77 billion structural budget deficit, but contemplate we must. Aside from the velleities and equivocations of the political parties when it comes to their respective deficit reduction plans (and most other things besides), the Taxpayers’ Alliance has today released their Spending Plan, which comes as a substantial contribution to the debate. The Spending Plan’s first goal is modest: to lay out a menu of cuts which would take public spending to 35.2% of GDP by 2019-20 – the level forecast by the Office for Budget Responsibility – its second more radical, to outline further measures which would cut spending to 31.7% of GDP, a level at which a single income tax of 30% could be implemented.
Despite the reasonableness of its first end point, or perhaps because of it, the Plan makes for sobering reading. An implementation of the first, less stringent, programme would, among other things, see the abolition of no less than three government departments (the Department for Business, Innovation and Skills; for Culture, Media and Sport; and of Energy and Climate Change), an end to national pay bargaining in the public sector, and a sizeable cut to Scotland’s grant from the UK government.
While the numbers add up, the issue is likely to arise in finding a politician willing to implement the proposals. As the TPA’s Chief Executive, Jonathan Isaby, puts it:
Our Spending Plan honestly sets out the savings that need to be made by whichever party or parties take power after the election. Today we challenge our political leaders to accept our plan or to produce a similarly rigorous set of proposals of their own which explain where it is that they would reduce spending instead.
The report recognises that reduced spending and deregulation are of no importance if they don't lead to people being better off in the long run, and makes the welcome case that making the state leaner is desirable for reasons other than deficit reduction. David B. Smith sets out the case that market economies grow faster, while the ASI's Director, Dr. Eamonn Butler, makes the ethical argument for lower taxes.
Despite the size of the challenge that future governments face, that markets have confidence in the UK’s ability to get its debt under control might serve as good evidence that all is, in fact, not lost. However, politicians would do well to come to the realisation that, whether those set out in The Spending Plan or not, radical decisions about the role of the state must be made; we can only hope this research helps them do that.
Electric cars won't save drivers anything, not one single red penny
We have the glorious news today that if only everyone drove electric cars then everyone driving an electric car would save loadsamoney. It isn't actually true though, electric cars won't save drivers anything at all, not one single red penny:
Electric cars could cut the UK’s oil imports by 40% and reduce drivers’ fuel bills by £13bn if deployed on a large scale, according to a new study.An electric vehicle surge would deliver an average £1,000 of fuel savings a year per driver, and spark a 47% drop in carbon emissions by 2030, said the Cambridge Econometrics study.
The paper, commissioned by the European Climate Foundation, said that air pollutants such as nitrogen oxide and particulates would be all but eliminated by mid-century, with knock-on health benefits from reduced respiratory diseases valued at over £1bn.
But enjoying the fruits of a clean vehicle boom will require an infrastructure roll-out soon, as the analysis assumes a deployment of over 6m electric vehicles by 2030 – growing to 23m by 2050 – powered by ambitious amounts of renewable energy.
And who, might we ask, has to pay for that infrastructure? Ah, yes, of course, that's us, the general taxpayer, isn't it? So, we're asked to dig into our pockets to make driving cheaper for other people. And given that it's not the poor who are going to be buying expensive electric vehicles that's us, the general taxpayer, subsidising the better off, isn't it? Not quite the way this is meant to work.
However, there's another problem with this. Which is that electric cars aren't going to save drivers any money at all, not in the long term. For petrol driven cars, if petrol were untaxed, are still very much cheaper than electric cars. Sure, for environmental reasons that might mean that a bit of subsidy to get the new technology rolling might be worth it (not that we agree but we're willing to accept the possibility at least). And that tax on petrol does raise some £27 billion for the Treasury, at least it did last time we looked.
Politicians are not simply going to acquiesce at having £27 billion less of our money a year to play with and dispose of as they wish. Thus, as electric cars become a larger portion of the fleet so taxation of electic cars will rise in order to replace that revenue lost from taxing petrol. That £27 billion is still going to be extracted from drivers whatever else happens.
So given that the savings from electric vehicles are entirely tax driven, and the tax system will not, as soon as the revenue loss becomes noticeable, stay static then we cannot say that the widespread adoption of electic cars will save drivers money.
In fact, given that the electric car untaxed is still more expensive than the petrol car untaxed, yet the political imperative will be to make sure that tax revenues do not fall, we will find out that electric cars cost drivers more than petrol driven. Because, once electric cars become popular, they will have to carry the costs of their inefficiency and also that same tax burden.
This idea that drivers will, in the long term, save money by having electric cars is thus a con. It simply won't happen: not when politicians so enjoy spending the money they raise through the taxation of driving.
Economic Nonsense: 23. Too much economic effort is wasted on branding and advertising
People tend to say this because they cannot see any value added by branding and advertising, assuming therefore that the resources put into them must add to the costs of items without adding to their value. It is true that branding and advertising cost money, but not true that they have no value. Both convey information that is important to consumers. Advertising is used to make customers aware that the product or service is available, and to indicate how it differs from similar products or services available from rival producers. It is an essential part of competition, and it is competition which keeps producers anxious to keep quality high and prices low. Advertising can tell potential customers details of both price and quality making them able to choose between rival offerings. It can serve to remind customers that the product is out there and available.
Branding serves to reassure people about quality. Companies take good care to protect the reputation of their brands because they know that their ability to sell goods depends on how people perceive them. When analysts calculate the value or a company, they include a price they estimate to be the worth of its brands.
Brands do more that that. Companies use them to convey an image that people might want to be part of. The boy who buys Nike trainers acquires more than the shoes. He acquires the knowledge of their quality, and the feeling he gets by being seen to be one of the circle of Nike wearers. He might gain the thrill of being seen to be cool and stylish, a person of discrimination and taste. Scotch malt whisky is branded in India as an aspirational drink, so young Indians determined to make good can drink it and feel they are part of a group that is on the way up. Long after the whisky has gone, they might remember and savour that feeling. These intangibles are among the most durable of consumer goods, and it is branding and advertising that attach them to the product.
Protectionism Takes on a Dangerous New Legal Identity: A New Threat Posed by State Sponsored Patent Trolls
This think piece sees Adam Smith Institute Senior Fellow Keith Boyfield explore a worrying aspect of the alarming growth of patent assertion authorities – often referred to across the pond as patent trolls. He highlights a particular brand of patent 'trolling' sponsored by foreign governments, and contemplates its implications for world trade and competitive markets. Major corporations, some past their sell by date, have lost none of their appetite for continuing to launch unjustified demands for patent royalties through patent assertion entities (PAEs) or patent trolls as they are more familiarly termed across the Atlantic. PAEs hold patents with a view to extracting a substantial sum from companies utilising the patents. (see Privateers and the sinister plot posed by ‘patent trolls’). Typically, patent trolls have little in the way of assets and no manufacturing operation: they exist simply to ‘milk’ patents on behalf of a parent organisation. The patent itself is the primary asset and the only with any real revenue-earning potential. Tellingly, a PAE’s payroll is dominated by a platoon of lawyers.
Their efforts aimed at exploiting weaknesses in the patents system have proved so damaging to commerce that they have now provoked action by Congress. Indeed, US legislators have redoubled their concern as the threat of patent trolls sponsored by foreign governments, notably the Chinese, looms on the horizon. Even countries in Europe, most obviously France, have already taken worryingly protectionist steps in this area, with their own state-sponsored patent trolls.
Patent trolls are growing in popularity – and are, in many cases spreading their wings. Troll-like behaviour is being exhibited by others, too, such as the ‘patent privateers’, of which more later.
The aggressive bullying exhibited by trolls in pursuit of patent rights has led to product development being stifled and the shackling of competition in the marketplace, particularly as it relates to consumer products and telecommunications. To give one striking example, recent research by economists at the Massachusetts Institute of Technology (MIT) has shown that sales of imaging software has declined by one third relative to other medical imaging products due to the threat posed by patent litigation. The demand for such medical services is buoyant, yet patients suffer[i].
Nokia, which once bestrode the planet as the leading manufacturer of mobile phones, has now sold its handset manufacturing operation to Microsoft yet, significantly, it has retained the bulk of its patent portfolio. Whereas it no longer focuses on producing phones, Rajeev Suri, the CEO, has made only modest attempts to disguise the company’s strategy of asserting its patents through aggressive licensing demands pursued by privateer subsidiaries with no assets and no manufacturing capability[ii]. His colleague, Nokia’s chief intellectual property officer, Paul Melin, acknowledges ominously that, “Divestment of patents has become a very important channel for us to monetise and realise the value of our research and development[iii]”.
As pointed out in an earlier blog by the author on the dangers associated with this behaviour (Privateers and the sinister plot posed by ‘patent trolls’, August 29th 2014), the cost of litigation and the awards given by US courts, notably in West Texas, can be staggering. PriceWaterhouse Coopers (PWC) report that 6,500 patent suits were filed in the US in 2013 of which PAEs – patent trolls – accounted for two thirds of them. PWC note that the median damages awarded in 2013 was a lucrative $4.3 million. America’s accounting journal – the CPA Practice Advisor – reckons “frivolous patent litigation costs US businesses $29 million a year in direct costs and $80 million in indirect costs”.
Patent privateers take the patent troll model a step further. Privateers focus on what are termed ‘better’ patents, associated with leading parent companies as opposed to obscure, antiquated patents. In practice, privateers tend to restructure the originating company’s portfolio into a series of sub-portfolios, thereby increasing the potential to generate lucrative royalties. They also aggregate patents into those they are already asserting with a view to increasing their negotiating leverage. Privateers are used by some of the larger market players as a form of rent-seeking through the courts – to undermine or attack their competitors by launching time-consuming and expensive lawsuits or other aggressive actions against successful market players.
In the last month the US Congress has made fresh moves to combat this menace to competitive, free markets. In February, Bob Goodlatte, the chairman of the House Judiciary Committee, reintroduced an Innovation Bill with the signatures of no less than 18 Democratic and Republican legislators – and potentially the support of a majority of House members. The House passed an earlier version of the Bill in December but it did not win support in the Senate prior to the closing of the session. Crucially, this revised Bill aims to raise the pleading requirements of a patent owner intent on making an infringement claim. If passed this could help to curb the activities of PAEs, whether based in the US or established by foreign governments.
The threat to competitive markets, both in the US and here in Britain, has significantly increased with the establishment of government sponsored PAEs, a move which carves out a dangerous new form of protectionism. The People’s Republic of China, for instance, has pumped huge sums[iv] into China’s Ruichan IPR Funds in order to acquire a portfolio of patents which it can they use to extract substantial royalty sums from licensees across the globe. This alarming new trend is dubbed ‘patent stockpiling’. Japan, South Korea, Taiwan and even France are adopting a similar strategy by way of rent-seeking activity. In the case of Korea, the state owned PAE, the misnamed Intellectual Discovery, has bought more than 200 patents, including one for retinal eye scan technology, with a view to maximising royalty income through aggressive threats to litigation. France Brevets – the French Government’s patent pool – has been open about the litigious protectionism inherent in such a model.
Britain needs to be aware of these growing dangers to world trade and brief its representatives in the EU (which handles all trade negotiations on behalf of the UK and other member states) to support initiatives aimed at addressing the threats posed by patent trolls in World Trade Organisation (WTO) talks, along with the ongoing negotiations taking place under the auspices of the Transatlantic Trade and Investment Partnership (TTIP). Furthermore, our courts and legislators need to be wary of any rent-seeking in the form of frivolous patent suits aimed at extorting money from companies keen to innovate products and services.
If we do nothing about this menace we face a downturn in world trade, higher prices and a poorer deal for customers.
It’s time to act now.
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[i] See ‘Patent trolls: Congress gets down to business - A bipartisan consensus to address the issue is building in Washington’ by Steven Titch, Computerworld, 10 February 2015.
[ii] ‘Why Patent Reforms Are Needed: Intellectual Property Abuses Threaten Innovation and Cost Consumers Billions’ by Steven Titch, Heartland Institute, Chicago, February 2015 Briefing Paper.
[iii] Op cit endnote (i).
We might be at the right level of smoking regulation
Usually the costs of something rise as you do or have more of it, while its benefits fall. So unless the cost of the first unit is already very high or the benefits of the first unit are already very low there is some amount greater than zero that it is optimal to have or do. This is true for an individual and for a society. The first car you have massively changes your life. The second one adds pleasure, variety, and a good deal of practicality in some situations, but it's much less useful than the first. Nearly no one has three cars to themselves because the benefits are vanishingly small and the cost is rising for storage, upkeep reasons.
The first few million cars in a society the size of the UK are amazingly useful, the next million go to people who don't need them as much but do add to congestion, pollution and so on. The forty-millionth or sixty-millionth car starts taking up way more space than it's worth.
Well as the title suggests I think it's possible we might be approaching (or already have gone past) this point when it comes to smoking regulation. I wrote before about how plain packaging was probably a mirage (incidentally I learned today that the UK would drop three whole places, from 2nd to 5th on the GIPC's index of intellectual property rights protections if it passed it; though many of this blog's readers probably wouldn't mind that).
We may have needed very activist laws in the past because it really is quite difficult to inform people about anything really, and smoking is dangerous in important ways such that if you don't understand the decision you're taking you really could make your life a lot worse. But nowadays people may well even overestimate the costs and people are thus taking the right decisions to maximise social utility. It isn't a question of externalities because smokers actually cost the state less by dying earlier (a bad thing!)
This isn't just a musing. A new paper in the Journal of Cost-Benefit Analysis ("Retrospective and Prospective Cost-Benefit Analysis of US Anti-Smoking Policies" (pdf) by Lawrence Jin, Donald S. Kenkel, Feng Liu & Hua Wang) says roughly the same.
We use a dynamic population model to make counterfactual simulations of smoking prevalence rates and cigarette demand over time. In our retrospective BCA (Benefit-Cost Analysis) the simulation results imply that the overall impact of antismoking policies from 1964 – 2010 is to reduce total cigarette consumption by 28 percent.
At a discount rate of 3 percent the 1964-present value of the consumer benefits from anti-smoking policies through 2010 is estimated to be $573 billion ($2010). Although we are unable to develop a hard estimate of the policies’ costs, we discuss evidence that suggests the consumer benefits substantially outweigh the costs.
We then turn to a prospective BCA of future anti-smoking FDA regulations. At a discount rate of 3 percent the 2010-present value of the consumer benefits 30 years into the future from a simulated FDA tobacco regulation is estimated to be $100 billion. However, the nature of potential FDA tobacco regulations suggests that they might impose additional costs on consumers that make it less clear that the net benefits of the regulations will be positive.
Especially cool is the chart of a rational level of cigarette smoking, based on the benefits to the smoker of fulfilling their preferences vs the costs of frustrating their preferences for better health and a longer life.
I'm not saying that this research is conclusive. One paper is one paper. But I think it's getting to the point where further cigarette regulation is becoming intrusive and costly without necessarily producing large benefits to its purported targets. We should consider if we've maybe hit the cigarette regulation sweet spot.
We're all in favour of the empowerment of women, however....
It is rather necessary to get things the right way around. This following quotation gets it the wrong way around:
There is a plethora of data which demonstrates that women’s economic participation grows economies, creates jobs and builds inclusive prosperity.
Actually, there is no evidence of that at all. What there is is a great deal of evidence of a correlation between an advancing economy and greater, leading to equal, rights for women. But as we all know, correlation and causation are not the same thing.
We maintain that the causation actually works the other way around. It is an advancing economy that leads to greater rights, leading to that equality, for women.
To take two very basic examples. The aim and pupose of life, assuming Darwin was right, is to have grandchildren. It wasn't that long ago (and is still true in the more benighted parts of the world) that a woman would need to have 6 to 8 children in order to be able to have some reasonable guarantee (absent some dreadful plague that carried them all off) that grandchildren would arrive. In turn this meant spending almost all of fertile adult life either pregnant or suckling: and even after that not a great deal of time for anything else. Once child mortality fell, as blessedly it has done for us and is doing for the more benighted, then the number of children necessary falls and so therefore does fertility. Freeing up that time for that greater equality and so on.
Secondly, consider a poor economy. It is, almost by definition, one reliant upon human and animal power. And women are, we've all noted, rather lacking in that muscle power as compared to men. Thus that traditional division of labour between the sexes. One sex does the heavy lifting out in the money economy, the other does the just as difficult, just as boring, but physically lighter work in the household. Once we move on from muscle power to machine that greater economic equality is actually possible: and it happens.
Telling women in a subsistence agricultural economy about empowerment is therefore a bit of a swiz. What is necessary is to get out of being a subsistence agricultural economy and the empowerment will naturally follow.
There's no doubt that there's a correlation between this capitalist/free market economic growth and women's empowerment. It's just that it's the growth that causes the empowerment, not the other way around.
All the more reason to support that economic growth of course, for we all most assuredly desire the empowerment.