To disagree a little with Allister Heath here

We like Allister around here, really we do, but we fear that he's fallen into a slight error here in his list of taxes that should be abolished:

Third and fourth, the supplementary charge on the profits of oil and gas firms working in the North Sea, and the petroleum revenue tax, which hits older fields. Adam Memon of the Centre for Policy Studies is right to be calling for the immediate abolition of both taxes. The official statistics are grim: in 1998, Britain’s oil and gas output reached 230m tonnes of oil equivalent; in 2014, this was just 76m. One consequence of this catastrophic shrinkage is that the Scottish National party’s stated plan to rely on North Sea revenues to keep the welfare state going in an independent Scotland are deluded – but it also means that the Government must stop using the tax system to discourage what is left of this industry. Offshore corporation tax receipts have collapsed from £9.8bn in 2008/09 to £2.1bn in 2014/15, the Centre for Policy Studies reminds us, and is set to fall further to £600m and below shortly. Many fields still face horrendously high marginal tax rates, yet yield less and less for the Treasury. The supplementary charge and the petroleum revenue tax should both be axed. This wouldn’t be enough to turn back the clock but it would help engineer at least a minor renaissance for the sector. As a result, it is possible that the industry would, on balance, yield more cash for George Osborne.

Even The Guardian once managed to note that there really is a Laffer Effect on oil taxation. Noting that Gordon Brown has managed to raise tax levels so high that production, and thus revenues, declined. But that's an issue about tax rates, not about the existence of a tax. And the truth is that these are resource rents and those really should be taxed until the pips squeak.

The point being that such natural resources simply exist. No one created them and thus there's not really any reason why anyone in particular should profit from their existence. And we do need some tax revenue because we do need to have some government (no, we are not anarcho-capitalists). That people should profit from their capital, ingenuity and work in extracting and refining is just fine: but not that a private company should profit simply from the existence of such natural resources. That value, that resource rent, should be taxed away.

That is, we can have productive arguments about whether the tax rates are currently too high, but we shouldn't then fall into the error of arguing that such taxes should be done away with. The price of oil is set by the market in general: thus all such resource rent taxation does is change who profits from that happenstance of the creation of a natural resource, private company shareholders or all of us from lower taxation upon our incomes or consumption.

Change the oil taxation system by all means but don't end up not taxing resource rents.

Old myths die hard, don't they?

Well, no, not really Geoffrey, not really:

Poor harvests, far away, were famously one of the causes of the Arab spring. In 2007-8 grain prices spiked after poor weather cut worldwide production, at a time when food stocks had been run down – and export restrictions, by countries wishing to secure their own supplies, made things even worse.

This is to introduce the idea that climate change is going to lead to extreme weather and.....yes, you guessed it....Aieee! We All Die!

Except of course it wasn't bad harvests that caused the problems. It was the idiot idea of feeding corn (and, to a lesser extent, wheat) into car fuel tanks rather than people. As much as 5% of the crop was diverted to this process leading the World Bank to tell us that "large increases in biofuels production in the United States and Europe are the main reason behind the steep rise in global food prices".

That is, the problem was caused by one of the sillier attempts to deal with climate change. And as ever, if you misdiagnose the cause of a problem you're never going to be able to solve it.

Somewhat ghoulish but interesting all the same

Another one of those reports telling us of the terrors of inequality:

The death rate among preschool children in the UK is almost double that of Sweden, with social inequalities being partly to blame, according to researchers.

We have to say that we're not convinced. We could imagine poverty contributing to such things, but simple inequality we have a hard time believing.

The researchers found there were 614 deaths per 100,000 of the under-fives population in the UK, compared with 328 in Sweden. The primary causes of death in the UK were problems associated with premature birth, congenital abnormalities, and infections, with the mortality rate for the first of these factors being 13 times higher than in Sweden.

The study’s co-author Imti Choonara, emeritus professor at Nottingham University’s academic unit of child health, said: “The major cause of death is prematurity, and social economic inequalities are one of the causes [of prematurity]. A society with large inequalities inevitably results in worse health outcomes.”

But they're adamant that it is that inequality. Which is interesting because other studies of premature birth and survival rates don't think that's it at all.

Rather, they think that the Swedish health care system, despite it costing about the same as the NHS, is rather better at dealing with all of this than the NHS is.

That is, the usual finding on this subject is that the NHS isn't very good. Bit of a surprise that, isn't it?

Scotland's irrational GM crop ban

The Scottish government has decided to ban genetically modified crops to ensure Scotland maintains its ‘clean, green status’. This phrase, symbolic of what we are supposed to want to preserve, has not been defined, and we have no way of discerning exactly how it relates to the consequences of GM crops. Richard Lochhead, Cabinet Secretary for Rural Affairs and Scottish National Party Member, announced the policy as Scotland's stance, ahead of the government's request to be exempted from EU-authorised GM crops. None of the reasons given for the prohibition follow from the evidence we have about GM crops nor from countries’ experiences with them. One anti-GM-crop writer, Mike Small of Bella Caledonia, remarkably complained we are falling foul of an ‘expertocracy’ because of our ‘unswerving devotion to scientists’. He has also given a number of reasons why we should support the prohibition of GM crops in Scotland. Among those were that GM crops are a long-term economic disaster for farmers; do not increase yield potential; increase pesticide use; and have not been shown to be safe to eat. These claims are simply wrong.

If we take a look at a meta-analysis conducted last year of the impacts of genetically modified organisms we see that the agronomic and economic benefits of GM crops are large and significant. The positive feedback we hear from people in developing countries is reflected in the studies as we find that yield and profit gains are higher in developing countries than in developed countries. It concludes that, on average, GM technology has increased crop yields by 21%, reduced pesticide quantity by 37% and pesticide cost by 39%, and meant average profit gains of 69% for GM-adopting farmers.

The World Health Organisation has verified that all GM foods available in the international market have passed safety assessments and are not likely to present risks for human health. People have been consuming them for decades in the United States and in 2014 GM crops made up 94% of soybean acreage, 93% of all corn planted, and 96% of all cotton. For as long as populations have consumed them no resulting effects on human health have been shown in the countries where they have been approved.

While farmers in the rest of the UK are looking to take advantage of GM technology, farmers in Scotland are concerned by the Scottish Parliament's backwards policy; spokespeople for the agricultural industry say it will impede their efficiency and competitiveness. They are right: Scottish farmers will not be capable of competing in the same market as their neighbours if shut off from technological advances just as other countries are adopting GM crops.

To give any credence to Mike Small and similar superstitious claims would be to completely go against accepted evidence and rationality. So if Scottish politicians follow through with the GMO prohibition without any credible counteracting evidence that it would be harmful for Scotland, it will not only hold the country back, but the boundaries of scientific research will be redefined and Scotland might lose its leading research experts to more supportive political environments.

The fiddly and tricky bit of the new electricity system

That the amount of electricity we can generate from wind turbines is inherently variable is well known. What isn't as well known is how they intend to deal with it:

Households' lights could be dimmed and kettles take longer to boil when the wind isn't blowing, under Government-backed plans to routinely dip the voltage of Britain's electricity supplies. As Britain builds more wind farms, the measures to dip voltage could be used when there is an unexpected lull in wind power output. New technology to instantly dip the voltage of power to entire regions “at the press of a button” has already been quietly trialled on half a million households across north-west England. The system could be rolled out across the UK in coming years, ministers have indicated - after trials showed consumers did not notice any difference.

That is just fine for domestic supplies. No one does notice although we do have a technical word for this: "brownout". It's something that we consider to be part of a Third World (for which read "bad") electricity supply system.

For while there's pretty much no problem with domestic supplies this causes absolute chaos in industry. Something that is already being seen in Germany. There, it's not so much that the grid is intentionally lowering (or, as is proposed, raising at times) the voltage, it's that the country's reliance upon wind just makes it happen. And modern production machinery simply cannot deal with variations in voltage.

There have been cases not just of production runs faltering, ruining what was being produced, but of voltage variations damaging the actual machinery itself. This has in turn led to German industry scrambling to deal with the problem: effectively, the solution is to put something like a giant UPS on the side of every piece of production machinery.

This, of course, has costs, substantial costs, and needs to be added to the cost of this new electricity generation system. And it isn't added: so, therefore, the costs of wind power are not fully accounted for. Just as with the original carbon emissions, we've got an uncosted externality in the system making the numbers even worse than the current massive price.

Raising the minimum wage does cost jobs

We've been told, as with the more ludicrous tales from the US, that raising the minimum wage doesn't cost any jobs. No Siree! we can just increase the price of labour and no one's going to start employing less of it as a result. Well, isn't that nice? Except when people start to tell us how this is going to happen that explanation just falls apart:

The government must focus on unloved sectors such as hospitality and retail, if it is to tackle Britain’s lamentable productivity record, according to a new analysis by thinktank the Institute for Public Policy Research.

Tony Dolphin, the IPPR’s chief economist, said that while the government tends to target support at the highly skilled workers in advanced manufacturing, it is the low-paid staff behind bars and checkouts whose performance may be critical to sustaining Britain’s recovery.

Well, OK, this is from IPPR, so we'll not expect them to understand the economics of what they're saying, will we? But here's their adaptation mechanism:

But Dolphin said the chancellor’s bold decision to raise the minimum wage to £9 by 2020 could help, by giving firms an incentive to invest in technology and training to get more out of their lower-paid staff, who will gradually become more costly to employ.

“Provided that it does not lead to rising prices, this welcome move will put pressure on firms to boost productivity in order to maintain their profit margins,” the report said.

We'll just raise productivity instead!

Well, yes, except consider what raising productivity means. In order to make 100 sandwiches the deli requires 10 workers. Now we raise the productivity of sandwich makers so that we only need 5 workers to make 100 sandwiches. Well, great: but note what has happened: to make 100 sandwiches we only need 5 workers, not 10. That's a loss of jobs, isn't it?

Sure, it's also equally true that our original 10 workers could now produce 200 sandwiches: but what's the demand for sandwiches going to be? We all eat more because labour has become more productive? We think not really.

It's entirely true that increased labour productivity is the key to increased lifestyles for us all: it's almost the definition of us all getting collectively richer. But increased labour productivity also means, by definition, less demand for labour in that first stage.

To argue that an increased minimum wage will be dealt with by increased productivity is to insist that there will be unemployment effects from this increased minimum wage.

Out of their own mouths and all that, eh?

If Jeremy Corbyn wins…

Some on the centre right hope that Jeremy Corbyn will win the Labour leadership on the grounds that it will make Labour unelectable.  Indeed, some are reputed to have joined the Labour Party in order to vote for him.  They have thus joined forces with the hard left, who are said to have infiltrated Labour in order to elect him.  Labour's rather strange way of electing its leader seems almost designed to encourage entryism, and is Ed Milband's last legacy to them, one that might well finish them off.

If Corbyn is elected it will probably break the Labour Party.  Just as Labour moderates left in the early 1980s to form the Social Democratic Party when the left seized control of Labour, so would moderate Labour MPs probably break away in the event of a Corbyn victory.  They might, farther down the road, join with the remaining Liberal-Democrats to form a centre left party that would be by no means unelectable.

The real burden of a Corbyn win would be more immediate.  It would legitimize political and economic fantasy.  If he became official Leader of the Opposition, his views would merit coverage daily in the media as if they were serious politics.  They are not.  We know that state control of industry does not work.  We have been there and seen it not working and it took heroic and sustained efforts to undo it. 

We also know enough to be deeply skeptical about a society in which high taxes are used to distribute largesse that makes too many people dependent on state provision.  Yet if Corbyn wins, this will all be treated as if it were a serious plan without adverse consequences.  There would be a brain drain, and the inflow of talent would cease.  With the disincentive of punitive taxation, growth would be squeezed out and stagnation would set in.

People who suppose that his victory would make the left unelectable miss the very important point that in the short term it would make it respectable.  It should not be.

Milk markets are not hard to udderstand

You can lead a cow to a supermarket, but you can't make it raise its prices. The supermarket, that is. Because if one supermarket did, its customers would all desert to the ones that didn't. So what's the point of the farmers' protest? What will change? Dairy farming is yet another industry going through a technological revolution; and when that happens, some lose out. But the ultimate result is cheaper (and better) products for consumers. And as Adam Smith reminded us, the sole end of production is consumption. Why undertake the bother and expense of production, otherwise?

True, there are other factors. The world is pretty flush with milk right now. And Europe is particularly flush, thanks to EU subsidies. Yes, there is less subsidy than there was, and it is less related to production – remember the Milk Lake and the Butter Mountain? An obscene waste of animal products. But we still have the Basic Payment Scheme, all those Agri-Environmental Schemes, Private Storage Aid (i.e. bribing processors to hold milk products back when prices are low), the School Milk Scheme, not to mention Import Tariffs against other world producers.

The result is that today, about a third of the income of England's dairy farmers comes through subsidies. If they sold their herds and retired to Bournemouth they wouldn't get them any more, so they carry on, producing more milk than the nation actually wants.

The dairy farmers' argument is that milk is difficult to transport – it is bulky and you have to keep it cool – so we need to produce milk locally. There is some truth in that, but it is a two-edged sword: because since supply sources are so restricted, you need to be prepared for some pretty spectacular price rises and falls from time to time. Like now. And if consumers cannot get dairy products from other producers because of import tariffs, consumers lose out too.

But back to technology. Britain is a terrible place to produce milk. The winters are cold and wet, so you have to bring your herd into shelters and give them heat, silage and hay (and muck them out), all of which adds to the cost. It's Adam Smith, again: why try to produce wine in Scotland, at thirty times the expense of vineyards in sunny France?

To cut the cost, some enterprising dairy famers are creating farms that are a hundred times larger than the norm, usually sited in sunnier parts of the country, with huge winter sheds and new technology such as dry bedding, feed derived from other farm by-products, heat recycling, and capturing methane for fuel. It is no wonder that small-scale dairy farmers are complaining that they can't compete.

If we scrapped the web of subsidy that featherbeds inefficient production systems, we would produce what we needed, in the quantities we needed, at a sustainable price, and with very much greater efficiency. And taxpayers would be better off, too. Yes, some people would have to find new jobs. It happens. Ask the people who used to sell encyclopaedias.

The sex industry is now larger than the housebuilding one

Cathering Hakim has a wonderful paper on the sex industry over at the IEA, a paper that contains this delightful fact:

The Office of National Statistics (ONS) estimates that the sex industry in Britain adds £4.3 billion (US$6.9 billion) per year to the economy (more than the amount spent on the construction of houses in the first decade of the 21st century), and adds over 0.4 per cent to national GDP.

Which gives a useful insight into how silly this idea of making the purchase of sex illegal is (the "Swedish Model"). No good at all is going to come from criminalising an economic sector of that size, not when it's almost entirely the activities of consenting adults making it up.

Our point about prostitution has always been that, however much it may be not to our taste as an activity, it is the actions of consenting adults and as such it's something that a free and liberal society will leave alone.

Hakim's paper is worth reading not only for its good sense. It also manages to trample on a number of sacred assumptions common about sexuality:

Nonetheless, the plethora of nationally representative sex surveys carried out around the world in the two decades 1990-2010 greatly increased information on sexual practices and sexual markets (Wellings et al. 2006). For example, national surveys show that the vast majority of men and women self-identify and act as heterosexuals: 97 per cent in Britain, the USA, Australia, Scandinavia and Western Europe generally. The tiny sexual minorities that are often the focus of attention in academic sexuality research and journals do not affect patterns in the majority heterosexual market. The sex survey results demolished many misconceptions, new and old (Vaccaro 2003; Hakim 2015). One supposed ‘myth’ that was shown to be a continuing solid reality in the 21st century, long after the contraceptive revolution, is the idea that men typically have stronger libidos than women (Hakim 2015). Male demand for sexual entertainments and activity greatly outstrips female sexual interest, even in liberal cultures. This gives women an edge, although many are still unaware of it.

Yes, this is a fairly common economic view. If you're the supplier of something in short supply then you do indeed have an edge over those who are seeking it. The paper's worth the fun of reading just to see quite so many modern beliefs being discarded as untruths.

The final recommendation we thoroughly agree with: the sex industry should not only remain legal many of the current restrictions upon it should be lifted. but with this paper there's also great joy in the way that the points are argued.

Nationalising the energy companies works so well, doesn't it?

Jeremy Corbyn tells us all it would be lovely if the gas and energy companies were nationalised:

The cost to taxpayers of renationalising the UK's gas and electricity sector, as desired by aspiring Labour leader Jeremy Corbyn, would total as much as £185bn, according to city experts. Peter Atherton, analyst at Jefferies investment bank, said that the cost to take control of just the UK assets of companies, which include British Gas owner Centrica and network operator National Grid, would drain about £124bn from the nation's coffers. Mr Corbyn has stated that he would nationalise British Gas, SSE, Eon, RWE, Npower, Scottish Power and EDF if he became Prime Minister in 2020. He said he would also put National Grid back into public hands.

This is because public policy should decide how these companies work, not the cut and thrust of the purely commercial world.

Hmm:

It was not too long ago that Gazprom, Russia’s state-controlled energy conglomerate, was one of the Kremlin’s most powerful weapons. But those days now seem like a distant memory. Today, Gazprom is a financial shadow of its former self.

The speed of Gazprom’s decline is breathtaking. At its peak in May 2008, the company’s market capitalisation reached $367bn (£237bn), making it one of world’s most valuable companies, according to a survey compiled by the Financial Times. Only fellow Exxonmobile and PetroChina were worth more. Gazprom’s deputy chair Alexander Medvedev repeatedly predicted that within a decade the Russian energy giant could be worth $1 trillion.

That prediction now seems foolhardy. Since 2008, Gazprom’s value has plummeted. In early August it had a market capitalisation of $51bn – losing more than $300bn. No company among the world’s top 5,000 has suffered a bigger collapse, Bloomberg Business News reported in April 2014, and by the end of the year net income had fallen by an astonishing 86%.

Why's that then?

Experts say Gazprom’s main problem is that it continues to serve as Putin’s favoured geopolitical weapon. Examples include the company’s purchase of major Russian media outlets that were then turned into Kremlin mouthpieces, bullying or buying the loyalty of neighbouring states and sponsoring the egregiously expensive Olympic Games in Sochi.

Most ominously for the company, the Putin administration still keeps pushing Gazprom to implement new projects that are important for the Kremlin but risky from a financial viewpoint. Two prominent examples concern Ukraine and China.

Because Gazprom is run according to public policy, not the cut and thrust of a purely commercial world.

That it would be public policy running the energy companies is exactly why Crobyn suggests their nationalisation. That it would be public policy running them is exactly why it's a bad idea for them to be nationalised.