Why does Green economics always have to be so dreadful?
We share the usual environmentalist desire for a cleaner, greener, world even as we do insist that it is human flourishing in the round that matters, not just one specific aspect of it. We also obviously differ on how to gain that cleaner, we insisting that capitalism and markets seem to have done an excellent job in cleaning up London’s air since the 1300s just as the one example.
What worries us though is how much of Green economics is so absolutely terrible:
The prime minister announced £160m for ports and infrastructure in Teesside and Humber, Scotland and Wales, needed to build and service these turbines, but if these plans are to benefit communities as well as reducing emissions, the goal must be to keep the jobs and manufacturing contracts in the UK.
We’re not sure if we do want lots more offshore wind let alone the government planning and subsidising such. But let us allow that and examine this specific part of the argument.
Imports are the benefit of trade, we get to consume them. They replace the stuff that we’ve got to sweat blood over making ourselves. In this case the aim is that we get to consume electricity without boiling the oceans. OK, seems acceptable as a goal. But the insistence here is that we’ve got to be doing the work. Instead of using other people who are better at it to do it for us.
Why?
That they are better at it is obvious for if they were worse then we’d not even be thinking about importing the machines. There would therefore be no reason to have to encourage local production or restrict that foreign competition from our shores. The very insistence that something must be done to gain this goal is that insistence that not only are we going to have to do this work but also we’ll be bad at it - and therefore poorer for having done it ourselves.
Why is it that people keep insisting upon pursuing what might well be laudable goals in the worst possible manner?
Health Imperialism UK
“Healthcare UK is a joint initiative of the Department for International Trade, NHS England and Improvement (NHSE/I) and the Department of Health and Social Care (DHSC)...We work with the NHS to strengthen its capability and capacity to operate and succeed internationally.” In fact there is more to it than that. The Department for International Trade (DIT), at least in theory, helps the private sector export profitably and helps overseas bodies, private and public, export into the UK. Provided the DIT adds value after deducting the costs it creates for itself and its clients, few would argue with the former objective. Quite why a country with an adverse balance of trade wishes to support the latter, is another matter.
Helping NHS providers succeed in export markets is not just good for themselves and the UK trade balance, it also helps the NHS to buy state-of-the-art goods at competitive prices. What is less obvious is why our overstretched National Health Service should devote its time, energies and resources to the rest of the world. The BBC World Service is funded, as part of demonstrating the UK’s soft power, by the Foreign and Commonwealth Office. They may not wish to fund the NHS World Service for the same reason.
Healthcare UK’s Annual Review, and perhaps Healthcare UK itself, is a huge muddle. It is based on the premise that, now we have given up on the USA, the rest of the world should become more like us. Britain rules the air-waves and “In 2019, the NHS Long Term Plan pledged the creation of a new initiative to provide a ‘front door’ for NHS family organisations looking to grow and coordinate their international commercial engagement, and for other countries wishing to access the NHS’s extensive expertise.” (p.40)
On the plus side, the Review notes that it was “Supporting UK business and NHS in 22 countries” and its financial achievement was “Contributing to the healthcare sector’s part of DIT’s overall £27bn export wins” (p.8). We are not told the size of that contribution, nor the staff employed nor the costs of Healthcare UK. The Egyptians invented the maze over 2.500 years ago but it could not match the labyrinthine connections that Healthcare UK has with all the government bodies known to Whitehall. Whenever you see the term “working with”, read “talking with”.
“Digital health” is the application of IT to health matters, diagnosis, cure, records, communication etc. Healthcare UK claims we lead the world and can make megabucks by exporting our skills worldwide. On the other hand, an October 2018 policy paper from the DHSC said: “Technology systems used daily across hospitals, GP surgeries, care homes, pharmacies and community care facilities don’t talk to each other, fail frequently and do not follow modern cyber security practices. As a result, some people are getting suboptimal care, staff are frustrated and money could be saved and released for the front line.” The reality is that the NHS has sponsored a series of IT disasters and (the Test and Trace App) is still doing so. The causes are always the same: the NHS is so big it talks a big game but then cannot deliver. Some people would consider that the DHSC should sort out its own systems before claiming world leadership.
Similar considerations apply to mental health: “Northumberland, Tyne and Wear NHS Foundation Trust (NTW) has launched a partnership with one of India’s largest providers of mental health services, Cadabams Group. The partnership offers both organisations the opportunity to share expertise in the delivery of mental health care to different populations. As part of the partnership, NTW will provide support for the Cadabams Group to develop new ways of working within areas including addictions, smart prescribing, school mental health, community and home-based care.” “Maudsley Health was formed as a joint venture between South London and Maudsley NHS Foundation Trust and the local United Arab Emirates (UAE) partner, MACANI.”. Learning through sharing has much to commend it but with such a shortage of mental health support in England, one has to wonder if this empire-building is worthwhile. In any case, Britain’s mental health hospitals have a great deal to learn from one another before turning to less developed practitioners.
These concerns may be misplaced: the NHS in foreign parts may benefit both the UK and our overseas partners but that is not the picture the Annual Review paints. There are no clear objectives and no performance nor progress that can be assessed against such objectives. The pictures are attractive and the intentions are fine but so they were for the Victorians.
The IMF says let's have lots of public investment
We do seem to have an example of slavery to some defunct economist here:
IMF urges governments to turn on the spending taps
A 1pc rise in public investment could eventually create up to 33m new jobs, the international lender has said
If governments up the rate of public investment then there will be more investment and thus economic growth. Et voila!
In the actual report we get the little proviso that causes the problem:
Even so, a gradual scaling-up of public investment financed by borrowing could pay off with positive
short- and long-term multipliers, as long as interest rates do not increase too much (Buffie and others
2012; Online Annex 2.1) and governments choose and manage investment projects to maximize economic returns for their citizens.
It’s that last which produces the problem. Such public investment must be productive in and of itself. The argument to just spend now on anything isn’t enough, the projects built must be wealth increasing themselves.
And what does our government spend the public investment cash upon? We’re still only just starting HS2, something that has been on the books since the last recession but three. Something which technology has made into a massive boondoggle before we even start.
Or perhaps that idea of insulating every house in the country, that Green New Deal?
13.8 million homes had cavity wall insulation (70 per cent of homes with cavity walls).
Of the 5.3 million homes without cavity wall insulation, 4.0 million are easy to treat
standard cavities, and 1.3 million are hard to treat (including standard cavity wall
property with issues such as structural faults or presence of a conservatory, creating
access issues and some unfillable cavity walls). There are around 0.8 million properties
which may or may not have cavity wall insulation.
• 16.2 million homes had loft insulation of at least 125mm (66 per cent of homes with
lofts). Of the 8.0 million homes with lofts without at least 125mm of insulation, only a
small number are estimated to have no insulation. Around 5.8 million of these homes
require easy to treat loft insulation, and 2.3 million are hard to treat (including room in
roofs, flat roofs and some unfillable lofts).
Most of that’s already done and any crash program will bring out every bodger in Western and Central Europe to waste the budget. As happened - without the European involvement - in Australia.
Government isn’t a good manner of identifying projects which maximise economic returns. There is no shame in this of course for we’ve that other sector of the economy, the market one, which lives and dies - in a manner which bureaucracies don’t - by identifying economic returns. Things which that market sector leaves by the wayside tend, therefore, to be things which don’t have said returns.
Yes, of course, there are exceptions, public goods being among them. But that’s still a tough test, identifying and then crafting the plan to provide them. A tough test which our current system of government - whoever is nominally running it - doesn’t seem to pass.
It’s important to grasp this caveat the IMF insists upon. The public spending only boosts the economy if the plan is, in and of itself and regardless of when done or who financed by, economically sensible in the first place. Oh, and it needs to be done efficiently too, that spending.
Hands up who believes the British government is capable of either identifying or managing projects like that? Well, quite, probably better to run with the fructification in the pockets of the populace option then.
We object to this description of the Asda takeover
This is a more and more common mistake:
Indeed they have, but as custodian of the public finances the Chancellor might have left the celebrations to others. A large chunk of that £1bn is likely to be paid for with much lower tax bills. Asda paid £95m in corporation tax last year under Walmart ownership. The takeover by the Issa brothers and their British private equity partner TDR, fuelled by £4bn of junk bonds and leveraged loans, is likely to leave the Exchequer out of pocket for some time.
As is typical in a leveraged buyout, the cost of the borrowing will be set against the supermarket’s profits, leaving less or perhaps nothing for the taxman to tax.
As a former investment bank analyst and hedge fund manager, Mr Sunak knows this better than most. There is nothing particularly unusual about any of it, beyond the fact it drew a round of applause from Number 11.
It’s entirely true that the tax bill to that specific corporate shell will be lower by being highly leveraged. Interest is a deductible expense of doing business. But that same interest is then taxable in the hands of the recipients. If they profit from the lending - which we can assume they intend at least to do - then those profits are taxable. Or if they pay it all out to their bankers then those salaries are taxed.
Taxation is not a one stop shop, d’ye see?
This is of grander importance than just some muttering over a particular takeover. There is a definite movement out there to restrict that tax deductibility of interest on these very taxation grounds. A movement which entirely ignores that the interest itself is taxable upon receipt - that is, the movement is ignoring the basic reality under discussion. Equally, we get complaints about how varied tech companies pay little corporation tax when they issue shares to the workforce. Which misses that the workers pay tax - at higher rates than corporation tax - upon the receipt of their shares.
Discussions about the tax system have to start from the clear and obvious basis that just because one horse on the merry go round isn’t writing a cheque for one specific tax that doesn’t mean that no one is writing a cheque under any tax. It’s an integrated system, taxing at many points, and all such points need to be considered.
Everything old shall become new again
Torsten Bell tell us that there’s a terrible problem with carbon taxation:
The public was sceptical that green taxes would be effective and worried they would hurt the poor. So the to-do list for eco-warrior economists is to design policies that protect lower-income families...
In the jargon, such consumption taxes are regressive, they eat a larger part of the income of poor people than of rich.
Well, yes. Except this observation is baked into all of the sensible discussion of such taxation in the first place. The point, the aim, is to alter market prices so as to reflect the externalities, to insist that the larger costs to others are included in the costs that economic actors face. There is no argument at all which states that government should gain more revenue as a result. So, all long the argument is in favour of a revenue neutral carbon tax.
For some this means a carbon tax and dividend - the money raised is paid out again to each household on a per capita basis. The problem with this being that the correct level of carbon taxation - from The Stern Review we can peg this at £30 to £40 billion a year for the UK in total - means that such a dividend will be small and probably not worth the cost of the payment system to distribute it. For the more sensible this means reducing some other regressive tax by the same amount of the revenue being raised by the carbon tax.
The usual suspect identified is national insurance. So, impose that carbon tax and reduce national insurance payments. The combination of the two makes the carbon tax both adjust market prices to reflect externalities and also increases the progressivity of the system - or at least doesn’t reduce it.
This is so much part of the mainstream that when John Gummer instituted the landfill tax - another form of Green taxation - he specifically linked it to a reduction in national insurance payments. And let’s be honest about this, if even John Gummer could grasp the point a quarter century ago then it should be within reach of the rest of us by now.
The argument for carbon, as with all other forms of Green, taxation has always been that it should be revenue neutral. This means reducing other taxation by the same amount that is being raised - and yes, reduce regressive taxation to counter the regressive nature of the carbon imposition.
Don't forget that the consumer benefits from a voluntary transaction
If we go and buy something, voluntarily, then we must do so because that thing we are buying is of benefit to us. It is also logically obvious that we consider that thing we’ve bought to be of greater benefit to us than the other things that we could have gained with those same resources we are giving up to gain it.
The consumer benefits from whatever it is she buys.
EU threatens to cut off City unless it gets answers over regulation after Brexit
Well, yes, but who is it getting cut off?
Brussels will refuse the City of London access to the EU's market
No, that’s not correct.
We need to avoid being overly dependent on a third [non-EU] country for key financial services, Ms McGuinness told MEPs before calling for the bloc to build up its financial infrastructure.
From that we can derive what is correct. The consumers - all those about to be remnant-EU companies and consumers of financial services - are about to be cut off from their suppliers in the City of London. Which does sound like a rather silly thing to be doing given that imports are the very purpose of having trade in the first place.
Under the current regulatory dispensation financial services across the EU are a close approximation to a properly free market - at least in so far as the geographic location of the supplier is concerned. The idea that consumers should be cut off from their preferred supplier for indeterminate political reasons is just so absurd that of course that is what the political system is about to provide.
Greta Thunberg is, of course, entirely correct
We would not go so far as to say that Ms. Thunberg is correct in her every utterance but in this following she is entirely so:
“Ending fossil capitalism doesn't mean we have to implement socialism. We're stuck in an unimaginative 20th century debate. Regardless of what we'll call the economic system, it is essential that it functions within the planetary boundaries."
The reason we know this to be true being that the IPCC itself has been stating it is true for several decades now.
Look to the economic models that underpin the entire enterprise. Roughly speaking, as a pencil sketch you understand, A1 among the models is a globalised and free market capitalism, A2 a not-globalised version of same. B1 is a globalised social democracy shading into vaguely socialist world and B2 is a non-globalised version of same.
The non-globalised versions - A2 and B2 - are notably worse in outcomes than the globalised ones. More and poorer people with higher emissions.
A1 produces a world notably richer, per capita, than B1. Logically it should be preferred as long as that is possible within those planetary boundaries the analysis is claiming. It is possible. A1T - again the pencil sketch but largely a model in which we work on solar, wind and so on as we have been doing and succeed as we have been doing - produces an emissions outcome in which, as with B1, climate change becomes a passing annoyance rather than something truly dangerous.
No, please, before anyone starts shouting go and look at the models.
Note, please, that absolutely nothing outside the IPCC’s own analysis is being used to make this point. No claims of it isn’t happening, or it’s not us, or natural variability or conspiracy. Also, of course, no claims that perhaps the IPCC hasn’t got matters right or that there are problems with the theory. Within the analysis presented to us as proving that something must be done about climate change is an equal insistence that abolishing capitalism, or instituting socialism, isn’t the answer. Or isn’t the necessary answer if you wish the stronger position.
Great Thunberg is entirely correct here. Even if it is only here, on this point, that she is correct. Ending climate change doesn’t require socialism. Something which, while it will annoy those still looking for some excuse or other for socialism, will please those many tens of billions of the future population who won’t have to suffer said socialism.
Nobody knows anything
Yes, as a direct quote that’s William Goldman talking about the movie business but we can take that as a shorthand for Hayek’s point about macroeconomic management. We can only ever have the merest pretence at detailed knowledge of what is going on out there in something as vast, complex and chaotic as the economy.
To take a point of interest in the US currently, unemployment. Some say there should be lots more “stimulus” to boost employment and the economy more generally. Some say there should be a modicum. There might be a few extremists shouting don’t bother (among which we’d include ourselves). But the real point here is, well, how many actually are there either employed or unemployed?
American statistics give what is known as the U-3 rate, the one generally looked at. Roughly, those actively looking for a job. But there are other measures with ever wider definitions. U-6 is more like those who would work if a job landed in their laps. These are different from jobless claims, the number actually claiming unemployment benefit.
Or we’ve private sector statistics, the ADP report which is about employment, not unemployment. A payroll processing company they look at their own business then scale that up to the entire economy. Recently significantly different from the official numbers, half a million jobs created in August when the Dept of Labor was thinking up to a million a week going back to work. One reason being that again the counting is different. ADP counts a new employee as someone newly entered into the system. The government numbers an extant payroll entry revitalised - so, those coming back after being temporarily laid off, furloughed etc.
Absolutely no one at all is counting those working illegally, off the books, of course.
It does get worse. There’s the Pandemic Unemployment Assistance system, largely for the self-employed. California currently thinks that some 5 million of the 7 million claims in that state shouldn’t be there. Minnesota thinks that only 60,000 of the 600,000 claims in that state are truly valid.
So, some folks would like to do some economic management. To, you know, reduce unemployment and increase employment. A fair goal - now, how many unemployed are there? How much action needs to be taken to get to the desired level? We don’t have even the first clue - well, beyond “lots” - of how many we’re trying to deal with. So it’s really rather difficult to fine tune any policy response.
Which is as Hayek said of course. Nobody knows anything. Something of a stumbling block for macroeconomic management.
The plain truth on plain packaging
The ASI has long been sceptical about claims that plain packaging for cigarettes can cut smoking prevalence and with good reason. Back in 2012 we criticised plain packaging proposals for the UK: partly on the basis that there was no solid evidence of its efficacy. Initial evidence from Australia’s plain packaging law suggested it had no significant impact on smoking rates or quit attempts.
A new paper published in Nature last week, using data from a longer time frame, has also found that plain packaging in Australia “did not significantly affect smoking prevalence”: using New Zealand as a control country. To those of us familiar with the economic literature on advertising and branding, this should come as no surprise. Different fonts and colours on cigarette packets don’t brainwash non-smokers into taking up the habit—they persuade existing smokers to switch to different tobacco brands.
When you remove branding as a differentiating factor via plain packaging laws, you’d expect existing smokers to use alternative criteria to decide what cigarettes they smoke. The most obvious and important one is price, and this is exactly what the authors of this Nature paper found.
“In response to the policy, smokers switched from more expensive to cheaper cigarettes and reduced their overall tobacco expenditure and expenditure intensity. However, as smoking became less costly, smokers consumed more cigarettes.”
So not only did plain packaging fail to make a dent in Australia’s smoking rate—it actually caused smokers to smoke more cigarettes as they switched to cheaper brands. Hardly a win for public health.
It would be great if the paternalists pushing for plain packaging on ‘junk food’ (which we also predicted would happen back in 2012) learned some of the lessons from Australia’s failed experiment. It’s likely to create the same substitution effect towards cheaper brands and may end up boosting overall consumption as it appears to have done for cigarettes. I’m not holding my breath.
Every child matters – the education of internal migrant children in China
“What do you want your children to do in the future?”
“I don’t know. I just hope they will pursue a degree as high as they can. I don’t mind how much it will cost as long as they learn knowledge, not like me… then they will have a better life.”
This conversation happened between me and a single father with two daughters in the winter of 2019 while I was conducting my fieldwork in Guiyang, Southwest China. This father moved from one of the country’s poorest cities, Bijie, to the capital of the province, becoming one of the 236 million rural-to-urban migrants in China. Guiyang for them is a place brimming with opportunities where they will be able to pursue a better life than their agricultural work, but also may face discrimination and inequities. Most migrant workers are employed in manufacturing and construction industries with low pay and low social status: largely due to low levels of education. However, the migrant parents place an extremely high value on education. As the father indicated at the beginning, schooling is the ladder for their social mobility. Without this path, the lives of migrant students would often follow the same pattern as their parents’.
Despite the pivotal role of education, there are still more than 2 million (21.3%) migrant children unable to enrol in urban public schools in their destination cities. The main reason is that the Chinese educational system assigns responsibility for compulsory education to local governments at the county or district level. Funding for compulsory education is allocated by the number of children with household registration and does not transfer across administrative units. Although the central government urges local authorities to accommodate the educational needs of migrant children, some of them lack the incentives and financial resources. Therefore, privately-run migrant schools (PMSs), which are low-cost private schools, cater to millions of children. Generally, they are the sole providers of educational opportunities for this minority who would, otherwise, very likely be “left-behind” children or who may drop out of school. 6.97 million children are left behind in their rural hometown alone or with a distant relative. Hence, PMSs play an important role not only in meeting migrant children’s educational needs but also keeping migrant families together in the receiving city.
To better understand how migrant children educate themselves when state schooling is unavailable, I conducted three-month fieldwork in Guiyang to explore how PMS schools operate and the nature of their educational and social circumstances. I hope to shed light on the challenges and needs of PMSs that might otherwise remain invisible from the public and officials. A larger purpose of my research is also to highlight the circumstances of these migrant minorities, bearing in mind that a nation’s citizens are its most valuable resource. If this resource is unable to participate in society to its fullest potential, both citizens and the nation are losing out.
Yao Wang is a recipient of the ASI’s 2020 John Blundell Studentship, our grant programme for talented graduates pursuing research that advances economic and personal freedom.