This is a problem with using planning over climate change instead of the market
A letter in the Sunday Times:
Your article on the battle over the technology used to remove carbon emissions from heating rightly mentions the heavy lobbying by the gas industry to promote hydrogen over heat pumps (News Review, last week). As my own research shows, lobbying power is stacked in favour of these companies because of their market dominance. In reality, heat pumps are the only deployable option in the short term; and studies have shown there are fundamental problems with hydrogen.
It is worth noting the connection to your separate articles on lobbying. Join the dots and you’ll find a number of energy lobby group chief executives with easy access to politicians. It’s no surprise hydrogen is high up the policy agenda.
Richard Lowes, Energy Policy Group, University of Exeter
People can only lobby government over a particular technology if it is government deciding which particular technology should be used.
This being exactly what the Stern Review told us should not be done. Instead, set up the system so that no specific path, plan, technology or solution be decided upon, just internalise those externalities and see what happens. The reason being that government picking losers is inefficient and if our reaction to climate change is to be inefficient then we’ll do less of it.
That people lobby for what Mr. Lowes insists is the wrong solution is all the argument required to insist that lobbying not be the basis of the decision. Set the goal, by all means - heating houses to the temperature desired by those who live in them at the lowest overall cost including that upon the climate. Then leave the market to work out what is that lowest cost technology.
After all, people only lobby government in order to gain privileges from government. If privileges won’t, cannot, be granted then the lobbying won’t happen.
We might have said this before but if only Owen Jones understood anything
Owen Jones tells us that the defeat of the European Superleague is a victory for people power against markets. No, it’s a proof of the fact that markets enable, support and ensure the victory of people power:
The great ESL revolt of 2021 has shown that corporate boardrooms are not invincible, and that business decisions that prioritise profit over wider social needs can be exposed as hubristic rather than lucrative. Rather than a one-off, the debacle has provided much-needed political education to millions about an economy rigged at every level in favour of unaccountable vested interests. It was grotesquely self-evident in football; but it should be obvious everywhere else, too.
The specific point of the ESL was to create a cartel. One that had a hard cap upon how much of the revenue could be paid to the players. It was indeed an attempt to recreate the experience of American sports leagues where there is no competitive entry and relegation and thus there’s considerable capitalist power and therefore profit.
The solution to this - evidenced by the very thing they were trying to do, remove it - is that system of promotion and relegation of teams. Or, as we can also put it, competition within the rules of the market.
Markets and their competition are, therefore, the very things which control and often enough entirely destroy that capitalist power. Which is what we’ve been saying for decades now, economists for centuries, and it’s about the time that Owen Jones caught up.
We entirely agree that cartels, monopolies and economic restrictions are bad things, the solution being more markets. Now that we’ve proven this with the example of football perhaps we can all - Owen included - agree that this applies more widely?
Imagine if this is actually true about renewables energy generation
We don’t say that this is true, nor that it isn’t. Rather, just consider what also is true if this is:
Huge and ongoing falls in the cost of renewable energy mean that it could replace fossil fuels for global electricity generation by 2035 and allow all energy production to emit zero carbon by 2050, according to a report.
The fossil fuel industry will be unable to compete with cheap wind and solar power, while millions of people in developing countries will have access for the first time to affordable and domestically produced electricity, according to the think tank Carbon Tracker.
The cost of solar power has fallen by an average of 18 per cent and wind power by 9 per cent a year since 2010, the report said.
As with the point that Bjorn Lomborg was making in the 1990s. Solar had been falling in cost by 20% a year, was likely to continue doing so and if it did then by the 2020s it would be the technology of choice purely upon cost grounds. There would still be minor issues over intermittency, to be sure, but the basic climate change problem would be solved. If, of course, there is that problem that needs to be solved.
Which does mean that if this report is true then the climate change problem is solved. Solved by the invention of cheaper than fossil fuels energy generation and all we need do is wait. As the current generation of installations wears out they will naturally be replaced by the lower cost alternative.
That is, we’re done. No need to abolish capitalism, uproot the global economic system, build back green or better. The process desired is already baked into the price system. Of course, for some, that non-uprooting and non-abolishing will be a missed chance but for the rest of us we can now proceed to dealing with some other problem on our little list.
The only reason this isn’t true is that the original insistence, that renewables are now and will be cheaper than fossil fuels, is incorrect.
If renewables are now cheaper than fossil fuels then we’ve already solved climate change. So, why is everyone still shouting about it all?
To test the Feynman Contention with Nobel Laureates and climate change
Andrew Simms, he formerly of the Not Economics Frankly groupuscule, has rounded up a group of Nobel Laureates to insist that stern governmental action is necessary concerning climate change and fossil fuels. Given that Simms is involved it is obviously going to miss the economic point under discussion.
Which provides us with a lovely example against which to test the Feynman Contention:
I believe that a scientist looking at nonscientific problems is just as dumb as the next guy.
We tend to extend that a little and muse that a scientist looking at a problem outside her own area of expertise is that, umm, misguided shall we say.
The plan is that there must be lots of fierce government activity to keep those fossil fuels in the ground. Actions and plans and international meetings and opportunities for losers to be picked. As with the absurdities like biofuels that have already been foisted upon us.
We did look through the list of Laureates and noted a lot of chemists, some peace folks, a writer or two, even a few economists. We did though note an omission, someone missing. That’s Bill Nordhaus whose Nobel was in fact for studying what should be done about this problem of climate change. The answer being, as with the Stern Review, not to have lots of lovely government plans and actions but instead to add that carbon tax to market prices and thus both allow and insist that our only valid calculating machine, the economy itself, chew through the problem for us.
We’d suggest that the Feynman Contention is in fact true along with that extension of it that we apply.
Logic and rhetoric at the heart of Smith's ideas
Today (22 April) is the date when, in 1751, Adam Smith was appointed Professor of Logic and Rhetoric at the University of Glasgow. Though only 28, he was already well known as a gifted scholar. He had given a very successful series of public lectures on philosophy, in Edinburgh. The intelligentsia of Scotland’s capital were impressed.
Before the year was out, the young Smith was promoted to the prestigious Chair of Moral Philosophy — a post he held until 1764. In the meantime, he served as Dean of Faculties, Quaestor of the University Library (i.e. in charge of management and accounts — he was a very meticulous person), and Rector.
Today, we remember him as a pioneering economist. But he was really more of a philosopher and social psychologist — he saw economics, politics, ethics and aesthetics as merely different parts of the human mind. Among the subject he taught at Glasgow were logic, ethics, rhetoric and belles-lettres (the arts of using language effectively and finely), and jurisprudence (what today we would call politics). A polymath, he even wrote a long essay on Newton and the philosophy of science.
He was familiar with the Classical Greek and Roman authors, having largely educated himself in Balliol College’s outstanding library, having found that: “In Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching.”
His real fame began in 1759 with the publication of his Theory Of Moral Sentiments, which analyzed the social psychology of morality. A century before Darwin's 1859 Origin of Species, it took a remarkably modern evolutionary view that our morality persists because it is useful and helps our species to prosper. Human beings, he said, are social creatures, needing the reinforcement of others; and their values are modified by the praise or disapproval of others.
It struck a chord with many who were not convinced by the contemporary ideas on where morality came from. The book brought him a generous offer to become personal tutor to the Duke of Buccleuch, still in his early teens, and to take him on the Grand Tour of Europe. On that journey, Smith met and talked with other the other leading European intellectuals of the time. In France, he wrote to his friend David Hume, back in Edinburgh, that he had started mapping out ideas for a new book. Those ideas would become An Inquiry into the Nature and Causes of the Wealth of Nations — a book that Smith referred to as his Inquiry, but which we know as The Wealth of Nations. It turned out to be one of those books that changed history.
Learn more about Adam Smith here. Download a condensed version of Smith’s two great books here: Adam Smith – A Primer; Condensed Wealth of Nations.
To our surprise, another thing that Polly Toynbee doesn't understand
That we’re not great fans of the logical or observational qualities of Polly Toynbee merely makes us rational and capable of logic and observation ourselves. But it does still come as a surprise to find another thing that Polly manages to entirely misunderstand:
Britain’s birthrate is plummeting. The already fast-falling rate has sunk into yet steeper decline during the pandemic, as people stop having babies when times are hard – and there may not be a bounceback.
No, people stop having babies when times are good.
All the reasons for this are depressing, signifying hardship, insecurity and anxiety. It tells of a society where bringing up children is too heavy a burden on women, with too many obstacles to earning while parenting.
Again, no, the opposite is true. The global and historical data is here. As a place, society or country gets richer then fertility rates decline. As the economic liberation of women proceeds then fertility rates decline. As the opportunity costs of having children rise - as there are more and other things to do with a life than pump out children - the fertility rate declines.
To the extent that a declining fertility rate is a problem - we can’t see it as being such, it is the aggregate of personal choices in a world that newly allows them and so is emergent from the liberal ideal - it’s a problem of wealth, not poverty.
As we’ve been known to note over the years it is impossible to craft a solution to a perceived problem unless we correctly identify what the cause is.
Absolutely every country that has empowered women, raised the general income much above subsistence level, has a fertility rate below replacement level. There are no exceptions whatever the levels of maternity leave, child care arrangements, schooling, even religious arrangements.
This is just what people do when given the freedom to make the choice - have fewer children. And?
The sad misunderstanding of what is an economic resource that we should be sparing with our use of
That we wish to be efficient, even miserly, with our uses of economic resources is obvious enough. By definition economic resources are scarce so using fewer of them to do any one thing allows us to have more things within our resource limits.
So far so good - but it is then necessary to define what is an economic resource whose use we desire to be efficient with our use of, even miserly in how we apply it. This being exactly the thing which is not currently done:
The extraction and processing of resources to make consumer products is responsible for over half of global carbon emissions and 90% of the destruction of nature – yet the prime minister’s 10-point plan for a green industrial revolution missed a crucial 11th point on reducing resource use. The “whack-a-mole” strategy of targeting only some types of waste, such as plastic straws and stirrers, is so far short of what is needed and doesn’t do anything to prevent extraction in the first place. Our dependence on ever-increasing consumption can’t be tackled without a clear plan. A legally binding UK target to halve resource use by 2050 would focus minds in the same way climate targets are doing.
We can hear the sneer there about using up things to produce mere “consumer products” as if that’s not the aim of all economies - to produce for the consumption of the people what the people desire to consume. But leave that aside, what is necessary here is to define what is a resource that we should be sparing in our use of:
For a successful transition to a resource efficient, circular economy
That’s not correct. It is what many are asserting but it’s still not correct. For a circular economy can - in some instances and activities either does or will - consume more resources than a non-circular one.
A stimulus programme focused on green and digital infrastructure, research and development, energy and care work could create more than 1.2m jobs within two years and more than 2.7m jobs during the next decade, according to research.
Human labour is an economic resource, a scarce resource. So, this plan insists upon using the labour of 2.7 million people. That’s the use of a scarce resource to achieve it.
Yes, we’re fully aware of the fact that there can be and even are externalities and so on. But it is still true that “resource” is not just what is dug out of the ground. Thus that is not the thing or things that we desire to optimise our use of. We need to optimise the use of all resources - land, labour, capital, knowledge, and on and on.
We also have a system to work this out for us, the price system. Sure, we need to ensure that externalities are implanted into it but once that’s done we have our calculating machine for what does require more resource use. If it’s more expensive then it’s using more resources.
The circular economy often enough is more expensive than the linear. Therefore we should not be being circular in order to reduce our use of resources. For that very expense is telling us that the circularity isn’t necessarily resource saving.
There is an easier way of putting this too. If, once externalities are included, you are making a profit doing something then you are reducing resource use against the alternative methods of doing that thing, also against the alternative uses of those resources. Therefore the circular economy is not something that requires government action nor a plan - it’s something we can leave to that greed and grift of capitalism. Or the enlightened self-interest as a preferred formulation.
That is, the environmental work required isn’t to build a new economy, nor to force a specific mode of production, it’s to build the right price system, the one that includes those externalities. Once that’s achieved then we can just stand back and let the system itself chew through the information that directs it.
Can we take it that public choice economics is now proven?
Public choice economics is one of those observations that is truly hated by those who believe in the purity of government. For it is the observation that those who rule us are motivated, at least in part, by their own economic self-interest. Just like everyone else that is, simply because those who govern are indeed humans just like everyone else.
In modeling the behavior of individuals as driven by the goal of utility maximization—economics jargon for a personal sense of well-being—economists do not deny that people care about their families, friends, and community. But public choice, like the economic model of rational behavior on which it rests, assumes that people are guided chiefly by their own self-interests and, more important, that the motivations of people in the political process are no different from those of people in the steak, housing, or car market. They are the same human beings, after all. As such, voters “vote their pocketbooks,” supporting candidates and ballot propositions they think will make them personally better off; bureaucrats strive to advance their own careers; and politicians seek election or reelection to office. Public choice, in other words, simply transfers the rational actor model of economic theory to the realm of politics.
There is no special set of angels without said self-interest, no political faction free of it. That’s the claim at least.
But the true scandal is about the corruption of public service for private gain. It is about how public servants appear to have made decisions because of the prospect of personal advantage. It is about how private interests have been allowed into the heart of government as they pretended to be motivated by public service. And it is about an attitude towards public assets – including even NHS employment data and the wages of public sector workers – that sees those assets reduced to a commodity that can be bought and sold, at a profit, and not just without public benefit but at the cost of the taxpayer.
We seem to have proven the claim, in the sense of tested it, and we’re not finding the evidence to refute it.
It’s not necessary to go quite as far as Mancur Olsen here and insist that government is mere predation upon the populace. We can just observe that not all that is done by government is going to be motivated by our, the citizenry’s, self-interest, there will be at least some influence of that of those doing the governing.
Which then leads to the question of what we should do about it. Given that no grouping in power is going to be free of the temptations the answer has to be to limit what they may do. To reduce the areas of our lives over which they may exercise their, rather than our, self-interest.
The solution, as so often, is minarchy. We must insist that their droits de seigneur is only exercisable when we truly must lie back and think of England. The violation may be the same but it’ll be markedly less frequent.
In which we accuse Liam Halligan of a lack of ambition
Liam Halligan tells us that there are economic rents being made in the housing market:
The problem, says Morton, is that planning permissions are “a one-way gift which boosts the value of the land from say £20,000 a hectare to £2-£3 million, in return for no obligation to do anything beyond breaking ground”. As a result, “housebuilding is largely in the hands of a few large builders and a cottage industry of land promoters, pushing up the value of land with permissions and meaning permissions don’t necessarily translate into homes”.
Well, yes, something we’ve been saying - at least in part - for a long time now. The granting of planning permission to land increases the value of that land. If we’re unhappy with that bureaucratic apportionment of new wealth then we should do something about it:
What’s needed is a reversal of the 1961 Land Compensation Act, so when land gets planning permission and valuations surge, often several-hundred-fold, this massive “planning uplift” is shared with local authorities – an idea backed by successive Parliamentary inquiries. That would dampen land speculation, making building plots – and ultimately housing – more affordable. It would also fund new infrastructure as new housing appears, revolutionising the local politics of planning.
That, to us, significantly lacks ambition. For that is the allocation of those economic rents. We prefer the idea of ceasing to create them in the first place. For if they don’t exist then we’ll not get the catfights over who should get them, will we?
The method of destroying those rents is to create a massive oversupply of those planning permissions. Possibly create some 5 million of them - why not 10 million? Or even make it a must issue permission. Some small fee for filing the paperwork to show that a building isn’t going to be put in the middle of the M1 perhaps, but other than that yes, that’s a piece of land, you may build upon it.
We do know, after all, that government issuing many more pieces of paper does bring down the value of each piece of paper - what does anyone think has been done to the money supply over the decades?
We agree, there are political problems with this. But if the price of land with planning permission is a problem then why not just create more of it in order to lower that price? It might even be true, as Halligan complains, that the current large building companies attempt to monopolise those newly created legitimate building plots. But then we know how to deal with monopolies - flood the market with supply.
Or, as we’ve been saying for some time now, don’t change the 1961 Land Compensation Act, just blow up the Town and Country Planning Act 1947 and successors. Job done, problem solved. After all, the only reason for the Planning Act is to stop people building housing folks would like to live in where people would like to live - and why do we want to do that? Why they want to do that to us is obvious but why do we?
The British Gas hire and fire extravaganza
British Gas is offering new contracts to its service engineers. Those who don’t accept the longer contractual hours, plus a marked absence of overtime for weekend etc work, won’t have a contract nor a job. This is being called “hire and fire”.
There’s a specific point we’re interested in here and it’s not that Owen Jones has climbed on the soapbox over this - that is so usual as to be not worth noting. It’s also not about the details of the case, rather about the deeper background.
It is entirely usual that highly profitable companies pay all their workers more - more than less profitable ones. It is equally usual that highly profitable sectors pay their workers more than less profitable ones. Secretaries in banking get more than those in publishing, this is not something anyone is unaware of.
Much of the inequality of pay across the country is caused by this very factor, wages differing in profitable companies and sectors from those in un- and less so.
Why this is so is that highly profitable companies tend to share that good fortune with the workforce. Similar to, although of course not exactly the same as, a worker’s cooperative like John Lewis sharing the profits that good fortune, or good work, good management, whatever, brings in. A bigger pie seems to bring with it more generosity in cutting the slices if we like.
All of which we’re fine with. We of course want workers to go where profits - the value added from their activity - are higher. We’re entirely delighted with labour incomes rising from that same factor as well.
Which brings us to the deeper point. Imagine this has been true in a place, sector or company for some time. Then it changes. The business itself, or perhaps the occupation, becomes less profitable. There is less value being added by the activity that is. So, what should happen to compensation of the workers? Defined properly here, as that mixture of income and working conditions that make up the total payment for doing the job?
If, in the good times, compensation increases, as it does, then shouldn’t this all go into reverse in the bad? If the workers do get that share of higher profits then why not of lower?
Or, as this gets cast in public politics, why is it a scandal that profitable companies don’t raise wages but equally a scandal that unprofitable cut them?
We can, of course we can, insist that wages are the payment due to labour and shouldn’t be reliant upon profits at all. But if that’s true then why is it that high profits are seen as the reason why wages should rise in the first place?
That is, there’s more than a little cakeism on display here.