Understanding the gravity model of trade

The gravity model of trade tells us that the amount of trade between two economies depends upon their relative sizes and the distance between them. This is an observation and one that holds up rather well in the real world. However, it is vital to grasp that distance here is not geographic distance, it’s economic distance.

Economic here meaning things like, obviously, tariff barriers and transport links but also such intangibles as culture, language and so on over and above that mere geographic distance. Which is where Phillip Inman goes slightly wrong:

A deal with Australia is not significant in itself: Truss admits it would boost Britain’s economy by just £500m over 15 years, or 0.02% of GDP – figures that explain why most economists agree trade is something that happens with nations close at hand or that share strong cultural ties. Almost 50% of trade remains with the EU despite Brexit, and the US is the largest single destination for UK goods.

As Daniel Hannan points out those cultural ties with Australia are fairly strong:

Even so, it is extraordinary that anyone should object to restoring our pre-EEC relationship with Australia, a country to which we could hardly be closer in commercial practices, legal norms, accountancy systems, political institutions, regulatory standards, professional qualifications, wage levels or sentimental links.

Quite a free trade deal would simply be removing some of that economic distance deliberately added by the EU’s tariff walls, wouldn’t it?

If we are, as Inman suggests, to consider cultural ties as being an important part of this process - which they are - then it’s difficult to think that those ties of the UK with Bulgaria, say, or Finland, are closer than those with Australia or New Zealand.

Tariff barriers are deliberate additions to economic distance and why do we want to make those foreigners further away than they need be?

There is also the point that the aim and idea of trade is to gain access to those things which foreigners do better or cheaper than we do. Which gives us our reaction to this:

Farmers would accept a larger volume of imports from any deal, but they want the protection offered by some form of permanent quota. They are concerned by briefings last week that the UK will offer Canberra a transition to tariff- and quota-free access after 15 years, saying that would eventually result in cheaply produced food flooding on to the market, and pushing down prices.

Cheap food, eh? That’s your complaint - and?

If only Marxists actually understood Karl Marx

As Zoe Williams points out “late capitalism” is a phrase that seems to be replacing “neoliberal” as the unthinking caricature of the present day over on the left. There being a significant problem with this as an insult, or dismissive, as those using it seem to entirely misunderstand what Marx himself was thinking about when he muttered about capitalism, late or otherwise, and what was necessary before it was replaced:

In late capitalism, you should be grateful to the wealth creators to be paid at all. Plenty of people would do this for free. Experience, if it makes you more expensive, is just wasted overhead. True productivity is when everyone is paid the same minimal amount. Late capitalism is like arguing with a teenager. Its gambit on matters of fairness and dignity is “Why should I?” and its logical endpoint is “robots”. I can’t figure out whom I blame – maybe postmodernists?

Well, yes, something about robots. As Marx himself insisted. Capitalism, in his eyes, was all sorts of things one of them being extremely productive. So much so that at some point so much of production would be automated - robots - that the problem of economic scarcity in supply would be solved. This was a necessary precondition for the arrival of true communism where all could hunt in the morning - or is it afternoon? - and be philosophers in the evening. Because that problem of how to provide for material needs and wants was already solved by having the machines do it all.

Of course, if this does happen, as William Nordhaus pointed out (page 18 here), then wages do not approach zero. Quite the contrary, assume even that the capitalists who own the machines asymptotically approach 100% of all incomes in the economy then even under that condition real wages rise by 200% a year for everyone else.

We don’t, to be honest, think that this killing of economic scarcity is ever going to come to pass, not completely, for there will always be positional goods and human desires at least appear to be unlimited.

On the other hand in terms of human needs - shelter, sustenance and so on, even if not perfectly as yet - we do seem to have got a long way in defeating that economic scarcity. After all, a society devoting quite so many resources to something like critical race theory cannot be said to be entirely bereft of supplies of those more basic needs now, can it? If we were we’d still be striving to fill them instead of expending resources as we do.

At least as far as Marx was concerned late capitalism was a thoroughly good idea as a stage to pass through, a necessary one. Quite why so many bemoan it we’re not sure - unless it is of course that all too many self-professed followers of Ol’ Karl have failed to understand his actual points.

Always read the small print

Proposals for this and that come thick and fast, there’s no shortage of people at least claiming that they’re going to make the world a better place. It is, however, necessary to always read the small print of such policy offerings. For that’s where the real point is, not in the glossy surface of pandering to currently fashionable ideas.

Take this for example:

Stamp duty and council tax should be scrapped and replaced with an annual wealth levy on housing which would hit the best-off hardest, according to an influential group of politicians and economists.

The new annual proportional property tax (APPT) would seek to raise the same amount for the Government as existing property taxes, but more closely reflect the value of homes than the existing system that includes council tax valuations dating back to 1991.

Land value tax is good taxation. Deadweight costs are low, possibly even negative at times. As Henry George pointed out at such length it’s possibly even righteous that the value added to land by the civilisation around it be taxed to pay for that surrounding civilisation. Which is what this looks like on the surface. And yet here’s the true heart of it:

The new property tax has been proposed by economists Paul Cheshire and Christian Hilber and backed by politicians including Labour’s Margaret Hodge, Conservative Lord Willets and Lib Dem Sir Vince Cable. It would charge the owner 0.11pc of the property’s value each year for the central government, plus a local charge set by councils.

Ah, no, that’s a grab at the revenue stream by central government. Greater centralisation not being something that many would propose as a cure for whatever ails Britain. Except, obviously, those who might get to allocate, from the centre, the spending resulting from the change.

The small print matters.

The claim here is that climate change is already beaten

Whether we wish to believe this claim - or any of the claims on the subject - is another matter. But the claim being made by the International Energy Authority here is that climate change is already beaten:

Slashing CO2 emissions and switching to renewable energy is not a ‘cost’ or a constraint on rising affluence: it lifts global GDP growth by 0.4pc a year over the course of this decade. World output is 4pc bigger in real terms by 2030.

...

It does not raise energy costs: it cuts the average bill for households on heating, cooling, electricity, and car fuel from $2,800 to $2,300 a year by 2030 in advanced countries. From then on it is a canter. The energy share of disposable income halves from 4pc to 2pc by mid-century. It is tantamount to free energy.

Human beings tend to do moire of what makes them richer. They also tend to gravitate to cheaper ways of gaining what they desire. So, if renewable energy, not using fossil fuels, is cheaper and makes people richer then this is what people will do - move from fossil fuels to renewables. Climate change is beaten.

We have mentioned this before. If the claims of the new being cheaper are true - if - then that is the problem dealt with for the above logic is impeccable. This also means that attempts to plan, like the following, are entirely unnecessary:

Gas boilers to 'be banned from 2025' in every UK household

Not just unnecessary but entirely contraindicated for that’s to impose more costs on a process that is happening anyway. If, of course, those claims of reduced costs are true. So too the banning of ICEs, the ethanol mandates and all the other central planning mistakes that festoon our economies.

Of course, it is possible that the claims of cheaper aren’t in fact true:

Net zero does not cost jobs: it replaces five million lost in oil, gas, and coal with eight times as many jobs for engineers, electrical experts, offshore operators, solar technicians, or lithium and rare earth miners, whether directly or indirectly.

Using the labour of 40 million people to power society is a higher price than using the labor of 5 million to do so. Jobs are, after all, a cost, not a benefit.

But this base logic is still true. If this green new world is cheaper then nothing more need be done because it will happen precisely because it is cheaper. Those shouting that we must have the restrictions, the laws, the bans, must be those arguing that it is not, in fact, cheaper.

Just a little note for the Resolution Foundation's national conversation

The Resolution Foundation has taken upon itself the task of guiding a national conversation about how the British economy should develop in the coming years. We are, as you all know, somewhat sceptical of the value of such national conversations about the economy. We regard the economy we’re going to get as being the outcome of individual actions, not something produced for us by a few meetings and mutterings among the Great and the Good.

However, as a matter of politesse and even good cheer a little note of advice for them. In their opening report they insist that:

The UK’s changing place in the world will require a major reallocation of labour and capital, away from the sectors that are no longer competitive in EU trade, and towards the domestic market and non-EU trade. It is critical for UK prosperity that the new jobs and firms that emerge are productive, thereby enabling the UK to remain internationally competitive and supporting the living standards of UK residents.

We agree, obviously we do, jobs should be productive. The test of this being whether the output from the job being done has greater value than the cost of the inputs into the job being done. That is, if there’s a profit - and there’s no insistence here that said profit has to flow to a capitalist, this is just the observation that profit is the excess of value produced over the cost of production - then the job is productive. If there isn’t, if subsidy is required or losses are made then it’s an unproductive activity and thus job.

As to how we get such productive jobs the only known method is a free market economy where entrepreneurs are allowed and left the room to try things out. Top down planning does not produce them - as looking east from the Brandenburg Gate in 1989 showed us all. Further, the competition in a market economy, and from outside it in the form of potential imports, is exactly what raises that productivity over time.

That is, we entirely share the ambition of productive jobs. We just insist that the gaining of it requires very much less guidance by the Great and the Good sitting in committees and rather more economic liberty. But then we would say that, wouldn’t we, and the Resolution Foundation wouldn’t.

One of these little misconceptions that annoys

This has become a standard part of the debate and we insist that it’s wrong. In the discussion over online advertising, online money making, there is often the claim that peoples’ data is being sold. This isn’t what happens.

A study by the New Economics Foundation think tank and the charity Global Action Plan estimates that British children's data is being sold to advertisers around 820 million times a day as they browse the web.

The findings have prompted the organisations to call for a ban on default ad tracking online to protect children from having their private information harvested and potentially misused on an industrial scale.

The report – called I-Spy – looked at how children are being tracked across the internet using web cookies that funnel information about them and what they are looking at to agencies, which then sell it to advertisers.

It is not true that Facebook (or Amazon, Google, whichever) works out that Harry, of 4 Privet Drive, seems uninterested in Action Man but might go for a wand and then sells that information to an advertiser. That’s simply not what does happen.

Think about how magazines and newspapers work. They have some idea of who their readership are. Ask any of them, they’ll gladly show you their ABC circulation data. Our readership is mostly C and D socioeconomic groups, there’s a hole in the circulation where Liverpool should be and so on - at, say, The Sun. The Mail will talk about, well, why not let Yes Prime Minister take the strain here. If you wish to advertise something then you’ll select from the outlets which reach your target market. The Mail for that cancer curing coffee that raises house prices, The Telegraph for cavalry twill trousers (for decades just one such ad ran next to the crossword) and The Guardian for something or other, possibly a course in the latest self-righteousness.

At no point has anyone sold you the data of the readers or consumers. Rather, you’ve been sold the ability to reach certain targeted groups of them. Sliced and diced to as narrow a fit with your perceived interests as is possible given the information available. Push up wonder bras might not do so well on the sports pages, men’s hair weaves perhaps not so well on the women’s page (for decades, the front page of the Evening Standard was considered the perfect place for that).

Again, at no point was the data about the readership sold to anyone at all. Rather, the ability to advertise to select slices of it was.

The online advertisers are simply doing this at a greater level of granularity. It may well be possible to slice and dice the audience to find boys, in Surrey, who seem to have no interest in war toys but have havered over a page about magic. But that information is not then sold to an advertiser. Instead, the opportunity to advertise to them is then rented to the advertiser. In exactly the way that a magazine salesman might agree that Tribune isn’t quite the place to advertise a privatisation stock while The Spectator might well be.

Data is not sold in this online advertising business. It simply isn’t.

But then the study quoted comes from the New Economic Foundation which always has had that tenuous connection with reality.

We do think this is an interesting test of a polity

Preston, where they’ve gone all local and town hall driven, is quite the fashion in left wing circles these days. We’re not entirely convinced by municipal socialism ourselves even as we agree that it’s likely to be vastly better than any national application of the same ideas. In a review of a book about it The Guardian tells us that:

In all of which the fundamental question is, does it work? Does the patent good sense of the idea get befouled by unintended consequences and unexpected pitfalls? If the Cleveland and Mondragon experiments are so great, why are they not more widely applied? Because of the hostility of financial elites or for more basic reasons?

Here, Paint Your Town Red could do more. It tells us that “in the past five years, Preston council and its partners have almost tripled their spending in the local economy, from £38m to £111m”. Good, but there’s limited detail as to how it has played out across the city. There’s a shortage of voices from satisfied citizens, as opposed to the officials and businesses most likely to approve of the model. Criticisms – that it could lead to a sort of local protectionism, for example – are rather vaguely addressed, and the source of these critiques not identified by name.

Too often, there is a tone of wishful thinking and special pleading, of talking up initiatives that in some cases seem tentative and insubstantial.

Quite so.

Like everyone else we have our moral certainties, our visions of the good world to come. We are, however, hard core pragmatists. If something works to make the folks in general out there - out here- better off then we’re generally for it. If it doesn’t then we’re not. Thus the hard test of any economic polity is whether it achieves this task. Does the Preston model do so? We don’t know yet, do we?

This is also one of the reasons that we’re so keen upon markets. Because it is only when many things are tried, each having to face that hard test, that we find out which of them do achieve that laudable goal.

Another way of putting this is that we’re absolutely fine with what Preston is trying. On the grounds that experiments are desirable because we gain knowledge from them. This does though come with a significant proviso - those experiments which turn out not to work do need to be replaced with other attempts to get things right, don’t they?

Can we trust Public Health England?

Victoria Street, 

London SW1 

“Good morning Humphrey.  There’s something in my in-tray claiming that we will cure the national obesity problem by having every item, on the menu of every chain of cafés, restaurants and take-aways, show its calorie count.”

“Yes, I’m sorry about that, Minister.  It’s Public Health England again.” 

“I realise that but it’s obviously a daft idea, so why didn’t you kick it out?” 

“I did advise them of the precariousness of their argument but as we have arranged the interment of almost all their other ideas, its senior enthusiast is clinging onto this one.  He claims their proposals will make the country so healthy we will not need a National Health Service.  It would save us £100 billion a year. The Treasury think that is brilliant.  They might even give us the money for reforming Adult Social Care for which, as you know Minister, we have a ready-to-roll plan.” 

“Poppycock. I read in the papers that this ready-to-roll plan, which I haven’t seen, has cross-party agreement too, except that’s news to the other parties. But what’s that got to do with putting calories on menus?” 

“Apparently, it will result in a new slim Britain, remove eating disorders, sort out mental health and save the NHS £6.1 billion, all by itself.” 

“Humphrey, you are unusually satirical this morning.  Would you like to give me the name of this fantasist?” 

“I regret that our Code does not permit me to do that.  In my view, we should, on this occasion, allow common sense to bow before conviction. In any case, it reflects well on our moral compass that the government is tackling obesity.” 

“Maybe.  What is the evidence that this will make a measurable difference?” 

“You have put your finger on the very point I raised with my Public Health colleague.  He told me it is all very complicated. Obesity is best considered not just as a state of excess of body fat or body mass index above an arbitrary cut-off, but as the disease process, of excess body fat accumulation that has interacting (epi-) genetic and environmental causes and multiple pathological consequences.”

“You took the words right out of my mouth, Humphrey. How about breaking this into identifiable groups of people we can help?” 

“Of course, Minister.  Obesity has many faces.  Our primary concern is with children who have no problem with obesity today but will most probably remain obese as they grow up – and, indeed out. They will then be prone to diabetes, Covid, heart conditions and other disorders. They will die young.”  

“Dying young must save money for both the NHS and Adult Social Care.  The Treasury should be glad.  Have you though of free cigarettes for obese children?” 

“Minister, I did not hear that.  We are talking of human lives. That said, my colleague failed to convince me that calories on menus would make the slightest difference to childhood obesity.  The parents will see the menus, not young children, though maybe teenagers will, but the rot has set in by then. Parents indulging their children with eating out or phoned-for deliveries regard them as occasional treats – not opportunities to make them eat food they dislike.” 

“Well, that disposes of the main group.  What is the next segment?” 

“Now we are into thin people who merely think they are fat: those, mostly teenage girls and young women, with eating disorders.  This is really a mental health problem.  We actually need to get them to eat more. It has been reported that calorie information on menus will be downright dangerous for those with anorexia or other eating disorders.”

“Of course, obesity is often itself an eating disorder and parents of teenage girls know that rational argument is no help. Have Public Health England researched the impact of this on those with eating disorders?” 

“Er, no. As you say, the indications are negative. Furthermore, some research in America showed ‘a slight increase in calorie intake, attributable to increased purchases of higher-calorie entrées.’ So listing the calories is likely to be counterproductive for two of the most critical sectors. Minister, I don’t understand the mind of Public Health England either.” 

“As I understand them, Humphrey, these new regulations only apply to non-packaged food and soft drinks purveyed by large businesses, i.e. those employing more than 250 people. So if you put gin in the tonic, there’s no need to mention the calories.” 

“We do not wish to upset people.  You will notice that the bottom of the press release says that people do not have to have calorie information on their menus if they say they do not want it: ‘people who may find viewing calorie information more difficult may be able to avoid this information in certain situations when eating out.’” 

“So the people who most need this information won’t get it?  Brilliant that. The overweight people I know are mostly middle-aged or older and know they have a problem. They try dieting and fail.  Some, in the spring, are determined to lose weight to get into their swimming costumes, succeed and then put it back on later in the year. Are they the problem we are trying to solve?” 

“Not really.  The category, to which you refer, is the weight-watcher group.  They may not be as slim year-round as Public Health England would wish, but they are more likely to be interested in calories.  So Public Health England is targeting them as a willing audience, even though they pose no problem for the NHS.  That’s just the way Public Health England does things.” 

“Quite correct, Minister. There is, if I may say so, a certain logic in applying the same regulations to unpackaged as packaged foods and drinks.” 

“That seems reasonable but we’ve not been putting calorie content on packaging for very long.  Quaintly called “energy values” have only been required since 2016. The question is whether, in those five years, anyone has shown that that information has reduced obesity.” 

“No.  One Loughborough study reviewed 15 projects but they were not really reliable for this purpose for three reasons: there was a lot of variation, calories were expressed as PACE and the research was under laboratory conditions where respondents had to read and consider the PACE data. ‘PACE’, by the way, stands for Physical Activity Calorie Equivalent. As people do not understand what calories mean, ‘the study added labels to food packaging explaining that you would need to run for example 13 minutes after drinking a 330ml can of fizzy drink; 22 minutes after eating a standard size chocolate bar; and 42 minutes after eating a shop-bought chicken and bacon sandwich.’”

“So by just adding calorie data, we are not giving consumers anything they can relate to?  Great.  If you stopped shoppers coming out of Tesco and asked them about the calorie counts of the packages they have just bought, they wouldn’t have a clue what you were talking about?” 

“I have to admit that you have just expressed the kernel of the difficulty. And no doubt, Minister, you are about to point out that if we cannot show it works on packaged foods, there is no reason to believe it will work on unpackaged?” 

“Indeed I am, Humphrey.  I’m all for indulging Public Health England but there are limits. I gather they haven’t even done a trial run to measure effects in some part of the country that is relatively obese.” 

“The USA is just about the only country in the world that now puts calories on menus and they have done the little research there is.  Inter alia, there are no indications these listings make any difference and the calories shown are often wildly incorrect, partly because of the practical difficulties of portion control. ‘Worse, the food items with the lowest reported calories — the so-called healthiest — were the most likely to be incorrect.’” 

“Humphrey.  Is Public Health England right to focus on calories.  I know losing weight means fewer calories but, from a broader health perspective, that could be misleading.  I read the other day that “Different foods can impact your hormones, hunger, feelings of fullness, and metabolism differently, regardless of the number of calories they contain. Thus, when it comes to your health, not all calories are created equal.”

“Need you ask, Minister.  They have been busy with another bright idea. Public Health England has spawned a new quango to take care of all this: “The Office for Health Promotion.”  Public Health England will be left to take care of all matters that do not promote English health. I am not sure what those are, whether they need doing by Whitehall or, indeed, at all.”   

“Humphrey, this government is driven by the science.  Where is the science?” 

“We are also action oriented, Minister. We need to act now to stem this tide of obesity.  We were too slow to react to the pandemic.  We must not be too slow on obesity.  Our justification is that 79% of those responding to our 2020 consultation agreed with putting calories on menus.” 

“Humphrey, you know perfectly well that one can expect a similar response to any other “nil cost” consultation.  Try asking people if they would like to be better off. WE are just virtue signalling, and you know it.” 

“Minister, it is not for me to be judgmental.” 

“Apart from costs for food retailers, I don’t suppose this will do any harm. The real harm, Humphrey, arises from believing Public Health England’s claims that it will resolve the obesity problem. That is nonsense.”

So what is the correct response to a market corner?

Liam Halligan picks up on the Social Market Foundation report into the lack of competition in the British economy. In which he says that:

While this is a valuable SMF report, I’d say it misses a trick – by failing to mention the residential construction industry. The housebuilding sector now has “all the characteristics of an oligopoly”, according to a 2016 House of Lords report. Prior to the 2008 financial crisis, SME builders accounted for almost 70pc of all homes built. Such firms, once they are granted planning permission, build houses relatively quickly to aid their cash flow, helping to ease our chronic housing shortage.

That share has since fallen to about 40pc, after countless SMEs were wiped out after the Lehman collapse, with over-mighty “volume” builders becoming far more dominant. These huge developers hoover up the vast majority of planning permissions and then sit on them, building out very slowly to keep house prices high in many areas, making more money overall by reaping huge margins on a smaller number of units.

Faced with scant competition, big incumbent developers are producing far too many small, shoddily built homes. The “contrived scarcity” at the heart of their business model is putting home ownership out of reach for a rising share of young families. Until such vested interest are faced down, any number of “planning reforms” (another batch was announced in the latest Queen’s speech) won’t fix our broken housing market.

We don’t agree. Housebuilding isn’t concentrated enough for that to be a viable technique. Yes, we know about oligopolistic competition and all that but you really don’t need that many market players for it to be unviable. Our analysis of why the large housebuilders are gaining a greater portion of supply would concentrate on how difficult it is to gain planning permission these days. The more bureaucracy there is then the greater the ability of those with scale - and thus armies to fight the bureaucrats - to secure those few permissions being granted.

However, let’s take it as being true. This is what is known as a market corner. Owning enough of the supply so as to change the price. As the Hunt Brothers tried to do with silver and innumerable others have tried in various markets over the centuries. The answer to a market corner always being the same - to flood the market with supply. Which is exactly what happened to the Hunts and they all went bust. As always does happen to market corners when supply can react to those artificially heightened prices.

If the major housebuilders are cornering the market in planning permissions - the claim being made - then the solution is to flood the market with planning permissions. That is, planning reforms are exactly the solution to this particular identification of the breaking of the housing market.

Issue enough planning permissions that no one can afford to own enough to control the price. There, we’re done.

At which point, some advice. This landbanking idea as the source of our housing woes. This is an idea that Polly Toynbee has been behind for at least a decade. As rational adults we do know that Polly is that necessary butt end of the compass pointing to valid economic ideas. That she believes it is proof that it is wrong. Our task is only ever to work out why this is so in this particular instance.

Here that’s pretty simple. The claim is that the capitalist speculators have a corner on the market for planning permissions. The answer to market corners is expansion of supply beyond the ability of the capitalist speculators to control. Given that planning permissions are things created at the flick of the bureaucrats’ pens this seems a simple enough thing to do with a reform to the planning system.

You know, issue more planning permissions.

Caroline Lucas always reminds us of Baldrick

Not, we hasten to point out, on the basis of personal hygiene or cooking ability but on that of a surfeit of cunning plans. Every such plan having some great gaping hole between reality and its achievement.

Take this being recommended in a letter to The Guardian:

To fill this gap, the Green New Deal Group is calling for the chancellor, Rishi Sunak, to unveil a new market-leading “green recovery bond” Isa this summer, to keep his March budget promise of an NS&I green bond. Our research shows that this, like the pensioner bonds of 2015, could raise tens of billions of pounds and, as a first step to creating jobs in every constituency, that could be spent on employing a massive multi-skilled carbon army to make all the UK’s 30m buildings energy efficient. Meeting the official UK government target of net zero emissions by 2050 will require making up to 20,000 properties a week energy efficient for the next 30 years.

We have actually read the full plan and variants of it that have appeared over the years. The hole is, well, who pays back the bond?

People invest in these new bonds, that’s fine. The money raised is then spent upon retrofitting UK housing to be carbon compliant - their phrasing, not ours. Well, we’re not sure about the need for this or the desirability of firehosing money at the problem but still, OK. Government guarantees the bonds and the interest rate is perhaps 1%. Just for the sake of the argument, we’ll all run with that.

OK, what then?

One example given is that heat pumps need to be installed in every house and dwelling. From other reports recently we hear that this will cost perhaps £15,000 per dwelling. This strikes us as violating the Stern Review’s injunction that the cure should not be more expensive than the problem but again, let’s simply run with the logic being employed.

Money is raised by government guaranteed bonds to install heat pumps. So, who pays back the bond?

This is not mentioned anywhere in any of the varied reports and proposals.

We can see two alternatives here. The householder never does pay back the price of the heat pump. It’s a free giftie from all of us out here to everyone that possesses - and it will be the owner of the housing that gains from £15,000 being spent upon it - a dwelling. Perhaps this is what is required but if this is so then no new bond is necessary. This is straight and flat out government spending and can and should be dealt with in the normal manner. Government taxes to spend, or government borrows to spend, or government prints money to spend, but no new financing method is necessary in the slightest.

Alternatively, the householder has to pay back the price of the heat pump, plus installation, so that the bonds can be serviced and investors receive their money back plus interest. What is the method by which this is going to be done? It seems a fairly important part of the investment case to us. After all, as Greensill and Gupta are currently showing, paying back money can be more difficult than borrowing it.

Further, if there is some clever scheme by which that multitude of small payment streams - the monthly slice of that £15,000 spread over the years and decades - can be both collected and enforced then what is it? And if we’ve got one then why is this special form of bond required? If 1% green bonds are what the market will fall for, given that we’ve got a repayment mechanism, then why not just general issuance instead of this special form?

This is indeed Baldrick in all his glory. A superficially pleasing idea that fails at the most important point. Bond issuance, the important part of the plan is how does the money come back to the investors? In all the “work” that has been done on this scheme there is not one single mention of this rather important point.

Is the carbon compliance a gift to householders? Or is there a householder repayment system? In either case there’s no need for these special bonds, is there?

At which point a question to the Green New Deal. What is the repayment mechanism?

We have asked this question of the one group member that we do talk to to be met with the insistence that of course our correspondent had absolutely nothing at all to do with this idea. Possibly wisely.