It's always worth examining green and environmental numbers

The examination being to see if they’re telling us what it is said they’re telling us:

The UK’s low carbon economy is now worth more than £200bn, four times the size of the country’s manufacturing sector, with growth expected to accelerate in the coming years, according to new analysis.

That would mean that manufacturing is £50 billion, which in a £2 trillion economy (all rounded numbers, obviously) is 2.5%. We know that manufacturing has shrunk as a portion of the economy even as it is within a whisker of all time production still but it’s not that small. More like 10% or so still.

The report itself is not quite as helpful in explaining its methodology as one might hope. But our impression is that they are counting intermediate sales meaning that this is not comparable to GDP at all - which counts only final sales.

There’s also the obvious point that some goodly part of the “low carbon” economy is in fact manufacturing - folks hammering on windmills is not services now, is it?

But the really big error here is that this is all considered to be admirable.

Despite what experts say has been lacklustre and patchy support from central government, the analysis found more than 75,000 businesses from wind turbine manufacturers to recycling plants employ more than 1.2 million people in the green economy.

Experts say the sector not only has the potential to help tackle the climate crisis but also create sustainable jobs and improve people’s quality of life – with cleaner transport, reduced air pollution and better insulated homes.

Look at how many businesses there are! How much employment!

At which point the correct observation is yes, look at those costs. For the claim - let’s accept here their £200 billion of a £2 trillion economy - is that 10% of all economic efforts within society are being devoted to this low carbon idea. That is, 10% of everything is the cost of the low carbon efforts.

All those people and their labour, all that steel, energy, effort and work cannot be devoted to sating other of our myriad needs and desires. Sure, it might even be righteous that they are being devoted to this specific problem. But opportunity costs are the only true measure of the costs of some activity. What is it that we give up to gain this specific thing?

The portion of our economy that is devoted to low carbon is the cost to us all of low carbon, not the benefit. And here’s the rub. It’s not possible to get even accounting right let alone economics if we get the credits and debits in the wrong column. Which means that we’ve got to stop lauding our costs as our benefits, doesn’t it?

The Berlin Wall at 60

This week’s diamond jubilee is not one to be celebrated, but grimly noted for the lessons its event taught us. It was 60 years ago this week that construction of the infamous Berlin Wall began. It was a concrete barrier erected to seal off the Western half of Berlin from the East. The barrier included guard towers with machine guns, anti-vehicle ditches and beds of nails. Its purpose was to imprison East Berliners by preventing access and possible escape to the West.

The East German Communist puppet regime ludicrously claimed it was built to keep out “fascist” infiltrators who might try to sabotage their attempt to build a socialist paradise in the East. No-one was killed trying to cross the wall into East Germany, while estimates of the number killed trying to leave it range from 140 to well over 200. The machine guns guarding the wall pointed inwards to the East, not outwards to the West.

During the wall’s lifetime, there were many escape attempts as people tried to bypass its defences. Ober 400 people escaped via a series of tunnels, leading the East German authorities to use seismic equipment to detect tunnel construction. Some swam over at night, braving gunfire and searchlights in the darkness. One family famously constructed a homemade hot air balloon and were carried over by favourable winds. One group modified a sports car and laid themselves horizontal as it sped towards the steel barrier, passing underneath it as the top of their car was ripped off by it.

UK Prime Minister Margaret Thatcher commented in 1982: “Every stone bears witness to the moral bankruptcy of the society it encloses.” US Presidents Kennedy and Reagan denounced it.

I went through Checkpoint Charlie with my colleague, Eamonn Butler, in 1982. It was like entering a prison, which indeed it was. The East was dull and lifeless, with many wartime bomb sites still unrepaired. The shops were empty, and such restaurants as existed had little appetizing food and were practically empty. By contrast, the West behind us was a blaze of neon lights, street activity and nightlife. In the East one felt in danger of hostile action by arbitrary authority, and it was a considerable relief to be back in the West.

The wall did not last. In January 1989, the leader of the inappropriately-named German Democratic Republic, Erich Honecker, predicted that the Wall would stand for 50 or 100 more years. It did not last ten more months. Its fall was precipitated by earlier action by the government of Hungary, which stopped preventing people from travelling through to Austria. Tens of thousands did so, and East German saw a great and unsustainable haemorrhage of talent as its citizens fled to the freedom of the West.

The citizens of Berlin tore down the wall in November, 1989. It had stood for 28 years as a reminder that socialism can only be sustained by force directed against the citizens of countries that adopt it. People today who advocate socialism, in ignorance of what results from it, would do well to read up about the Berlin Wall, whose 60th anniversary arrives this week.

Some problems do actually have solutions

In places without private sanitation generally available there should, of course, be some measure of public sanitation provision. This is a public health matter after all. There are problems with this:

Incentivising quality of public infrastructure excludes users and worsens public health

Community toilets in slums are often degraded, dirty, and poorly maintained, but upgrading facilities is difficult because of low willingness to pay among potential users and free riding. This column looks at community toilets in Uttar Pradesh, India, and asks whether externally incentivising maintenance can sustainably improve the quality of public infrastructure. Providing cash incentives to the caretaker and a one-time facility upgrade improved the quality of facilities and reduced free riding, but pushed more residents to practise open defecation, with poor public health outcomes. Fully subsidising basic services is important but measures are needed to prevent overcrowding and degradation.

Making those communal toilets better - cleaner at least - causes problems by itself. One solution is:

As the prevalence of private access to sanitation is low and coordination fails in the presence of overcrowding (Banerjee et al. 2008, Chidambaram 2020), a model with fully subsidised public infrastructure should consider imposing restrictions on the number of users per facility and/or enacting monitoring mechanisms to ensure that facilities are preserved by users.

If we’re going to go that public provision route then we must either have queues and rationing or we must have detailed inspection of how people use them places.

This is Garret Hardin all over again. When there is that open - Marxist - access to a resource and demand is greater than capacity then we’ve only two solutions. Either go private - capitalist - or regulate access - the socialist route. Elinor Ostrom’s caveat, that in small enough groups social restrictions will solve the problem is true, but that depends upon the definition of small enough group. Anyone who has ever lived in a student flat knows that small does mean small here.

Which leaves us with that other solution - private plumbing.

As in Hardin’s original presentation, sometimes public is better than private, sometimes the reverse. Which depends upon the specifics of the issue under discussion. Our disagreement with the modern world is only that private works better much more often than generally believed, public much less.

The national scandal of childcare costs

This assertion from Robert Colville is worthy of a little more examination we think:

Our obscenely expensive childcare costs are treated not as a national scandal but as an unfortunate fact of life.

That examination requiring the splitting of the question of why those obscenely expensive costs into two.

The first is, well, have we made the system more expensive than it need be? Say, limitations on who may provide childcare and how? The ratio of children to carers, the equipment required, the number of clipboard wielders necessary to ensure such rules are followed?

Perhaps this is true. If it were it should indeed be a national scandal. Let us free the market from such restrictions and let rip therefore. We can even test this by looking from the opposite end. Being a nursery or childcare bod is not a well paid occupation. Nurseries, childcare facilities, do not produce vast profits as we can see by the number that go bust. If the workers and the capitalists aren’t making out like bandits then high costs can have only one of two causes. Either the regulations make it expensive or it’s simply an expensive thing to do.

If it’s the regulations then indeed do something about the scandal. If it’s just one of those unfortunate facts about the cost of getting it done, well, then what?

The second part of the question, or the second question, is who should carry these costs? The families wishing childcare for their children? The taxpayer more generally? Employers who wish access to the labour of those with children? Each answer has its own arguments both pro and con.

But this is indeed a very different question from what the costs are. Someone, somewhere, has to bear the high costs. We thus need to work out whether the costs are in fact high - and what we might do about that - before arguing about their allocation.

Our own view tends - note tends - toward the view that those costs are higher than they need be as a result of regulation. So some part of the fix is to change that part of the system. As to the other, well, some at least substantial part of the costs should be shouldered by parents directly. On the basis that we are all opposed to the privatisation of benefits and the socialisation of costs, aren’t we? You know, people should face the full prices of their decisions?

All economics is either footnotes to Adam Smith or wrong

We’d not want to have to defend, wholly and precisely, that headline but we do think it a useful starting point. The truly interesting parts of the subject are those few findings which are neither. Say, Coase on the private production of public goods.

So, we’re not hugely surprised when empirical research shows that Smith was right:

We carry out two policy experiments based on our calibration. First, an industrial policy (e.g. a tax/subsidy) that induces all firms to specialise would have increased real income, so the equilibrium is inefficient (firms don’t internalise the externality of their adoption decision on others). That income increase is significant if the policy was implemented in 1987 but negligible in 2007 since, by the latter period, trade and technical change had induced sufficient specialisation. Second, we compute the impact of an increase in trade costs of 16 log points, similar to the recent trade war, and show it increases the labour share but reduces market size and real income substantially – almost half way to the predicted effect of the US shutting all trade.

The background to this is that trade allows the division and specialisation of labour - the very thing which raises productivity and therefore living standards. Allow trade with more people in more places and more division and specialisation happens thereby raising real incomes. Real incomes being the same thing as living standards.

The resulting economy of scale at the firm level captures one aspect of Smith's (1776) specialisation argument: when markets are larger firms have an incentive to specialise their labour into a subset of tasks where they are most productive.

Quite so, one of those footnotes to Smith and also, not by chance, correct.

An alternative explanation for Mr. Piketty's latest

The essential question being asked here is quite simple:

Given the steep rise in economic inequality in many parts of the world since the 1980s, one might have expected to see increasing political demands for the redistribution of wealth and the return of class-based politics. This didn’t quite happen – or at least not straightforwardly.

To make sense of the big picture, we studied the long-term evolution of political divides in 50 western and non-western democracies, using a new database on the vote that covers more than 300 elections held between 1948 and 2020.

Why aren’t the sans culottes storming the barricades? Where are the descamisados demanding what’s theirs by right?

A third related mechanism involves the ascendancy of a global ideology that puts private property interests above all else, abandoning any sense that capitalism can be radically transformed. The moderation of traditional leftwing parties’ platforms since the 1980s (think of New Labour), as well as in some cases their shift to promoting neoliberal policies, directly contributed to the decline of class divisions being perceived as politically salient, the subsequent demise of these parties, and the rise of identity-based conflicts.

Quite, why?

As Branko Milanovic has pointed out there is a useful answer available. Which is that this neoliberal capitalism actually works. By far the greater predictor of your income - and thus consumption possibility - is the country you are born into, not the position or class you are born into within one. Back when that work was being done, a decade ago, one result was that the average income of the bottom 10% of the United States was higher than that of the top 10% of either India or China.

Meaning that if we were to view the world through that veil of ignorance, as with the injunction from Rawls, the proto-you would be insisting upon the possibly unequal society dedicated to private property interests above all else rather than the radically transformed one. For we’ve not got an example, anywhere, of a society that did the radical transformation bit and improved the living standards of the average omnibus rider, nor of one that created such improvement in the first place without the capitalism and private property bits.

It is, that is, in the enlightened self interest of the demos to go for that unradically transformed capitalist - even neoliberal - system which actually produces the goods. The goods and services which improve life.

We did conduct the experiment too. We call it the 20th century - with able assists from Venezuela and Zimbabwe in this one. It is not, of course, the end of history and there are flavours within the basic structure as well. But we do know the answer to an interesting question - how do we make the average person richer, significantly, sustainably? We use capitalism and markets. Not doing so fails at that task.

So, how much are MPs intending to pay for these golden shares?

Certain MPs are suggesting that golden shares should be acquired in British defence companies:

Britain must take 'golden share' in defence firms like Meggitt, say MPs

Chairman of defence select committee says the FTSE 250 firm should be protected from foreign takeovers in same way as BAE and Rolls-Royce

So mateys, how much are you going to pay for those golden shares?

The Government should take "golden shares" in defence companies critical to UK national security such as Meggitt to stop them falling to foreign predators, MPs on the Defence select committee have said.

The call comes as concern mounts about the £6.5bn takeover of the FTSE 250 company by US rival Parker Hannifin.

Tobais Ellwood, the committee chairman, called for an expansion of the system in which the Government holds a controlling share that can be used to block takeovers.

What’s the price?

This is clearly what the Americans call a “taking”, something that their constitution says is illegal without market value compensation. The entire point of the exercise is to be such a taking:

On Monday US-based Parker revealed an 800p a share offer for Meggitt, which supplies parts for both military and civil aircraft.

Its board recommended the all-cash offer, which is at 71pc premium. The chairman, Sir Nigel Rudd, said he was confident Parker would be a “responsible steward of Meggitt”.

It is to stop that sort of thing. Johnny Foreigner giving lots of money to the current owners of the business. The aim of the golden share is to stop those owners receiving that lots of money. The taking is the lots of money they will not receive.

Now, yes, strange things can righteously be done in the name of national security. And while we don’t have that constitutional ban on uncompensated takings we do indeed have laws that insist that nationalisations and the like be compensated at market price.

So, what’s the price that is going to be paid for these golden shares? Not to have one is simply the confiscation of some part of the wealth of those current owners.

The Government only has golden shares in BAE Systems and Rolls-Royce,

Those golden shares existed at the time of privatisation. The price at which they were sold included the effects of the golden share that is. This new demand is to impose the restrictions on already private companies. Which is a confiscation of some of the value - so, how much will be paid for that confiscation?

By the way, we do have a word for uncompensated takings - theft.

Whether or not there should be golden shares isn’t the issue here. As above, strange things can righteously be done in the name of national security. But ownership of something does, in its very definition, mean being able to dispose of it as one wishes. That right, that valuable right, is to be taken away. Foreigners bearing baskets of money may not buy these companies - the reduction in the value of those companies is the excess cash those foreigners would be willing to pay but now cannot. This is, obviously enough, the reduction in value of the company to the current owners.

The suggestion, nay insistence, is that government should confiscate some measure of private property. Well, OK, national security and all that. But how much is to be paid for that private property being confiscated?

If they take your house to build a railway they can do that, but they must pay you market value for the house when they do so. Compulsory purchase does exist and it’s right that it does. But it always, but always, involves market value compensation.

Perhaps we should put this to Mr. Ellwood in a slightly different manner. Have you cleared this with Rishi yet, asked him for the money?

Time limits on landbanking aren't going to work

Making some move against the idea of landbanking may or may not be good politics. A fairly damning criticism is that it’s not going to work. For a producer of something is going to want to have a stock of whatever it is to last however long it takes to gain new stock of that something.

If it takes 6 months to get steel to make cars from then a car manufacturer is going to want to have a 6 month stock of steel. Or, at the very least, a continual and reliable series of orders at least 6 months long. The more variability - risk - there is to an order not arriving then the closer to the 6 month’s stock, rather than just the order stream, they will decide upon. We’re seeing this calculation right now as car manufacturers do find out more about the time lags and variability of chip supplies. And yes, they are saying that they’ll probably have to hold higher stocks given the increased unreliability of supply.

How long does it take to gain planning permission to build a new development? Yes, sure, the time count from the final and completed application to pass through the system is measured in weeks. But the actual time from the decision to try to build here to gaining that permission to build here is on average some years - 5 years by several estimations.

Therefore builders seek to have a 5 year stock of planning permissions. Given the unreliability of the system in definitely delivering any specific application.

The way to reduce the number of approved but as yet unbuilt houses is to increase the certainty of the system delivering on any specific application and to reduce the total time taken to do so. Builders will then, entirely naturally, reduce the stock they desire to hold.

Another way of putting this is that builders are not trying to manipulate the market by landbanking, they are manipulated into landbanking by the planning bureaucracy. The solution thus lies in the bureaucracy, not the builders.

To reform the world it aids to know the world

Anyone planning to alter how the world works runs into that Hayekian problem of understanding how it does work before those reforms. This being, as his Nobel Lecture points out, something that is difficult for that world is a complex place.

Which brings us to this exhortation in The Guardian from an American professor of design:

….and cobalt will be processed from broken flatscreen TVs, not acid-rinsed from a million tons of rubble.

Well, cobalt tends to be acid rinsed from material already being processed for nickel or copper so we’re not entirely sure what the complaint is. It’s already in the vat, why not extract the second material? But of rather more interest we fear that trying to extract from flatscreen TVs would be an isometric exercise. A great deal of effort to get nowhere.

We don’t claim to know everything about mineral usage, just a great deal. We’re entirely unaware of the use of cobalt in flatscreens and we can’t even think of what it might be used for in them. In batteries, yes, but flatscreens? We’ve even tried checking this and the detailed breakdowns we can find don’t mention it. There is something called Cobalt TV but that’s something entirely different and cannot, possibly, be the mistake being made. It could be us making the mistake of course an if so we welcome any correction - the world is that complex place after all.

If you’re going to plan the world then these sorts of details do matter.

This before we get to the larger errors in the plan. The insistence is that we must have repairable tech and also that we must have a circular economy. No more new mining, recycle everything. But if we are to recycle everything - turn old electronics into the ore from which we make the new - then having repairable tech makes no difference. So, the old part can be extracted and replaced, or the whole machine extracted and replaced. Those broken bits are still going to go into the same crushing, grinding and creation of ore process whether they’re parts or the whole thing. It’s entirely unnecessary to do both in order to reduce that mining of virgin material. Whether to repair or recycle becomes simply a fiscal decision, either and both gain the desired end. Which we use should be decided by which is cheaper for this part or that machine.

The biggest of those larger errors being, of course, that we already have a vast global industry which does exactly this - recycles old equipment for their metals values. One of us even made their living in this field for a number of years. If the value of recycling some old kit is higher than the cost of doing so then it gets recycled. If it isn’t profitable - if value isn’t being added by the process - then it doesn’t. And how else would anyone want such a system to work? Doing what is worth doing and not doing what is not?

After all, none of us are likely to think that scrap metal merchants are going to leave $100 bills on the ground, are we? Or even, even if we agree that the problems detailed exist we still already have our solution - a capitalist and market driven economy already recycles what is worth recycling and doesn’t what isn’t. Most especially in the metals world, the industry with the highest recycling rate of any other, anywhen. Other than that which weathers off the occasional onion dome all the gold ever mined is still being recycled……

Declaring class war

An extraordinary document has appeared from a group at the London School of Economics calling itself “LSE Class War.” It puts forward a series of “demands” which reveal a totally misguided view of what the world is actually like.

Number one on their list is the installation of a David Graeber lecture series to honour the memory of a left-wing and anarchist activist who died last September aged 59. He seems to have been more of a political activist than an academic, helping to establish the “Occupy Wall Street” movement, and enthusiastically supporting Jeremy Corbyn in the 2019 election, despite being a US, rather than a UK citizen.

This gesture to honour him is coupled with a demand to cease honouring the ex-LSE Nobel Laureate economist and philosopher, Friedrich Hayek. They want the LSE Hayek Society dissolved “because it promotes free market fundamentalist views which outwardly call for the oppression of working class people.” This is, of course, a total travesty. Hayek’s views have done more to elevate the condition of working classes throughout the world than virtually anyone else’s. Global free markets have lifted billions of people out of poverty, subsistence and starvation.

Oblivious to this, LSE Class Wars wants discussion of his ideas silenced, together with the dissolution of other societies that promote similar views. Presumably this would include the Economics Society and the Conservative Association amongst others. It does not want their ideas simply opposed; it wants them silenced, together with any discussion of them.

They also want the LSE “decolonized,” calling for BAME quotas for the hiring of academics. Lecturers and professors are not to be appointed on academic merit or scholarship, but on skin colour and ethnic background. It’s doubtful whether their idol, David Graeber, would have been appointed under this policy, since it’s unlikely that they include Jews as an oppressed minority.

Their other “demands” include banning people who attended private schools from studying at the LSE. This would certainly alter the ethnic balance there, since most foreign, non-white students were privately educated. It would also alter the LSE’s finance sheet, since without their fees it would probably go bankrupt in short order.

They oppose social mobility, and want the words deleted from the title of the student union’s “working class and social mobility officer.” They say that social mobility means that “only a few of the working class can transcend their class position,” and instead want “all working-class people to rise together.” It seems to have escaped their notice that by attending universities such as the LSE, most people from working-class backgrounds can gain access to middle-class employment. In the real world they would concentrate on removing barriers to social mobility so that more could rise, but in their fantasy class-struggle world they want to prevent that until, in the words of Lewis Carroll’s dodo, “Everybody has won, and all must have prizes.”

It would be easy to dismiss them as a tiny, deranged group of fanatics. But the Bolsheviks and the Nazis started as similar groups and went on to stamp out freedom and slaughter millions. The LSE Class War group deserve attention because the price of liberty is eternal vigilance. Their document is well worth reading. It is a fascinating study in psychopathology.