So we can reject this out of hand

There are certain statements about matters economic which act as those little red flags. If someone can make such an argument, use such logic, then everything else they’ve got to say on the subject can be rejected. For the thing they’ve said, that red flag, is of such absurdity that clearly they’ve no understanding of the point at issue.

At which point we give you Caroline Lucas:

Why else would they be arguing for more fracking or further North Sea gas investment, supposedly to drive bills down, when they know that any gas produced would sell at today’s global gas prices and simply feed windfall profits?

Rather than any arguments - true arguments as it happens, for natural gas is not globally fungible - that the set up to the point is wrong let’s take it as being correct.

So, we increase supply and that increased supply adds to global supply. That therefore means that it is the global price of gas that is changed by that increase in supply. All 7 billion human beings therefore benefit from North Sea or fracking production of natural gas. Or, perhaps only the roughly 5 billion in advanced societies that use natural gas. Or possibly every farmer in the world as fertiliser prices reduce. Or, well, lots and lots of people through a variety of channels.

The argument being put forward by Ms. Lucas is therefore “We can’t do that because just everyone will benefit!”

We can therefore reject everything Ms. Lucas has to say on the subject because that is, clearly and obviously, a logical argument of the utmost, extreme, absurdity.

Micromanaging

One of the failings of government is its tendency to attempt to micromanage things not appropriate to micromanagement, or things for which micromanagement is unnecessary.

During the first lockdown, government rules decreed that only ‘essential’ goods could be bought at supermarkets. Immediately the question arose as to what was or was not essential. Food was essential, but was a chocolate Easter egg? Alcohol was, but were crisps? Police forces threatened to search shopping trolleys to watch for goods they deemed non-essential, and would probably have done so had not they been firmly slapped down.

Similar confusing detail emerged when people were allowed to drink in pubs and bars provided they were eating. Eating what? Peanuts? Beef jerky? The order went out that it had to be “a substantial meal.” But what counted as substantial? Again came the confusing detail, highlighted when ministers contradicted each other over whether a scotch egg constituted a substantial meal. Similar complexity prevailed when exercise was allowed, but rules attempted to specify for how long and under what circumstances people were permitted to rest on benches.

It raises the question of whether it is appropriate, even during a pandemic, for governments to be going into fine details over what people might buy, what they might eat outside the home, the circumstances under which they can drink, and where they might sit and rest out of doors.

The Department of Health might regard it as part of its duty to recommend that people should drink alcohol sensibly and in moderation, but to suggest a limit of 14 units a week, a figure plucked at random from thin air, is to attempt to micromanage something that might be better done by sensible advice. The figure is so plainly absurd that most people just ignore it.

A regulation might specify the conditions required for a toilet at work. Pages of detail might cover the width and thickness of the seat, the material it may be made of, the height from the floor, and the shape, be it an oval or a horseshoe. Yet more pages might cover the provision of toilet paper, and the location of washing facilities. On the other hand, the regulator might specify a requirement for employers to provide “decent toilet facilities” for their employees. The question as to what constitutes “decent toilet facilities” would soon be decided by a series of complaints, suggestions and tribunals.

When the governments go into the business of attempting to control wages and prices and to set limits, upper or lower, on some of them, as governments have been doing for over 4000 years, they enter a minefield. The reason is that prices are signals, and there is no such thing as a fair price. Prices tell about the relationship between supply and demand. Shortages lead to higher prices which in turn encourage greater supply. To impose a price cap is like blocking up a thermostat to prevent a room becoming too hot or too cold.

The government’s price cap on energy, and the decision to raise it, are micromanagement of something best left to find its own level. When the wholesale price of energy went up because of a supply shortage, without suppliers being able to match it by retail price increases, many suppliers went bankrupt. A better policy would have been to make it easier to increase energy supply and allow the market to bring the price down.

Governments can sometimes manage, with varying degrees of efficiency, to provide those collective things difficult to obtain individually, things such as defence and the administration of justice. But when they try to micromanage the behaviour of disparate individuals through detailed and complex rules, it usually results in arbitrary requirements that seem to owe more to whim than to common sense.

We do wish that people would check the facts

We do think it slightly odd that we seem to be the only liberals left in town. There’s that little groundswell going on about Britain’s low fertility rate for example. Something must be done to ensure that there’s a population to tax in 50 years time, something like that.

We find the attitude puzzling to say the least. As liberals the aim, the goal, the value, is the liberty to be able to choose. So, if in a free society adult Britons choose to have fewer little Britons then, well, that’s the outcome of the liberty, isn’t it? Shrug. The liberty to make the choice is the societal aim, the results of the choices are irrelevant - absent third party effects of course.

But within that, as with all other arguments, we would still insist that people should check the facts. Take this from James Kirkup:

This brings us back to childcare, which the OECD calculates can cost 30 per cent of the wages of the typical double-income couple. That’s almost twice the cost in countries that make a proper effort to help people combine work and parenthood: a Finnish couple pays 18 per cent. The prohibitive costs of UK childcare should be a problem for everyone, but they fall more on women than men.

That all seems entirely logical until we check fertility rates. That for the UK is 1.65, that for Finland 1.35. The real world seems to be telling us that higher childcare costs produce more children - so if you desire more children lower childcare costs are not the way to go.

Yes, of course, it does seem absurd and we’d not rely upon those numbers too, too much ourselves. But think for a moment. Imagine a society in which having the one child really does block off any attempt at a career, or even work itself. The decision to have a child could well then lead to the decision to have many for the opportunity costs of the second, third and subsequent are much lower, aren’t they?

We’re not, of course, suggesting that as policy - see above about being liberals. But that does at least accord with the first and most important rule of economics, that incentives matter. It also has the useful attribute of according with reality as judged by those figures on offer from Mr. Kirkup.

We’re against the very idea of managing the population because we’re liberals. But even among those who would do so could we suggest that little exercise of checking the facts occasionally?

A short message from Marc Andreessen

Marc Andreessen gets some stick for some of his views, he’s also one of the leading venture capitalists of our day. In an ask me anything on Twitter he is asked “What do you find people in tech ( our outside) missing about web3 the most?”

The response is: “The enormous payoff from decentralization and permissionless innovation. I cannot believe more people don't understand this. It's so obvious.”

We would agree that it’s obvious but this isn’t something specific to Web3 (and we’ll admit we’ve no idea what that is supposed to mean). Not grasping it is also not something specific to tech bros, it’s a widespread misunderstanding across society.

For, of course, it’s the justification for a free market economy. Someone has an idea, they try it. If it works, they do more of it, others copy, the world advances because there’s one more thing being done that works.

In a world where permission is required then the world advances at the speed the permissions are granted. Or, given that those granting the permissions will not be omniscient nor necessarily benevolent the world does not advance as permission is not granted. This of course gets worse in a planned economy because the only things that are even put up for permission are those thought of by those in the planning system. Bureaucracies not being known as hotbeds of innovative ideas.

Our base problem to solve is that the universe of things we can do expands as technology advances. The list of things we want to have done varies with human tastes, fashions and even whims. We thus require some sort of matching process between what can be done and what folks want to have done. It is precisely the freedom of entry - that permissionless innovation, entirely decentralised as it is - into the market that defines that idea of the “free” market. It’s also the very feature of the system that works to make all of us, as we are, so stonkingly rich by any historic or geographic standard.

This is why certificates of need are an anathema. So too, to our mind, the ludicrous seismic restrictions upon fracking in the UK (no, we do not believe they are there for good scientific reason, they’re there to stop it happening). In fact, we argue that the economy as a whole is larded with these needs for permissions. Which is why so much of the innovation that does happen is in those new areas, online and in code, where there are no incumbents or bureaucracies to act as permission deniers.

Think, as a contrast, between the landraces going on in whatever that metaverse might be and the time it takes to gain planning permission in this real world. We expect several cycles of try, build, go bust and start again in that first in the time it would take to gain the permits to put in the footings in that second.

The speed of this matters. For economic growth is, by definition, the speed at which these new things happen. So, if we’ve built a society that requires permission to try new things then economic growth will be slower.

Or, as varied philosophers have been commenting upon since Adam Smith first pointed it out 246 years ago, let’s free the markets and all go get rich. Again that is, richer than the last 246 years of the process has already made us.

Civil Service - masters of detail

The UK civil service was long regarded as among the world’s very best. This was largely a reflection not necessarily of its efficiency, but of the relative absence of corruption. Civil servants were seen as working in the public interest, and unable to be bribed by vested interests. In other countries bureaucrats seemed to line their pockets and their bank balances, but our civil servants were content to do a lifetime’s work and at the end receive perhaps a £2 bronze medal from the Queen that allowed them to put letters after their name.

There are, however, features of the civil service mindset that work to inhibit reform and change. There is a defensive mentality in which they fear the possible consequences of new policies, and what effect any failings might have on their careers. They would no doubt argue that this represents a necessary caution, but it tends to be taken to an excessive level.

A feature that supports the status quo is that civil servants are masters of detail and prefer to tinker with things as they are, when sometimes a preferable policy might be to replace them with something better. They prefer to implement marginal increases or decreases in allowances or thresholds, or to add or subtract a few percentage points here and there, or to raise or lower staffing levels. In doing so they are taking the existing framework as a given, and making minor changes with a view to making it more efficient or to change it in line with changing events.

Sometimes it is the existing framework itself that needs to be changed, rather than tinkered with. Skill at manipulating the small details might make them oblivious to the big picture. If they look minutely at each leaf, they might not see the forest.

Sometimes when they are looking at ways of doing something better, they might miss the question of whether that thing should be done in the way that it is being done, albeit with minor modifications, or even the question of whether it should be done at all.

An obsession with detail is rather Continental, and perhaps acquired during our membership of the European Union. The rest of Europe is mostly governed by Statute Law in which the laws have to be set out in detail so that magistrates can apply the intentions of the legislators.  The English tradition has been more one of Common Law in which the principles are laid down and the details are filled in by a series of judgements by courts and tribunal’s.

The UK is now able, after Brexit, to unpick the thousands of onerous EU regulations that were built up over the decades of our membership. Given the choice, the civil service would probably prefer to examine each regulation and make minor changes here and there. What we should be asking is whether the regulations should be applied in the way that they have been and, indeed, whether they should be applied at all.

EU regulations have largely been process-driven, in which the recipients are told how they must do things. We now have a chance to move to result-driven regulation in which the legislators set out what is to be achieved and leave it to creativity and ingenuity to develop ways of achieving those results.

Civil servants should be given a clear directive from elected legislators to start by asking if each regulation is necessary at all, and then if its purpose might be better achieved by different methods. Detail is all very well, but we should not be so lost in it that we lose sight of principles.

Sorry about this but we'll just have to close down the NHS

As we all know racism is the ultimate sin of our times. Nothing that is racist, in any form, can be allowed to persist. Capitalism is racist - according to some - so that’ll have to go. Britain itself is racist so that’s got to be overturned. The language is racist, attitudes are racist, insititutions are, all must be scrubbed and rebuilt entirely anew:

Radical action is needed urgently to tackle “overwhelming” minority ethnic health inequalities in the NHS, leading experts have said, after a damning study found the “vast” and “widespread” inequity in every aspect of healthcare it reviewed was harming the health of millions of patients.

Racism, racial discrimination, barriers to accessing healthcare and woeful ethnicity data collection have “negatively impacted” the health of black, Asian and minority ethnic people in England for years, according to the review, commissioned by the NHS Race and Health Observatory, which reveals the true scale of health inequalities faced by ethnic minorities for the first time.

That’s that for the National Health Service then. As with those police forces it’ll just have to be defunded.

Hmm, what’s that? The NHS can be reformed so that it’s not racist you say? Ah, so where’s the proof that the universities, capitalism, Britain and all the rest cannot be then?

Charge of the Motor Brigade

Victoria Street, SW1 

“You know, Humphrey, I’m getting a bit worried by this Net Zero Carbon 2050 thing.  The chaps at the club don’t think it stands a prayer.” 

“It is indeed a challenging target, Minister, but the British people have the will and the creativity to achieve it.” 

“Really? The chaps round the bar think that’s the government’s job and they are wondering what rabbits we re going to pull out of what hats.” 

“I admit we are a bit short on rabbits, Minister, but one of them will undoubtedly appear. The Scots have so much wind that they export more electricity than they import. I read the other day that Scotland’s generation of electricity was 97% renewable and net exports of electricity (exports minus imports) in 2020 was its highest to date at 19.3 TWh, a 21% increase compared to 2019.” 

“Of course, Scotland is windier than the rest of the UK, Humphrey, but we cannot be sure they’ll even be part of the UK by 2050. What is UK electricity consumption and how much of that is from renewables?” 

“Last July, we announced that ‘Electricity generated from renewable sources in the UK in 2019 reached a record 37.1 percent of total UK electricity generation, up from 33.1 per cent in 2018. This increase reflected a 6.5 percent rise in renewable generation capacity to 47.2 GW.’” 

“Steaming ahead but that is based on current electricity consumption. A Net Zero world implies that energy will be virtually all electricity and in the same announcement we said renewables were only 12.3 percent of energy as a whole, i.e. including fossil fuels.” 

“Yes, I admit that multiplying current renewables by a large factor is difficult and we also have to address variation. The sun does not always shine, nor wind blow, so we will need renewables to produce well over our needs when they do shine and blow. We can then store the surplus for when they do not.” 

“Oh yes, Humphrey, and how are we going to do that?” 

“The motor car is going to come to our rescue, which makes a change from it being the villain.  I’ve called it the ‘Charge of the Motor Brigade’.” 

“I suppose we’re going to turn off the electricity in our homes and go to bed in balaclavas?” 

“Funnily enough, that’s about right, Minister.  Only electric cars will be sold after 2030 and we reckon 50 percent of cars on the road in 2050 will be electric out of the Ministry of Transport total estimate of 37M. That compares with 31M now.” 

“20 percent more traffic is going to burn up a lot of traffic idling in ever greater traffic jams.” 

“I think you’ll find, Minister, that electric cars use no power when they are stationary.” 

“Right, so we have 18.5M or so electric cars on the roads. That may prove optimistic.  Just a couple of weeks ago “a report by the Commons Transport Committee found that taxpayers face an eye-watering £35 billion bill to plug the gap created by the switch to electric cars.” They may be the biggest scam since Gordon Brown sold us diesels. The spokeswoman for this drainage scheme was more realistic: ‘That means one million electric cars could provide 4,000 megawatt hours to the grid at peak times – roughly the same as 5,000 onshore wind turbines.’”  

“That’s four TWh, Minister, and I expect you will tell me that’s only just over 1 percent of what the Grid needs a peak times and a lot smaller percent in 2050.  Not a big help.” 

Anyway, where do the balaclavas come in?” 

“Well that’s the clever bit. Because we’ll mostly be working from home, the cars will not actually be on the roads but in our garages or in our drives. The National Grid and the Octopus electricity company are working on a scheme which would allow the Grid to recycle the electricity, when it is not windy or sunny, by draining it from the batteries of our parked cars. Our bedrooms will be getting colder too because we will be using heat pumps – hence the balaclavas.” 

“Right, so the quarter of the UK population which then owns electric cars are going to buy charging units that not only charge the vehicle, but drains it?” 

“That’s it, Minister.  The car owner installs a smart two-way charger which can transfer up to seven KWh back to the Grid when it is needed but probably only about four as the average household needs three KWh. The Grid pays 15p per KWh for what it takes.” 

“Humphrey, according to the aide memoire in my desk drawer, the average domestic electricity price in 2021 was 18.9p per KWh. So I buy the electricity to charge my car at 18.9p per KWh and sell it back to the Grid for 15p and on top of that I have to buy a smart two-way charger at God knows what cost?” 

“Well, if you took the car down to the supermarket, they’d charge it without charge, so to speak.”  

“Do they do comedy lessons at the Civil Service College now, Humphrey?” 

“The Civil Service College does not include humour among its core values but it does have a strong partnership alliance with the Mongolian National Academy of Governance. I admit, Minister, that the economics of this do look unattractive today but a lot can change in 28 years.” 

“The last statistics I saw were October 2021 when we said 25,927 public electric vehicle charging devices available in the UK of which 4,923 were rapid chargers. I haven’t seen any data on private ownership and use.” 

“Minister, I agree the market will be limited by the cost of chargers and the need to have garaging or off-street parking.  Most people live in flats or houses with no off-street parking space. Councils can be difficult about running cables across pavements.  They are considered hazardous to elderly people with shopping trolleys.” 

 “So to sum up, Humphrey, we don’t know how many electric chargers there will be, whether allowing the Grid to help itself to the electricity the car owner has stored will make economic sense to the owner, how much electricity can be stored that way, whether that will meet the needs of the Grid when the wind doesn’t blow and the sun doesn’t shine and, most of all, who will have control.” 

“What do you mean by ‘control’, Minister?” 

“I can go to bed when there’s a nice wind blowing and then there a lull.  If the Grid has control, it can simply drain my car battery, so when I am ready to go to work next morning, the car has no juice.  Or does the Grid have to ring all potential providers in the middle of the night to ask their permission? Or do I have a drain/no drain switch on my charger, so that the Grid discovers it cannot have my electricity when it needs it? And how does it find me when I am not at home?” 

“All good questions, Minister.” 

“You remember what happened to the brigade that smart-charged during the Battle of Balaclava in 1854?  Disaster.  Lord Cardigan commanded the brigade, a nice enough chap, despite being arrogant and extravagant. Obviously nothing like our current Cabinet ministers, Humphrey.” 

No windfall tax on oil and gas companies

As the world’s economies move into recovery after the pandemic, the demand for energy has risen, after it fell during the pandemic lockdowns. This has resulted in surging demand for oil and gas and healthy profits for the oil and gas companies. Because of a shortfall in supply, there have been big price rises, and the combination of higher energy bills coinciding with increased profits for energy companies has led to demands for a windfall tax on them.

Early season apples that fall from a tree are regarded as a ‘free’ bonus to the regular crop, and when some companies gain from lucky circumstances to which they did not contribute, their gains are similarly described as ‘windfall.’  Governments, always on the lookout for money, are tempted to impose one-off taxes on what they regard as “unmerited” profits. Naturally, the Labour Party, seeing a pot of money, wants to take some of it, and this time the Liberal-Democrats have added their small voice to the chorus

A proposed windfall tax on energy profits to be redistributed to the poor struggling consumers has a superficial populist appeal. It looks like one of those “robbing the rich to aid the poor” taxes, but it is not. At the end of every tax is a wallet or purse; this is because people pay taxes, companies do not. The taxes levied on them are collected from shareholders, customers or employees, and the energy companies would pass on the increased taxes to them.

Many of the shareholders in energy companies are pension funds. This means that the windfall tax would in fact be paid in part by pensioners. Some part of it will no doubt part be paid through increased prices to customers. Thus, what looks like a tax on so-called “fat-cats” is in fact a tax ultimately paid by quite ordinary people.

There is, however, a more serious downside to an energy windfall tax. It is that it would reduce investment in the industry. At a time when new sources of supply should be being developed, the funds will go to pay the levy, rather than be put to work investing in new sources of supply. What looks like a short-term gain for the Treasury would result in long-term damage to the industry and to our future energy supply.

Oil and gas producers are already very heavily taxed, paying 40% on their profits since Gordon Brown added an extra 10% in one of his famous stealth taxes. This is double the rate that other companies are taxed at. If we want companies to invest in research development, and to put money into new sources of energy supply, we should not be taking from them the funds they would otherwise use to do this with.

What is needed to secure our future energy supplies is a stream of new sources of supply and new methods of energy production that will enable us to produce it and use it more cleanly. This takes investment, and the way to secure that investment is not to make the industry less attractive to investors, which is precisely what a windfall tax would do. This tax would do the opposite of what it intends.

If we could just remind about Adam Smith and the invisible hand?

Well, yes and no and sorta:

In truth, this argument traded upon a long tradition in economics, stretching back to Adam Smith. In The Wealth of Nations the Scottish sage argued that when people act according to self-interest, they are led “as if by an invisible hand” towards the common good.

There are three Smith references - only three - to “invisible hand”. One is about the movement of the planets which is not really an economic matter, the second is in Theory of Moral Sentiments and is also not what is meant here. The third isn’t about the glories of free markets, the efficiency of capitalism or anything else. In fact, it’s about an inefficiency brought about by human nature. Even if - Smith quite clearly sets it up so that the “even if” is understood - investing in foreign parts is more profitable some will still invest at home just because they prefer to. That being the invisible hand that benefits that home economy through investment in it.

It all has much more to do with “Nudge” theories than it does anything else, a quirk of human behaviour that we observe. A quirk that actually works against that naked self-interest of the capitalists.

It seems incredible, as I look back, that in three years of studying economics in the early 1990s

A small recommendation for Mr. Syed. Try reading the source texts again and this time pay attention. Still true that most of the stuff about silver currencies can be skipped of course….

A little lesson in how this capitalist dance works

Much huffing and puffing over how the record oil company profits aren’t being invested in green energy projects. Instead it looks like all that cash will just be handed to shareholders:

The chief financial officer of the oil and gas company BP, Murray Auchincloss, told investors this week: “It’s possible that we’re getting more cash than we know what to do with.”

Yes, this is how capitalism works. Some past investments do produce gushers of cash. The organisations set up to produce those rivers of moolah may well not be optimised to invest in the next round of profit making. There’s no particular reason why a company - BP say - which is jam-packed full of the knowledge of how to drill for hydrocarbons knows how to place solar panels in a field. In fact, we’ve already tested that one, BP used to be the world’s largest solar panel and power company and it wasn’t very good at being so.

The varied campaigners are making a pair of mistakes. The first is the assumption that a company in the energy business should shift as the energy business does. But that’s to assume that Airbus should be making cars, Ford bicycles and Rover trains - they’re all transport, right?

The second is to assume that we’ve not already got a system to deal with these shifts. If BP has more cash than it knows what to do with then it sends it off back to its owners, the shareholders - dividends and stock buybacks. This money does not then disappear for there are only two things anyone can do with money, save it or spend it. There’s some minimal amount of savings that goes under the mattress, everything else gets invested. If the shareholders then spend their extra cash then that save/spend decision is just one more step along the money chain.

Anything handed out as a share of profits by a company gets either spent or invested that is. So, the decision of what to invest in is just being made by a different group of people. Instead of that corporate management who haven’t a clue - they’ve just said they’ve more than they know what to do with - the decision is made by individual investors. Who may well send the money off to SSE to build windmills, or Lynas to mine the metals to build the magnets for windmills, or invest directly in a solar panel farm, or insulate some housing or…

Dividends and corporate payouts move those profits from people who have no clue what to do with them to those who do have several clues that is. Which is indeed how the capitalist dance works. The investment is happening of course, as we can see in the investment numbers themselves, in the portion of energy being generated by the new technologies, in any aerial photograph of the country. Sahreholders receive the profits of past investments and, largely enough, use them to finance the next generation.

Of course, there is that alternative route, the one being clamoured for, which is that the profits be taxed away, the shareholders receive and redeploy less and government decides where the cash should go. We can’t see it working to be honest, we’re deeply unsure that politicians directing past fossil fuel profits into increasing the number of grievance studies graduates is really going to do all that much to beat climate change.