If only George Monbiot bothered to read the climate change science

This applies to many more we’re afraid:

His is the latest in a line of books by professional optimists – Gates, Steven Pinker, Matt Ridley – who have failed to grasp the nature of either Earth systems or the political economy that bears upon them. These men are not climate deniers; they are politics deniers. They appear to believe that the transformations necessary to prevent systemic collapse can happen without political pressure or political change. Understandably, the media loves them. Nothing fundamental needs to change, we can sit and wait for technological and demographic shifts and everything will work out in the end. A simple story with a happy ending, telling power what it wants to hear, this is the Disney version of environmental science.

Therefore, Monbiot goes on, we need to have a radical political change in order to beat climate change.

Except that’s not what the science says, not at all. In fact, it’s built into all of the models and assumptions used by the IPCC (let’s stick with the idea that that’s the real science here) that technological and demographic shifts will solve the problem. Or at least, can potentially do so.

Going back to the SRES, the base economic models which underpin the entire sector. The A2 (the model Stern used) and B2 models, assuming a regionalised and fragmented global economy, do worse by every measure. More and poorer people with more and worse climate change. So, let’s not do that then, let’s stick with globalisation which does better - the A1 and B1 models. B1 is largely a global social democracy and this again does worse than A1, which is, roughly speaking, globalised free market capitalism - neoliberalism that is. Worse in the sense that the people are poorer at the end of it all.

So, assuming that it’s possible to beat climate change within the A1 series of scenarios that’s the one we should prefer.

As it happens, A1FI is similar to that RCP 8.5 (effectively, it’s the same model) that would all three of be a disaster, is described as business as usual and isn’t going to happen. A1T is that globalised capitalism powered by nuclear and renewables with unconventional oil and gas (ie fracking) as an intermediate stage. Which does indeed solve global warming and does so as well as any of the other models studied.

So, to the extent that we can even try to influence the global economy that’s the one we should plump for. Solving climate change while leaving humanity as best off as it can be while doing so.

If we leave these issues to “the market” and other supposedly automatic processes, we can see what will happen.

Well, maybe, that might happen. Given the way that the IPCC set up those SRES models that is a possible outcome. They are very clear that all of the scenarios are equally possible.

But we’ve decided that we would like to at least attempt to influence that global economy. Which gives us Nordhaus, Stern and 93% of polled economists. In order to maximise that opportunity of taking the A1T path we desire a carbon tax at the social cost of carbon. At which point we’re done. We’ve stuck our oar into the market incentives the once, been as efficient as it is possible to be and thereby flipped the global economy over to that most desirable outcome. Solving climate change while leaving humanity as well off as it is possible to be having done so.

Globalised free market capitalism plus a carbon tax. That is what the science actually says.

Now, it’s possible to disagree with all of the science that underpins the IPCC process, most certainly it is. But if one does so then none of the other conclusions to be drawn from that process are valid either, are they? Can’t go around insisting that climate change is a problem that must be solved if you’re arguing about the evidence and logic that leads to the conclusion that climate change is a problem that must be solved.

This is one of the things that so amazes us about the entire climate change shouting match. The very people who demand that we all act according to the science seem to be the most insistent upon ignoring that science.

Perhaps they’re just ignorant of it?

In praise of crypto markets

We don’t really even pretend to understand the crypto markets. Apparently something called the Luna/Terra stablecoin has gone kablooie. As far as we do understand it if the Terra became worth anything less than $1 USD then Luna’s were issued to the value of $1 USD which could then be swapped for a Terra. We’re really not sure if we’ve got that right but given that Luna is now worth $0 USD this would require eiether an infinite issuance or an infinite number to swap for a Terra at which point we think we’ll go for a quiet lie down.

Except for the part where we praise this system. Not the specific Luna/Terra arrangement, but the system of free markets that allows the experiment. What it is possible to do changes as technology advances, what people desire to have done changes with taste, fashion and quite possibly the direction of the wind.

It is precisely free markets - those with open entry access - which allow the experimentation to see which of those things can be newly done meet some human desire or need. Terra/Luna seem to have shown that they don’t and all in under three years from launch. Which we think is a pretty good result actually - doesn’t work, it’s gone, Kablooie and Huzzah.

We would contrast this with government planning things. The law which prevents people building houses people would like to live in, where those people would like to live - The Town and Country Planning Act - was passed in 1947. As we’ve noted before we think that should also disappear, be blown up, proper Kablooie. But no such luck as yet.

It is entirely true that tens of thousands will have been financially damaged in that Terra/Luna adventure. Quite possibly fiscally ruined some goodly portion of them. And yet that free market both allowed the experiment and also closed it down when failure was obvious. The Town and Country Planning Act is screwing up the housing market of an entire country and has been for over 70 years.

If only government was as vicious in killing the errors as those free markets are…..

Prices really are information you know

No doubt all recall how we shouldn’t bother fracking in the UK. For if we did then the increased gas supply wouldn’t make any difference to the price. That being one of the more economically illiterate arguments that has been put forward.

Now it is true that if gas were perfectly transportable then an increase in supply wouldn’t affect the local price very much. But that very non-locality of the price drop from an increase in supply means that many more people would benefit. This simply must be true - pennies for hundreds of millions of people or pounds for millions, the total benefit will be the same even if the distribution is different.

It’s also true that if there is local extraction then it is our Treasury that gains the resource rents, not those of Norway, Holland or Russia. Which seems like a nice thing to have really. Even if there is no change in prices that we’ve got a lower tax bill on everything else sounds good.

But it’s not in fact true that gas is perfectly transportable. For if it were - changes in local supply immediately dissipating their price effect across the whole market - then this would not be true:

Wholesale gas prices for next-day delivery in Britain have tumbled to pre-energy crisis lows that are a fifth of the price in Europe because of an unprecedented glut of liquefied natural gas.

Demand for gas in Britain has dropped with warmer weather and there is not enough pipeline capacity to transport all the gas that has arrived in the country to mainland Europe where it is needed, analysts say.

There are local gas prices, we do not have a fully integrated European, let alone global, gas market. Local production will affect local prices therefore.

Fracking would reduce British natural gas prices.

Isn’t it interesting what we can learn from the information contained within prices?

Economics really isn't this difficult, no, really

Britain has indeed had a certain number of sterling crises in the past. It’s not going to have one now. We say that in absolute and full confidence:

By UK standards, what has happened in the past few weeks qualifies as a wobble rather than a full-blown crisis of the sort that forced sterling off the Gold Standard in 1931 or out of the European Exchange Rate Mechanism by speculators led by George Soros on Black Wednesday 30 years ago this year.

Nor was the sell-off as serious as that seen in 1976, the crisis that persuaded the then Labour government to ask for financial support from the International Monetary Fund. For the pound’s current weakness to become as legendary as 1931, 1976, 1992 or the postwar devaluations of 1949 and 1967, it would have to fall from today’s level of about $1.23 against the US dollar to parity, where £1 buys $1.

Yes, this is The Guardian so obviously the important economic points are going to be missed.

But in all of those previous instances the government - or the Bank of England, take your pick - was committed to trying to maintain a certain price for sterling. The crisis was always when the pressure became such that the price couldn’t be maintained.

Today we might well have some sort of idea what is a desirable exchange rate - or we might not. But we’ve no public commitment to one and thus it cannot be that pressure will break it. Therefore we’re not going to have a sterling crisis.

After all, a fixed price can only be broken if there is a fixed price that someone is trying to maintain.

The Guardian lists 5 different sterling crises there. All of them reliant upon the government (or BoE) trying to insist that prices were different from what reality said they were. In the absence of government trying to defy reality there are no crises. Sadly, this being The Guardian not only have they failed to note that they also then go on to insist that government should fix the price of labour, of energy, of whatever else they think would be better if reality were kept at bay.

Sigh. For in any battle between government prices and the real world it is that universe out there that wins, always.

An Accepted Code of Behaviour

The word “protocol” comes from Greek and means, amongst other things, “an accepted code of behaviour”. The question here is how long behaviour has to continue in Ireland before it can be regarded as “accepted”. In the dawn of the 20th century, my great-grandfather was deputy head of the Royal Irish Constabulary. Sinn Féin was founded in 1905 and won 73 of the Irish 105 seats at the 1918 general election. The loyalist Black and Tans were formed in response and the troubles which had begun in the 19th century continued until partition in 1922 created the border. Come Brexit, Dublin, backed by Brussels, announced that the border was unpoliceable, contrary to the Good Friday Agreement and would cause sectarian violence. Despite nearly 100 years of evidence to the contrary, the UK government foolishly agreed and tied itself into the knots we now call the protocol. 

My great-grandfather’s memoirs record that he got along pretty well with both Catholics and Protestants.  He was from the north himself.  Of course, he detested the violence and did his best to catch those responsible but the interesting point was that he blamed Whitehall for the troubles, not the Irish. Much the same could have been said of Cyprus in the 1950s. Whitehall had no understanding of local feelings.  

From the moment the Irish protocol was agreed in December 2020, it was clear that, from the UK’s point of view, it would not work.  Paperwork and controls would be excessive, legal product in one part of the UK would be illegal in another and trade would be distorted in that it would shift from Britain to the south of Ireland.  The protocol specifically makes this last issue a valid reason for renegotiating it. 

Of course, Dublin and the EU always knew this would happen. An EU official, Martin Selmayr, is reported to have said “Northern Ireland is the price to pay for Brexit,” but that is disputed.  There is no doubt however that Dublin was closer to Brussels than Belfast was to London.  And that is the nub of this blog: the UK government of the day always considers it knows best and there is no need to involve the locals.  Belfast barely took any part in the negotiations except on one occasion when they invited the Sinn Féin leader. Brilliant! They then spent two years of failing to renegotiate the protocol by endlessly repeating the same cycle. Whitehall threatens to tear up the protocol; Brussels and Washington say “no you cannot”.  Round and round we go and get nowhere. 

In fact, there is no need to tear up the protocol. It includes the rationale for amendment and the process for so doing.  Whitehall has, however, so misplayed its hand, and alienated the French, Germans and Americans in particular, that it will never succeed and should bow out.  The Dublin and Belfast governments have surprisingly good relationships and should be invited to come up with a joint solution. 

A logical error in this climate change shouting match

Start by agreeing with the base contention - emissions are causing climate change, something needs to be done about it all. No, just start here as a basis for the argumentation.

Does this mean that all activities should be reducing their emissions?

“It’s clear that we need to demand reduction via a frequent flyer levy, which would discourage the frequent flying by a small group of people which makes up the bulk of emissions from planes.”

Air travel accounted for 2.1% of human-produced carbon dioxide emissions in 2019, equivalent to about 915m tonnes, according to the Air Transport Action Group. It is estimated that 15% of people take 70% of all flights, Possible says.

2% of the problem isn’t in fact a large part of the problem. It is, in fact, one-fitieth of it. Possibly not worth the attention paid to this very minor part in fact.

But very much more than that there’s the logical error of trying to insist that if emissions must fall by 50% (or 90%, or emissions subtraction technology must be used, what that overall target is does not matter here) overall then emissions from each and every activity or sector must also fall by 50%.

It’s not just that this is not true it’s that it is stupid.

Each unit of emissions has the same impact upon climate - again, whatever we think that effect is. But each activity that causes a unit of emissions produces a different amount of value, of human utility. So, we desire to reduce those emissions that create little to no human utility while retaining those which produce more than their ill effects.

Given the British climate that week in Torremolinos produces great human utility. Which is why people already, willingly, pay the Air Passenger Duty (which is indeed a carbon tax at or perhaps even above the social cost of carbon) to have it.

Our aim is to maximise human utility over time while also not broiling Flipper on the fumes of the last ice floe. Simply by observing what people do emissions from flights are the last, not the first, thing to be tackled.

More importantly for the logic here it just is not true that each source of emissions must reduce at the same - or even any - rate. Those emissions that produce the least value should go first, those the most the last.

As it happens we think that aviation is going to get solved an entirely different way. The renewables to green hydrogen to synthfuel route has promise. The current infrastructure and activities using it would thereby be carbon neutral. Which we think would be a double victory. Solving the climate change impact while preserving maximal human utility has its attractions. But right royally annoying all those who would impose sumptuary laws is even better.

The importance of careful analysis

From the obituary of Freddy Johnston:

Even as he uttered those words, the company’s card was being marked. Four months earlier a small American business called Google had started AdWords, an online system allowing businesses to advertise alongside keyword searches. Oblivious to the threat, Johnston Press marched on and in 2006 bought The Scotsman from the Barclay brothers for £160 million.

Soon came the financial crisis and a seismic shift in consumer behaviour. Classified advertising revenues of £177 million in 2008 dwindled to £22 million a decade later, while newspaper sales sank from £101 million to £55 million over the same period.

We are regularly told that Google and Facebook must give more back. They must support local journalism because they have caused it’s near demise through their monopolisation of the online advertising market.

Something which is not, in fact, true. These numbers are American but given the monopoly nature of the local press in both countries applies here too. Roughly one third of a local paper’s revenue was subscription or cover price. One third display advertising and the other one third classified. The classifieds market being subject to network effects - people advertise in the local paper because that’s where people look, people look because that’s where people advertise.

It’s that classifieds market that the internet stole. The jobs are on Monster.com, the property on Rightmove, prams on e-Bay and so on. It’s the pulling of the rug on that one third - and by far the most profitable one third - of the revenue that has done the damage.

What do the political classes incessantly call for? That Google and Facebook, who have taken some portion of the display advertising budget must compensate.

The solution demanded doesn’t solve the problem because that solution is based upon incomplete - or even incorrect - analysis of the original problem. What, politically, everyone knows turns out to be based upon a fable.

Which is why politics isn’t a good way of dealing with the real world - politics doesn’t know or understand the real world.

Which is something that Hayek said better and earlier than we just have done but it’s true all the same.

Making taxes transparent

It is a good thing for both democracy and liberty if government tells people openly and honestly how much it is taking from them in taxation. Most people accept that government must finance essential services and the public services that enjoy popular support, and are prepared to pay taxes to finance them. But this should be above board, not something done in an underhand and deceptive manner.

Stealth taxes are wrong in principle because they are based on concealment and deception. The aim of them is to levy taxation that people are not aware of, and people cannot consent to something if they are not aware of it. They thus break the principle of consent that underlies honest taxation.

Gordon Brown was the master of underhand, stealthy taxes, but it looks as though Rishi Sunak will take his title. One of the most common stealth taxes is achieved by fiscal drag, by failing to increase thresholds in line with inflation, so that people not earning any more in real terms are sucked into a higher tax bracket that makes them pay more.

Another stealth tax is achieved in National Insurance by labelling part of it the ‘employer contribution’ so that the employees are unaware that they are actually paying it themselves. To the employer it is part of the wage pool that would be available to the employee if the government did not take it.

The government, and the Treasury in particular, like stealth taxes because they do not want people to know how much tax they are paying, fearing public resistance if they knew how much the government was taking from them.

Many motorists do not realize that the pump price contains the fuel duty, currently 56.95p per litre for petrol and diesel, and that the VAT of 20 percent is then added on top, charging the customer VAT on the fuel duty as well as on their fuel. Many whisky drinkers are probably unaware that a similar principle is applied to their tipple, and that VAT is charged on the total cost including the duty, making a tax upon a tax, and that £3 in every £4 spent on it goes to the Chancellor. The same applies to tobacco products.

Taxes on airline tickets, insurance policies, and many other products, are contained in the price, such that most customers are scarcely aware of how much of what they are paying is taken by the government.

All of this means that instead of knowing and consenting to the amount taken from them in taxation, most of the electorate does not even know how much that is. They are tricked by deceit and concealment into paying sums they are unaware of.

A partial solution to this would be achieved if the price before taxation were listed alongside the final price paid. Customers would see at a glance how much of what they were paying was going to the government. This should be done at petrol and diesel pumps, on alcohol products, on tobacco products, on airline tickets and insurance policies, on purchases subject to VAT, and everywhere it could be applied. Furthermore, the “price before tax” should not be buried somewhere in the small print, but should feature prominently alongside the final price that includes the tax.

Companies selling fuel, or alcohol and tobacco products, could start the ball rolling by voluntarily doing this, but ultimately it would be up to Parliament to make this mandatory. It would be a major stride towards honest and open government by those who profess to favour that.

People about to be legislated against lobby do they? Our word, that is a surprise

So our question here is, well, what do you expect people to do?

Some of Britain’s betting giants are revealed to have quietly lobbied Treasury officials against a proposed industry crackdown, claiming it will cost millions of pounds in lost tax receipts.

Executives representing Bet365, Paddy Power and Ladbrokes met officials from the Treasury and Revenue and Customs, warning a radical overhaul of the industry could drive gamblers to the black market. The meeting was with tax officials rather than ministers and was therefore not required to be automatically disclosed.

Our point here is not about the rights and or wrongs of betting, betting regulation or anything so specific. Rather, the much more general point of what do you expect people to do?

Here’s an activity which is currently lawful. The government is thinking of changing which parts of it are indeed lawful. What does anyone expect people engaged in said lawful behaviour to do? Have a chat about why making their currently lawful activities unlawful might actually mean in practice? You know, possibly?

Explore whether Ministers are fully cognisant of all of the implications, the trade offs involved? Even, ask whether they really want to steal the crust from their mouths?

Perhaps we could suggest a little irruption of reality here. The only way there will not be lobbying from industry is if government doesn’t determine how industry works.

Even if you think that this activity is indeed corruption - the implication the Observer is suggesting - it’s still true that the only solution to it is laissez faire.

The Enduring Value of Hayek

The Nobel economist and social theorist Friedrich Hayek — whom Robert Skidelsky called “the dominant intellectual influence of the last quarter of the twentieth century” — was born on this day in 1899. 

Almost single-handedly, Hayek kept alive the spirit of personal and economic freedom that had been crushed by the Second World War and the Keynesian economic interventionism that followed it. Such interventionism, Hayek argued, was based on the ‘fatal conceit’ that we knew far more about society’s workings than we really did. Government planners simply could not collect and process all the information needed to run a functioning economy, because that information is dispersed, diffuse, incomplete and essentially personal. The socialist dream would always be frustrated by reality; and as socialists struggled to control things, we would be drawn down a road to serfdom.

Hayek showed how unplanned societies were highly rational and collaborative, their customs containing a ‘wisdom’ that we cannot even understand, never mind control. The price system, for example, allocated resources to their most urgent uses, with a speed and efficiency that defied central planners. Such ‘spontaneous orders’ (including not just markets but language, justice and much else) were, said Hayek, products of social evolution, not rational thought. Replacing them with some planned ‘rational’ alternative would inevitably end in disaster. 

Hayek influenced a generation of economists, including many others who would win the Nobel Prize, such as Milton Friedman, George Stigler, Maurice Allais, James Buchanan, Vernon Smith, Gary Becker, Ronald Coase and Elinor Ostrom. His ideas also enthused intellectuals who in turn disseminated his ideas even more widely. Among them were Henry Hazlitt, journalist and co-founder of the Foundation for Economic Education; Ralph (later Lord) Harris and Arthur Seldon who ran the Institute of Economic Affairs; F A (“Baldy”) Harper who founded the Institute for Humane Studies, Eamonn Butler and Madsen Pirie of the Adam Smith Institute.

This gave his ideas a real political effect – something unimaginable in the post-war years. Margaret Thatcher and Ronald Reagan owed much to his thinking, as did Mart Laar and Vaclav Klaus, who became political leaders in Eastern Europe after the fall of the Soviet system. “No person,” concluded Milton Friedman, “had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek.”

Hayek remains an inspiration to lovers of individual freedom all over the world. Think tanks promote his view; student groups name themselves after him; college programmes take his name; economists and journalists cite him; his views are analysed in books, papers and blogs. Millions of ordinary people owe to Hayek their enjoyment of the fruits of economic and personal freedom, even though they may not realise it; but then as Hayek pointed out, knowledge is not always obvious.

Eamonn Butler is author of Friedrich Hayek: The Ideas and Influence of the Libertarian Economist (Harriman Economics Essentials).