It is always, but always, a cost *and* benefit analysis

Leave aside whether we believe these numbers or not.

The US has inflicted more than $1.9tn in damage to other countries from the effects of its greenhouse gas emissions, according to a new analysis that has provided the first measurement of nations’ liability in stoking the climate crisis.

The huge volume of planet-heating gases pumped out by the US, the largest historical emitter, has caused such harm to other, mostly poor, countries through heatwaves, crop failures and other consequences that the US is responsible for $1.91tn in lost global income since 1990, the study found.

Firstly, we need to know whether that is in fact a large number or not. The study covers 1990 to 2014. A reasonable estimate (not accurate by any means) is that the US economy is a $20 trillion a year one. The global economy over that period a $75 trillion a year one. Over 24 years that’s $500 trillion (rough numbers!) or $1,800 trillion. The damages are thus 0.4% of the US economy over the time period, or 0.1% of the global one.

It’s possible to start the argument back by noting that these are not really material numbers.

We then want to know what is the cost of stopping this near immaterial damage and that’s a big enough shouting match that we’ll leave that one aside for today.

But the really big thing is that it should always be a cost and benefit analysis. Has the existence of the US in the global economy been worth 0.1% of that economy over that quarter century? Have, for example, the flood of inventions - most of the internet and much of computing stems from there after all - added 0.1% to global economic production?

We’d say, on the face of it, obviously and clearly. But that’s not quite the point we wish to make here. There are costs and benefits to everything. Therefore we need to measure, before any decision making, both in order to be able to decide. For it’s the nett effect that matters, no?

Bank independence is an efficiency move

It is, of course, possible to argue for the end of central bank independence. Returning control of money and interest rates to politicians would put both monetary and fiscal policy where it - arguably - should be, within democratic control. It is possible to argue this way because many do. It is also true that this is the argument in favour of central bank independence. That monetary and fiscal policy should not both be under the control of the politicians.

The governor of the Bank of England has stressed the importance of its independence amid criticism from some politicians about its handling of soaring inflation.

There is a simple efficiency argument here. With an independent central bank action to curb inflation is more effective. The markets - for whatever reason - believe central bankers’ efforts to control the beast more than they do those of politicians. This inflation is curbed with lower interest rate rises than is the case if all were under political control. This also extends to periods when there is no or little inflation, the precautionary interest rates against its emergence seem to be lower too.

It’s entirely possible, as above, to argue that this should not be so. That all should be singly controlled. It’s just that that’s not the way the world out here observes matters.

The populace seems to believe a central banker’s raised eyebrow more than they do the heartfelt promises of some grinning politician. And while that may not be how democracy should be viewed in theory given actual experience it’s difficult to argue against the good sense encapsulated there.

Portugal's drought reduces the fire season, not increases it

We’re getting our annual series of reports on the fire season in Portugal, Spain, Greece and so on. This is mixed in with reports of high temperatures and drought. We just thought it might be worthwhile emphasising what such reports don’t - drought reduces the fire season, high temperatures make no difference.

Wildfires in Portugal have left 29 people injured as thousands of firefighters and dozens of aircraft battle the blazes. Authorities said 12 firefighters and 17 civilians required medical treatment for minor injuries, as reported by the Portuguese state broadcaster RTP and local media. By Sunday afternoon, Portugal’s civil protection agency said more than 3,000 firefighters were tackling active blazes. The country is enduring a heatwave that is due to worsen, with temperatures expected to reach up to 43C (109F) on Tuesday. On Sunday, the EU activated its firefighting air fleet assistance programme, which allows member states to share resources to help Portugal.

Thousands of firefighters, yes, the Bombeiros here is a voluntary organisation mostly paid for by charity collections at roundabouts, supermarkets and the like. It’s also something that large numbers of adults join precisely so as to provide cover for the fire season*. For it is a fire season that comes around every year, starting right about now. There has in fact been a substantial reduction in the number of fires in recent decades. But that’s because the automatic granting of building and development permission in forests burnt down has stopped. Perish the thought but perhaps some of them used to be started in order to gain the development permission.

It’s also worthwhile understanding what drives the fire season. High temperatures don’t - scrub and forest is not notably more flammable at 43 oC than at 39 oC, so those peak temperatures of a heatwave over more normal temperatures make little difference. Wind, of course, makes a difference to the speed of spread.

The art of firefighting here is that if it’s out in the country then monitor but let it burn - it is that natural part of the ecological cycle here after all. Isolated houses and cottages will be allowed to go up with it too. It’s only when the flames threaten substantial settlement that actual fighting of it occurs.

Drought though reduces the size and intensity of any fire. For the cycle here is of rain in the winter and plant growth during that winter and early spring. By now - this mid-July - there’s been no rain for months as an entirely usual part of the cycle, the plant life is dried out and largely already seeded and dead. This produces the tinder the fires feed upon.

What produces more tinder and thus a stronger fire season is a wetter winter - the increased rainfall leading to greater growth which is by this time of the year ready to burn.

Portugal is indeed going through a drought, the reservoirs are low. But it is exactly this which leads to a lesser fire season - there’s less of that winter growth now dry and ready to burn.

It’s possible - we take no view on this - that the drought is caused by climate change. It’s equally possible that the high temperatures are also so caused, again no view taken. But the fire season is normal, the drought reduces the intensity of the fires and so, if it is indeed all caused by climate change then the net effect is a reduction in the damage done by forest fires, not an increase.

Which isn’t something that the more general press coverage of the issue tends to suggest now, is it?

*An estate agent once apologised for a delay in concluding a transaction, saying that he and his entire office had been out helping to deal with this. That’s what happens, community mobilisation - the supermarkets had systems whereby shoppers could purchase bottled water for the firefighters in the same way that food bank collections are made.

It's possible to think this is slightly misleading about Apple's tax bill

Clearly it’s possible to think so because we do think so:

Apple used an employee stock option scheme to reduce the tax bill of its retail division to £796,000 last year.

Well, let’s say that we’d not quite put it like that.

The company’s UK retail arm, which spans 38 shops, made pre-tax profits of £38.2 million on sales of £971.5 million in the year to September 25. The tech giant minimised its tax bill by £9.2 million after an increase in its share price led to a £30.3 million share-based payout to employees — a tax deductible expense.

There’s a little oddity here. Paying the staff is, obviously enough, a cost of being in business. So, it’s equally clearly a tax deductible expense. Paying staff with shares is a standard part of the tech industry structure.

We’re also all entirely happy with share based compensation of course. It’s reducing the expropriation from the workers if they get a share of the capital value of the profits extracted from their labour, isn’t it?

But there is that oddity. If the staff were paid wages then that would reduce the reported profit of the company. But if they’re paid in shares then the reported profit stays high, the costs of the shares are a deduction against those profits. The end result is - largely enough - the same. Gross profit is so much, staff compensation is so much, taxable profits end up being the same and so does the tax bill. It’s just that the profits are reported in slightly different ways and so it looks as if there’s some grand deduction from tax as a result of the share based compensation. When it’s entirely normal that staff compensation is deducted before gross profit becomes the net that is then taxed.

It is true that the corporation tax bill is reduced by paying staff in shares - but it would also be reduced by paying them in wages. We’d thus suggest that it’s possible to think this misleading reporting on Apple’s corporation tax bill.

Richard Murphy, professor of accounting at Sheffield University’s management school, said he believed that Apple had claimed the full available tax relief from the scheme, without reflecting all the related costs in its accounts.

Ah, yes, we’d gently suggest that the Sunday Times be ever so slightly more selective in their choices of source on taxation stories. Some people are better at explaining the details of reality than others.

So Germany really does want to broil Flipper in the fumes of the last ice floe then

This is not, in fact, a complaint about climate change nor even policy concerning it. This is, instead, an example of what we wish to complain about. The inability of scientific planning to be done according to the science, for the obvious reason that it’s always politicians, thus politics, that determine the planning.

Buried deep in the entire climate change edifice is a series of socioeconomic models, first fully explained in the Special Report on Emissions Scenarios. Some 40 variations are used to explore possible futures. The importance here being that before any computer model looks at the effect of emissions it’s necessary to work out how many emissions? How many people will there be, how rich will they be and how will they be powering that society that makes so many of them that rich?

As has been pointed out elsewhere there’s a hugely important point in here. If the world carries on along the A1FI path then Flipper does indeed get broiled in the fumes of the last ice floe. If instead A1T is followed then climate change is a minor enough, chronic, problem that fades away in time to miss such apocalyptic end times.

A1 denotes the continuation of globalised free market capitalism. Matters proceed much as they have done. Fertility, thus population, responds to rising wealth as we’ve seen it do in the rich nations already. Economic growth continues its steady pace. The poor become rich - convergence happens. Technological advance continues as it has done this past couple of centuries - much the same statement as economic growth continues.

The big difference is between that FI and that T. The actual description of the difference being that the T leads to continued efficiency in energy production and consumption, solar cells continue to decline in price and so on. FI indicates that - and this is expressly pointed out in the basics of the model - resources of conventional oil and gas run out, unconventional resources are not used and the world turns back to coal to power itself.

A1FI is now renamed in the current suite of models as RCP 8.5. A1T is not represented in that current suite as, perhaps, the idea that things will largely take care of themselves doesn’t suit the model makers. But we are not being excessively partial in our descriptions there. That really is the difference between the two and the outcomes. Turn back to coal and Flipper gets broiled in those fumes of the last ice floe. Use unconventional oil and gas as a bridge to that renewables and low emission future and he doesn’t.

Germany’s two houses of parliament have passed emergency legislation to reactivate mothballed coal-fired power plants in order to support electricity generation amid fears of gas shortages as Russia curbs capacity.

The move has been described as “painful but necessary” by the government’s environmentalist economics minister, Robert Habeck.

Germany, as with most of Europe, has banned the exploitation of unconventional oil and gas - the other name for which is fracking. So, when conventional oil and gas are unavailable, the return is to coal. This is exactly the policy that the SRES, therefore the entire structure and logic of climate change science, warns us against. But this is also the output of those trillions of euros spent upon the Energiewende - the scientific planning of the response to climate change.

Again, this is not a specific complaint about climate change. Rather, it’s using this as an example of the larger point - scientific planning isn’t scientific. That planning process in Germany, as elsewhere, ignored the science itself and hared off after political goals, directed by politicians. Which is why it has failed even in its own terms.

Scientific planning doesn’t work because it never is actually driven by the science for it is always a political process when politics does the planning.

We can add all sorts of other critiques, like the knowledge base necessary to plan doesn’t exist, the illiberality of everyone being told what they must do and so on. But even if those don’t appeal as reasonings it is still true that the idea doesn’t work. Because science never is the driver of the plans.

Our proof being that Germany’s politics has spent trillions supposedly to ensure that Flipper doesn’t get broiled in the fumes of the last ice floe and yet German politics has ended up with the one, single, policy that ensures Flipper will get broiled in the fumes of the last ice floe.

Politics just isn’t a good way of doing things now, is it?

When prices get obscured so does their information

This sounds like good news:

The price of offshore wind power has fallen to a record low amid growing competition among developers in a boost to Britain's attempt to ditch fossil fuel imports.

Developers have agreed to build new farms for a guaranteed electricity price of £37.35 per MWh, beating the previous record of £39.65 per MWh set in 2019. The prices have fallen more than 65pc since 2015, when they were almost £120 per MWh.

Gosh, how jolly. So, that seems to be that problem dealt with and we can all stop worrying then, can’t we?

Except that’s not actually the end of the matter. There’s still intermittency to deal with even if that’s not our point here. This though is:

Britain’s power networks need at least £54 billion of investment to connect up new offshore wind farms this decade, according to National Grid.

Hundreds of miles of onshore cabling will need to be built as part of the plans set out yesterday, which would represent the biggest investment in Britain’s electricity transmission networks since the 1960s.

That £54 billion is clearly a cost of offshore wind. Yet it’s not being included in those costs of those offshore wind contracts.

Prices do contain information, hugely valuable information. Which is why we’ve been so insistent over the years that the way to deal with this problem is via clear and transparent - and just the one - intervention into the price system. Instead of this motley collection of planning decisions which - and we don’t think we’re being too cynical in saying this - seems deliberately designed to obfuscate. To cover up, rather than reveal, the information that prices could convey to us.

Given that prices are information it’s always worth asking why folk won’t let us see clear and simple prices. That they’re trying to make sure we don’t get the information is a useful starting point for the rest of the discussion, no?

The problem with scientific planning

This is interesting news, no doubt about it, but it does contain a flaw:

Deep within the Precambrian basement rocks of the Earth, groundwaters can sustain subsurface microbial communities, and are targets of investigation both for geologic storage of carbon and/or nuclear waste, and for new reservoirs of rapidly depleting resources of helium.

Finding life down there is fascinating, that life living off the hydrogen created.

However, the implications for helium supply are precisely and exactly zero. Which should worry those who believe in scientific planning of things - if the science doesn’t know then how can it be used to plan?

The Earth’s original complement of helium boiled off into space billions of years ago. There’re some 3 parts per million in the atmosphere which could be extracted at vast, vast, cost (the same way neon, xenon and so on are captured, just keep liquefying air in a distillation process). But where does that come from? From this radiogenic process. A helium nucleus is an alpha particle, this is a common enough product of the radioactive decay of uranium and thorium. There’s a lot of those two around, therefore there’s a constant stream - perhaps whiff is better - of helium being created.

Which is also where we get helium from today. Some of that created seeps through into the atmosphere, soon to boil off into space - the 3 ppm concentration is the balance of the creation and boil off processes and is a constant. But some gets trapped into natural gas reservoirs and we extract from those. True, the wells we’ve historically used are getting tapped out, but we know of at least 6 stock market companies exploiting other areas (Saskatchewan, Tanzania, come immediately to mind) and given that LNG is the distillation of natural gas that’s the largest new source.

Our point being that this is not, in fact, the discovery of new reserves (they’re resources anyway but that’s a technical description). Rather, the entire industry knows this, acts upon it and this is where we get our supplies from anyway.

Contrast this with all those recent shouts that helium is running out, is an irreplaceable and limited natural resource and no one may ever again have party balloons.

Political policy tends to be based on those scientific findings, not industry practices. Which is the problem with scientific planning - it often doesn’t know what industry already does.

We will admit to having been amused by those cries of helium exhaustion. It’s the one non-radioactive element we use in quantity that is continually created anew here on Earth. But that amusement does rather turn to horror when we see planners attempting to use their scientific ignorance to demand that the one element we’ve a continual supply of is running out.

Adam Smith at Oxford

Today marks the day in 1740 when the 17-year-old Adam Smith set off from his family home in Kirkcaldy to take up a scholarship at Balliol College, Oxford. 

He had always been a gifted student, in school and then at Glasgow University, which he entered at the age of 14, and where he was greatly influenced by the great moral philosopher Francis Hutcheson — libertarian, rationalist, utilitarian, plain speaker and thorn in the side of authority. 

The journey to Oxford took him a month, on horseback. If thriving, commercial Glasgow had been an eye-opener to a boy from provincial Kirkcaldy, England was more like a different world. He wrote of the grandness of its architecture and the fatness of its cattle, quite unlike the poor specimens in Scotland.

Yet the English university education system did not impress him. Indeed, it gave him an important lesson on the power of perverse incentives, which he would catalogue acidly in his great 1776 work of economics, The Wealth of Nations. 

The problem was that Oxford teachers were paid directly from college endowments, not from students’ fees as they were in Glasgow. It hardly encouraged their interest in their students. “In the University of Oxford,” wrote Smith, “the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching.” 

College life, he observed, was contrived “for the interest, or more properly speaking, for the ease of the masters.” There were disciplines aplenty on the students, of course; but none on the teachers. But “no discipline is ever requisite to force attendance upon lectures which are really worth the attending,” rare though those were. Indeed, it was “well known” among the students “wherever any such lectures are given.”

Smith was becoming, not just an economist, but a social psychologist. The perverse incentives upon the Oxford teaching staff, he recognised, were just one example of a more general human trait: “It is the interest of every man to live as much at his ease as he can; and if his emoluments are to be precisely the same, whether he does, or does not perform some very laborious duty, it is certainly his interest, at least as interest is vulgarly understood, either to neglect it altogether, or, if he is subject to some authority which will not suffer him to do this, to perform it in as careless and slovenly a manner as that authority will permit.”

And institutions like universities, he noted, “are likely to make a common cause, to be all very indulgent to one another, and every man to consent that his neighbour may neglect his duty, provided he himself is allowed to neglect his own.” 

Like other students, therefore, Smith learnt little from his Oxford teachers. Yet, thanks to Balliol’s world-class library and his own love of reading and learning, Smith was able to educate himself in the classics, literature, and other subjects. He left Oxford in 1746, before the expiry of his scholarship, to return to Kirkcaldy, where he began to write essays and articles that would make his reputation and launch his academic career.

Today, a small bronze bust of Adam Smith, created by the distinguished Victorian sculptor Carlo Marochetti, is preserved in Balliol College. What Adam Smith thought of Oxford, however, is preserved in an even more permanent form: his cutting words on a failed education system that so badly let him down.

Business vs. Free Markets

A new Savanta ComRes opinion poll from the Centre for Enterprise, Markets and Ethics makes some interesting reading. They asked members of the public, as well as church and business leaders, what they thought about business and its contribution to human welfare. The results are disturbing, especially if you support free market economics.

Do people trust businesses? Not much, it turns out, though the level of trust in small and family-run businesses is very much greater than that in large companies in general and multinationals in particular. 

When asked if business should be taxed more, 49% of the public and of church leaders agreed. But remarkably, 60% of the business leaders thought that businesses should be taxed more. Likewise, when asked if business leaders were paid too much, 64% of the public and 75% of church leaders said yes, but so did an amazing 70% of business leaders. 

When asked if they thought profitable businesses were incompatible with societal happiness, minorities of the public (37%) and church leaders (20%) agreed, but a clear majority of the business leaders (60%) thought profit and happiness incompatible. And the larger the business, the bigger the majority was.

Business leaders think they are paid too much, don’t contribute to human happiness and should be taxed more — what’s going on here?

The report’s authors do not speculate, but I’m happy to. It could be that large businesses have become large bureaucracies. So, executives do not think of themselves as running an enterprise that brings benefits to everyone by delivering great products and services, but see themselves as mere functionaries in an institution that just rumbles on making them money. Small and family business owners have to be very aware of the needs and demands of their customers, and of how much they love or hate those products and services. As owners of the business, their fortune depends on it. But company legislation has taken shareholders, the owners of big businesses, out of the management of those companies and handed it over to an executive class.

That is why it is no good saying we have to defend capitalism. That would just be to defend the very distorted form of capitalism that our political system has created. And people have already rejected that. We could do a lot to restore faith in capitalism, though, by getting rid of the distortions.

I’ve already mentioned the power of executives over shareholders. We also tax firms in perverse ways that promote the growth of big companies, but make life much harder for small companies and pretty much kill off family firms. That is, the tax system creates the sort of capitalism that people distrust and stifles the sort they trust. Over-regulation of things like banking once again promotes gigantism and strangles competition — big firms can afford big compliance teams and small ones can’t. In fact, big firms rather like regulation: they say it helps keep markets clean and sound, but in fact they know that regulation will kill off smaller, nimbler competitors.  

I don’t think we free marketeers should be too downcast about these poll figures, therefore. People will trust capitalism if it is dominated by diverse customer-focused firms rather than a few big oligopolies. Undistort capitalism, and they will come. Our job is not to defend business as it is, but free markets as robust as they can be.

Not really, no, there are two types of evolution

We’re told that:

Britons are evolving to be less well-educated and poorer because smart rich people are having fewer children, a new study has suggested.

Researchers have found that natural selection is favouring people with lower earnings and poorer education, with the next generation likely to be one or two percentage points lower in educational attainment than today.

Evolution also appears to be favouring people with a high risk of Attention Deficit Hyperactivity Disorder (ADHD), major depressive disorders and coronary artery disease, as well as younger parents and people with more sexual partners.

Prof David Hugh-Jones, lead researcher from University of East Anglia’s School of Economics, said: “Darwin’s theory of evolution stated that all species develop through the natural selection of small, inherited variations that increase the individual's ability to compete, survive and reproduce.

Darwin probably does explain ADHD, depression, coronary arteries and clearly sexual voracity is going to have an influence. But propensity to education? That’s a cultural thing, not genetic, and is therefore Lamarckian, not Darwinian.

It’s still of interest of course. Greg Clark’s “A Farewell To Alms” is based upon the idea that the bourgeois outbred the proletariat, but it’s the cultural inheritances which mattered, not the genetic. So, we might indeed claim that the reverse is true now.

But then if education is something that reduces evolutionary success then perhaps we’ve got too much of it? We’re above that optimal point in the quantity delivered?

A cheeky - but still containing a certain truth - proof of this being that the stagnation of the British economy that folk shout so much about correlates with the expansion of the university system. Pulling the young out of doing something productive for three years only works if what is learnt then increases productivity for the rest of the working life.

This not something greatly in evidence. Arts degrees for men, for example, on average reduce lifetime earnings. Grievance studies of near any kind reduce lifetime earnings - they’re unproductive investments that is. Another test would be the rate of student loan repayments. Some vast percentage of them aren’t, given that the holders of these degrees don’t manage to raise their incomes even to median UK income as a result of that education.

All the measures that we have of the economic productivity (without saying anything at all about whether it’s nice to have three years as a student) of education say we’ve got too much of it at present.

Add in that reduction in fertility which is reducing that cultural, Lamarckian, inheritance which was, as Clark insists, the very cause of the rise of the economy in the first place and it would seem that we’d do well to reduce the amount of education in society.

Of course, this has been said before as Kingsley Amis pointed out, more means worse. A useful proof being those who have been hired to teach at Islington Technical College once it was upgraded to a “university”.