The oddity of economic othodoxy being what absolutely no one is doing

The IMF gives us the entirely standard economic orthodoxy here:

Ministers should allow heating bills to soar to encourage energy conservation and accelerate the push to net-zero carbon emissions, the International Monetary Fund (IMF) has claimed.

The global lender of last resort urged governments not to subsidise household energy costs, as it insisted that usage must come down amid fears that Vladimir Putin will cut off gas supplies this winter.

It said that artificially reducing energy bills would only make the looming crisis worse by increasing the risk of shortages, as well as encouraging reliance on fossil fuels.

Oya Celasun, the IMF’s Europe assistant director, said: “Governments should let retail prices rise to promote energy conservation while protecting poorer households."

European countries have rushed to prop up households facing a huge shock to incomes from the surge in energy bills.

However, cushioning the blow to family budgets means many are less likely to cut back on energy usage. That would stop demand falling back in line with supply, keeping prices higher for longer and helping to fund Mr Putin’s war machine.

Ms Celasun added: “They should allow the full increase in fuel costs to pass to end-users to encourage energy saving and switching out of fossil fuels.

“Policy should shift from broad-based support such as price controls to targeted relief such as transfers to lower-income households who suffer the most from higher energy bills.”

She said that mitigating the hit to households “keeps global energy demand and prices higher than they would otherwise be”.

Subsidising demand in a time of dearth is stupid. Taxing supply in a time of dearth is equally ludicrous. But of course the political demands are all let’s tax the suppliers and then push down energy prices. But, dummkopf, we’re in a time of dearth, which is exactly when we do not wish to be reducing supply and increasing demand.

We not just desire but positively lust after people being exposed to the changes in prices. Because those prices are the very things which change behaviour which will aid in dealing with the dearth.

Now of course this does then lead to an outbreak of Bob Cratchits and really, we could all do without an epidemic of Tiny Tim mawkishness at this time of year. So, the answer is to subsidise - if any subsidy is necessary - incomes. People exposed to the higher prices will still economise upon energy consumption, the thing we need, but it is possible to limit the knock on effects on other forms of consumption like food and branded sneakers.

Or, as we’ve been known to point out, never, ever, subsidise things, subsidise people instead.

That this isn’t what government (s) is (are) doing is just further proof that allowing governments anywhere near economic policy is a mistake. But then we knew that.

But why does anyone want the oil companies to build renewables?

We do rather think that people need to grasp the basics of this free market idea. Which is that people may - that’s the free part, d’ye see? - enter the market with whatever their idea is. From pet rocks to geothermal power systems, have at it, see if it works. The corollary of this is that old companies get to continue to do whatever it is - free, recall? - and the competition is between the different ideas. Which do we, the consumer, end up buying from and thus the idea that whoever we, the consumer, desires most wins.

Oil firms seem more interested in shareholders than net zero

Analysis: Is the energy industry willing to invest in renewables rather than dividends and buybacks?

So why this insistence that oil companies must build windmills? There’re technical reasons why not of course. Being able to stick a straw in a reservoir is a different skill set from managing a grid load and there’s no reason to think both will exist inside the same organisation. We might even assume that given the differences in skill sets we’d do better having different organisations undertaking the tasks.

As far as we can tell it’s that some substantial number of people think there’s something special about “a company”. Which is, in fact, just a legal wrapper around a certain set of economic assets. If we require different assets then a new company, why not? If we desire to repurpose assets, then a new company, why not? If we want to do something different then a new…..and so on.

Another way to put this is that the oil companies are optimised to perform one task. We desire to do a different one - there’s no reason at all to think that the oil companies are optimised to do that new task. No more than we’d expect BMW’s car factories to be good at running an airline - which are, note, both forms of transport.

If it’s true that we no longer require or desire - no, “if” - oil companies then let them go into run off and eventually cease to exist. The new energy methods could and should be produced by the new organisations optimised to do exactly that. Oh, and the profits from the old and declining industrial method be paid out to shareholders so that they can redeploy into those new.

We do think this insistence that the old organisations must do the new thing is based upon not understanding the free part of free markets. If new thing must be done then let’s have new market entrants doing them. The old can go bust in their time.

It's not that we're hopelessly cynical

We prefer to think of it as being appropriately worldly wise:

“There are plenty of reasons to believe climate change could become catastrophic, even at modest levels of warming,” said Dr Luke Kemp at the University of Cambridge’s Centre for the Study of Existential Risk, who led the analysis. “Climate change has played a role in every mass extinction event. It has helped fell empires and shaped history.

If people are employed to study existential risk then existential risk to study will be found.

“Facing a future of accelerating climate change while blind to worst-case scenarios is naive risk management at best and fatally foolish at worst,” the scientists said, adding that there were “ample reasons” to suspect global heating could result in an apocalyptic disaster.

The international team of experts argue the world needs to start preparing for the possibility of the climate endgame. “Analysing the mechanisms for these extreme consequences could help galvanise action, improve resilience, and inform policy,” they said.

Analysis. Yes, and we’re sure that those who study existential risk have some extant group who should be funded to study this existential risk. Further research, as they say, is required.

We would just like to point out one little thing. All those climate change models, all of them - even the RCP 8.5 disaster that we know isn’t going to happen already - already include feedbacks. The predictions are of the end state after the interactions, not before those tipping points that lead to runaway (cont pg 94).

But then as we say we’re appropriately worldly wise, not cynical at all.

As we've been saying about Tata, Port Talbot and subsidies - No!

There is no good reason to be giving them any money:

Britain’s steel industry – the country’s manufacturing backbone – faces a reckoning as it attempts to play its role in tackling climate change.

Some £6bn is needed to slash carbon emissions in the steel industry and switch to electricity or hydrogen. Large players are turning to the government for help to avoid being pushed to the brink.

Earlier this month, Tata Steel UK, the owner of Port Talbot in South Wales, raised the prospect of closing the sprawling steel works if help from Whitehall doesn’t materialise.

The company, owned by India’s Tata Group, wants £1.5bn – about half the estimated budget to make the site green. Port Talbot, and British Steel’s Scunthorpe Steelworks, both use carbon-intensive blast furnaces.

We have indeed mentioned this before. But there is no - none, zip, nada - excuse for giving money to Tata at Port Talbot. A technical analysis for those who like such things:

Therefore, to decarbonize UK’s steel industry and reduce its reliance on coking coal, scrap-based Electric Arc Furnace (scarp-EAF) process, which is around three times more energy efficient than producing steel from iron ore, will likely be required to replace the role of integrated BF-BOF. In this process, ferrous scraps are recycled by melting them in an arc furnace using progressively cleaner electricity to produce secondary steel. This secondary method abates the requirement of mining new iron ore and using unsustainable coking coal, thereby reducing the carbon intensity of the steel making process.

However, despite the high steel recycling rate of 85% in the UK, scrap-EAF only accounts for 21.2% of UK steel production. In fact, only 1.7 million tonnes of the UK’s domestic ferrous scrap is used to produce steel via this process, thereby leaving the UK to net export 8.3 million tonnes of ferrous scrap annually. This means that the UK has a good growth opportunity for this form of coking coal-free production as it is well endowed with scrap resources.

To pull that out of the technicalspeak. There are three basic steel making technologies. Blast furnace - basic oxygen furnace (BF-BOF), direct reduction iron (DRI) and electric arc furnace (EAF).

Tata at Port Talbot uses the first. To be less carbon intensive it should - perhaps - more to one of the other two. If it were to go to DRI fed by green hydrogen then that would solve the carbon problem. This is also a technology not quite ready for prime time - the lack of green hydrogen is the limiting factor at present.

But Tata is not suggesting they move to that. Instead, they want to be subsidised to move to the third. EAF. This uses scrap as the input, it doesn’t actually make primary, or virgin, steel from iron ore at all. There is therefore no - none, zip, nada - argument in favour of subsidy. EAF is hugely less capital intensive. It costs less as well. There’s plenty of feed for it already in the UK and will be for decade upon decade.

Finally, there are some steels that you can’t make in an EAF furnace. Which means there might - possibly and just about you understand - be a possible argument for subsidy to maintain that domestic capacity. But if the subsidy is to move to EAF anyway then that argument doesn’t exist either.

Tata is trying it on. The correct answer to someone trying that on the taxpayers’ bill is a ripe volley of Anglo Saxonisms.

No. Other than that Tata would rather like to gain a subsidy there is no coherent argument for Tata to gain a subsidy for Port Talbot. They can and should pay for their own electric arc furnaces.

Good-oh! The water companies might go bust, how excellent!

Very serious people are being very serious about a very serious problem of great seriousness:

Heavily indebted water utilities are at greater risk of collapse as interest rates rise, the industry regulator has warned.

In a stark admission, Ofwat said companies that have piled on debt could go under, piling further pain on households at a time when bills are already soaring.

David Black, chief executive of Ofwat, said it was keeping a close eye on the impact of rapid rate increases from the Bank of England, which could heap costs on highly leveraged water companies.

The bit that’s being missed here - as everyone is being very serious - is that this is the point.

Capitalism does indeed produce returns for the capitalists if they get the process right. Capitalism also comes along and steals all their capital if they get it wrong. Which is the great glory of the capitalist system - screw up and you lose. Something which keeps folk on their toes trying not to screw up so that they don’t lose.

The system thereby contains two incentives which other systems don’t - rewards for getting it right, punishments for getting it wrong. Given how human beings work it’s therefore the system which pays more attention than any other to trying to get things right and not wrong.

If the water companies do go bust then the reservoirs, pipes, sewage plants will still exist. It’ll just be the capitalists owning the current legal wrapper - and employing the managements which led to the business collapse - who lose. Which is excellent, isn’t it?

A system whereby mismanaging the finances of the water system led to there being no water would, of course, be appalling. Which is why we’ve this circuit breaker in the system, the capitalists and their cash. They screw up they lose. Someone else then owns those assets and we can rinse (ahem) and repeat as necessary.

Or, as we can put it, yes there’s a serious problem here and we’ve already solved it. If the water companies go bust then great - that’s the point of the system we’ve installed to manage the water companies. You know, foolish management and their money are soon parted etc.

Polly Toynbee's Lament

Polly Toynbee has spent an entire lifetime shouting that we must all be more like Sweden. That she doesn’t know how Sweden works - more wealth inequality, a more viciously free market economy, than we have - hasn’t dimmed her enthusiasm. But here we get to the heart of her lament, in her words:

Taking the pulse of the world, Ipsos Mori finds us exceptionally mean-minded. Across the world, poverty and inequality come a close second in global public concerns, after inflation. How about the UK? Here we really don’t care much. We rank inflation as our top worry, but poverty and inequality are in a lowly joint fifth place in our concerns.

That’s who we are.

Britain is not Sweden, as we might put it. Or even, Britain is not a socially democratic nation, one that puts those poverty and inequality questions at the top of our worries. Therefore they shouldn’t be the things that politics concentrates upon simply because they’re not the things that we, the people, worry about.

This is a democracy, right?

Polly’s Lament also illustrates Polly’s Tragedy of course. She’s simply spent all of these decades lecturing the wrong nation. Others might have been more receptive to the message - but then equally, those other places which share her worries wouldn’t offer a position as lecturer for her, would they?

Blow up the Green Belt. Proper blow up. Entirely Kablooie

From James O’Malley on Twitter:

Something I didn’t fully realise until I saw this map just now is that the Green Belt doesn’t include most of the countryside - it’s actually almost laser-focused on strangling our most important cities.

It’s not just laser-focused, that’s the entire point.

It’s rather nice to be able to live looking out over rolling acres - without the cost of actually having to buy or own them - and still be able to commute into those vibrant city centres where upper middle class incomes are made. So, the law is there to ensure that upper middle class types may have that house looking out over rolling acres - without the costs of buying them - and still be able to commute into those vibrant city economies.

That the rest of us can’t live in housing we’d like to live in located where we’d like to live is just that collateral damage that has to be suffered to provide that rolling acre benefit to the few. What did you think this is, an economic democracy?

There is the obvious solution to this as well. Blow up the Town and County Planning Act 1947 and successors. Proper blow up, entirely Kablooie. At which point housing that Britons wish to live in can be built where Britons wish to live. Which is, we insist, rather the point of any sensible planning system to be applied to Britain.

Damn the would be gentry and blow up the Green Belt, proper blow up, entirely Kablooie.

Strokes and why the NHS isn't a good health care system

We’re told that the NHS doesn’t treat strokes well:

The procedure can reduce hospital stays by months. Some patients have been able to leave hospital the next day, instead of spending months in rehabilitation units.

Stroke specialists say a 24/7 service would save £73m a year due to the reduced costs of looking after people with stroke. But just 25% of thrombectomy centres operate as such, while 42% are only open from Monday to Friday during office hours, the report says, in part due to a lack of biplane suites, which contain specific radiology equipment.

Juliet Bouverie, the chief executive of the Stroke Association, said: “Thrombectomy is a miracle treatment that pulls patients back from near death and alleviates the worst effects of stroke.

The coverage rate is apparently some 0% in some areas outside London, up to 8% inside it.

It’s true that mechanical thrombectomy is a fairly new treatment, full trials showing effectiveness seem to have been completed in 2015 and 2018. But then this is exactly what ails the NHS - the length of time it takes new and better treatments to come into general use.

The American experience is of “The percent of patients with AIS receiving IAT increased from 1% in 2008 to 5.3% in 2018 (p>0.001).” They reached a much higher level ( yes, 5% of all is greater than the 0-8% range across Britain given that London isn’t by any means the majority of population) 5 years earlier than we did.

Which is exactly the NHS problem - productivity. Fortunately, we also know how to increase productivity. That comes from competition. No, it doesn’t have to be like the American health care system, it can still be tax paid, it’s that the organisations doing the actual work need to be competing to produce the finest results possible with the currently available technologies. That’s what does spark the adoption of the newly available and better - more productive - technologies over time. It’s also a self-sustaining process, it will apply to each and every new technology as one comes along.

That’s the argument for markets within the NHS. That they makes the system more productive, better, over time.

Or, even, markets in the NHS will stop some to many dying from mortality amenable to treatment, the one measure by which the NHS does appallingly in international comparisons.

Karl Popper, a philosopher of freedom

Exactly 120 years ago, on July 29th, 1902, one of the most remarkable and influential philosophers of the 20th Century, Karl Raimund Popper was born. As a teenager in Vienna, Popper was attracted by Marxism, and at one stage thought of himself as a Communist. What disillusioned him was the realization that none of the precepts of Marxism could be tested.

He formed the view that there was a difference between the ideas of Marx, Freud and Adler, and those of Einstein. Einstein’s theory of relativity could be tested by observation, and indeed was tested by Eddington’s experiments in 1919. By contrast, those of Marx, Freud and Adler could accommodate everything that happened; there was nothing that could happen in the observed world that could refute them.

This led Popper to the ideas he published in his 1934 “Logik der Forschung,” published in English in 1959 as “The Logic of Scientific Discovery.” Here Popper advanced his central notion of falsification. He said that although a theory could not be proved true, because an experiment might one day come along to refute it, it could be proved false if an experiment contradicted its predictions. Einstein’s theory could have been refuted, but wasn’t, whereas those of Marx, Freud and Adler could not be subjected to experiments that might refute them. They represented a determination to interpret the world in certain ways, rather than being capable of adding to our knowledge of it.

Popper solved Hume’s problem of induction. We expect the sun to rise each day because it has done so every day so far, although there are no causal links to explain why the past indicates the future, and why induction is valid. Popper replaced induction by conjecture and refutation. We form a theory that the sun will rise tomorrow, and test it each day. If one day it didn’t, then our conjecture would be refuted. Our scientific knowledge is thus not what we know to be true, but the collection of theories that we have been unable to refute. Theories that cannot be tested like this are not necessarily nonsense, but they are not scientific.

Popper’s other great influential work was his 1945 “The Open Society and its Enemies,” in which Vol 1 was “The Spell of Plato,” and Vol 2 was “Hegel and Marx.” Popper called it his “war book,” but it remains one of the most powerful demolitions of totalitarian ideology ever written. Far from being interested in “justice” and “virtue,” Plato was in fact justifying rule by the superior élite, and is profoundly anti-democratic and pro censorship and thought control. As Popper says, Plato’s idea of virtue is “the ruler rules, the worker works, and the slave slaves.” And Hegel and Marx enlist fanciful notions of where historical destiny is taking us to justify oppression and control. Popper opts instead for “piecemeal social engineering,” by which we gradually improve our circumstances by building on what has worked and making it better by removing some of its shortcomings. Democracy is not about choosing those best fitted to rule; it is about removing those who are bad or incompetent.

I was never happy with Popper’s idea that things could be “proved” false, thinking it subject to the same flaws as “proving” them to be true. We can decide to discard theories that are less good than their rivals at enabling us to predict what we shall observe, but that is a conventional decision to reject them, not a “proof” that they are at odds with some objective reality. My 1978 “Trial & Error and the Idea of Progress” was about that.

I knew Popper, and once spent a pleasant day and a half pacing the streets and the beach at St Andrews in his company. He was, I think, the most intelligent person I have met, in a linear, logical, Newtonian way. Hayek was perhaps wiser, bringing a greater breadth of knowledge to his more considered answers. But the two were friends and saw eye to eye on almost everything.

Paying for the choo choos

A fairly emphatic statement in The Guardian:

The best railway in Europe is publicly owned, in Switzerland.

This all being part of a proof that public ownership is best. The thing is it’s possible to mumble something or other about the definition of “best”. For example, a quick look at the finances of SBB shows that 40 to 45% of the gross revenue of the system is taxpayer support. This is not a function of covid lockdowns, this is a permanent feature. CHF 4 billion to CHF 4.4 billion on CHF 9 billion and change turnover. Which is quite a lot of money from everyone flowing to those who buy train tickets.

By contrast (without the influence of covid) 99% of the operating costs of the British rail system are paid from ticket revenue.

Which leads to a fairly basic question. Who should be paying for the train system? Our insistence is that those who get to ride on the choo choos should pay for there being choo choos to ride upon. For that just seems eminently fair to us. Everyone using an alternative form of transport has to pay their own way, whether that be shoe leather, bicycle tyres or petrol for the car (and yes, to head that one off at the pass, fuel duty is vastly larger than the road building programme*).

Something like that Swiss level of subsidy would cost every man, woman and child in the UK around £150 a year. No, people can pay for their own transport, can’t they? After all, it is them getting transported….

*This is still true considering externalities of fossil fuel use. The IMF calculations are here. Chart on page 18.