The carbon tax is the cheap way to do it

Yes, yes, some don’t think it’s happening, others insist that leave be even if it is. But, leaping over those thoughts and to the important point, for we can all see that politics has its head up and the fools are going to do something. It’s then a duty to point out that the carbon tax is the cheap way to do it:

In 2023, the UK squeezed £52.5bn out of the economy in green taxes, a 4.9pc increase year-on-year, and it is now close to its pre-pandemic high. The revenue raised by green taxes has almost doubled since 2000. Within that, fuel duty is by far the biggest contributor, accounting for nearly £25bn.

The UK’s Emissions Trading Scheme – which seeks to reduce greenhouse gas (GHG) emissions in energy intensive sectors – now raises close to £6bn. Air passenger duty brings in £3.7bn, and the climate change levy – an environmental tax charged on the energy businesses use – close to £2bn.

OK. But what this tells us is that we already more than charge ourselves for climate change.

For, UK consumption emissions (no, not merely domestic production, but all consumption) are a shade under 600 million tonnes CO2-e a year. The Stern Review said that the appropriate carbon tax is $80 per tonne CO2-e. $48 billion a year, or £38 billion a year. But we already tax ourselves £52 billion a year for this same thing.

Well, OK, allow us just that tad of rhetorical excess in claiming that environmental taxes and the carbon tax are the same thing. But we’re pretty sure that £38 of that £52 is indeed upon carbon. And that’s before we get to all the other sillinesses like EV subsidy, boiler bans and all the rest.

We are already paying more than the cost of the Stern solution. Much more than the Nordhaus one. Very much more than the result from not quite swallowing the arguments about hyperbolic discounting and lower discount rates. But, given the political rhetoric that’s shouted at us, we’re nowhere near a solution.

Paying more than necessary but not achieving the goal? Ah, yes, that’s planning then, isn’t it? Exactly the thing that we’ve been told not to do. This is why the economists’ answer is that carbon tax - because it’s the efficient method of dealing with the problem as presented. Stick the answer into the price system and leave the market to sort out the rest.

Perhaps we shouldn’t worry all that much about the price when we’re out to praise Gaia - religious observance is often not really about costs after all. But that other economists’ observation (it’s in Stern for example). Humans do less of more expensive things, more of cheaper. Which is the reason that we have to be efficient about dealing with climate change - so that we’ll do more, not less, of it.

Shifting the UK from that current dog’s breakfast of plans to a simple carbon tax would be cheaper, more efficient and we’d end up doing more dealing with climate change.

Have we pointed out before that we prefer markets to political plans?

We, rightly, don’t do hypothecation of taxation

The amount that can be raised from taxing a particular activity bears no relation - none whatsoever - to how much should be spent upon some other activity. Therefore the tax - impost, charge, fee - upon any specific activity should not be devoted to some other specific activity. The British state has long said no to the hypothecation of taxation. It’s one of the - few possibly - things that the country gets right at that basic level.

A group of MPs are calling for a ticket levy on concerts at UK arenas and stadiums to raise funds for grassroots venues that are struggling with rising costs and the risk of closure.

No. That’s it, it’s as simple as that.

The amount that can be raised by packing the female teenage population of the country into the O2 for Taylor Swift bears no relation, at all, to how much - to use an example from the youth of one of us - Moles Club needs to stay open so that The Cure could play an early date there (alternatively one could have gone around to The Bell and seen early Tears for Fears, as, umm, one of us did).

No, think on it. If Taylor decides not to tour this year then does Moles need less money? Or she does, does Moles need more?

It is the hypothecation that matters here, not the idea of the taxation. These days - some will call it old bufferdom, others maturity - the idea of taxing Swifties, Cureists and Fears has a certain attraction. But that devotion of the money raised here to spend on this over there - no, that’s just not the right thing to be doing. Collect tax where possible, spend where necessary.

That you’re calling it a levy not a tax changes nothing about that logic. Tax concerts? Meh. Create an allocated pot of money? No.

George Monbiot doesn’t seem to know the facts here (Copy)

George Monbiot has a new book coming out, telling of the perils - no evils - of neoliberalism. There is something of a slight problem here, which is that George seems unacquainted with some basic facts about reality:

A vast amount of money has flushed through this country. Science has advanced by leaps and bounds; health and labour-saving technologies have greatly improved; we know exactly how to build good homes, treat sewage and improve democracy.

Instead (literally, in the case of our rivers) almost everything has gone to shit.

OK, rivers. England has had capitalist, profit seeking, water companies. Wales and Scotland varieties of non-profit and government owned. NI stuck with local councils then to government owned. The last time someone did a proper comparative study (OffWat, 10 years after these changes) prices had risen least, water quality in the taps risen most, effluent into the environment reduced the most, in England. Then Wales, Scotland and NI, in order of the march away from capitalism and profit.

For all the recent shrieking no one has in fact done a comparative study across the four systems. It’s entirely possible to say that England isn’t good enough, if that’s what you want to say. But is it better than the other management systems? That’s the important question and not one we’re being told - because there has not been that full comparative study. So to blame this all on neoliberalism is a bit difficult - as the best results we’ve got so far show that more neoliberalism does better.

Or:

If we keep working harder, one day we’ll pay for the public services we need; one day we’ll earn the economic security we crave; one day we’ll have more leisure time.

Hmm, leisure time. Anyone who tries to measure working hours without including unpaid labour in the household is going to get this wrong. And when we do proper time use surveys which do include all hours we find that leisure hours have been increasing. Divide the day into personal time (things others cannot do for you, sleep, washing, eating), household labour, market labour and leisure. The leisure hours are the balancing item after the first three. These have been increasing in these recent decades - heck, they’ve been increasing for centuries. And that’s before we get to longer childhoods and increased decades of retirement - both leisure in such a measurement. No group of humans, ever, has had as much leisure as the inhabitants of a currently rich nation - no, not even hunter gatherers (those estimations of 20 hours work a week are for food only).

Neoliberalism is an ideology that sees competition as our defining feature.

Snigger. A market transaction is a cooperation. Competition only comes into the decision over who to cooperate with upon which terms.

If George is so ungrounded in these basic facts then his critique of the world is going to have certain flaws, no?

We would like to be able to dig deeper into these flaws for you but for some unaccountable reason our review copy doesn’t seem to have arrived as yet. Tsk. We might even have to - shudder - buy a copy so that we can analyse it properly. Which, if necessary, we shall do, possibly even at book length.

If we could just remind people of supply side economics?

A basic problem outlined concerning the British economy:

Tax rises will follow UK election unless fiscal rules are ripped up, says thinktank

Unless government gets to spend lots, lots, (even, a lorra lots) more money without worrying about the debt created then the economy will never boom.

Or, government must take more of everyone’s money in tax so as to be able to spend it to create that boom.

After the general election, Niesr said a future chancellor would be faced with a choice: raise taxes to maintain the existing provision of public services or rewrite the rules so that they served the UK’s medium- and long-term needs and objectives – including raising the growth rate, levelling up the regions and greening the economy.

Not exactly and not wholly but useful as a way of thinking about it, this is to return to that Keynesian system used up into the 1970s. Government spending is the fount of all growth. It is that priming of the system, that forcing of growth through expansionary fiscal policy, which works.

If we could just remind everyone of the basic idea of supply side economics. No, that doesn’t mean just lower taxes for richer people. It means reform of the supply side of the economy. Remove the things being done which limit growth and watch growth come back.

One of those things might indeed be lower taxes on higher earners - people can indeed be subject to the substitution effect and decide to go fishing rather than work if their tax rates are, to them, “too high”. But there are many other things which also limit the growth rate of the British ecconomy. An insane planning system for example. It is not just the Town and Country Planning Act 1947 and successors which neads to go - which would produce, as happened in the 1930s, a very nice little house-building led boom. But interminable public inquiries that lead to it being vastly expensive to near impossible to build or do anything - that tunnel that’s got a page of paperwork for each 2 inches of the length of the tunnel for example.

Or, the ban on fracking - everyone’s looking at Argentina right now and agreeing that if Milei allows fracking there will be a boom. There was a boom in the US as fracking spread.

Or, to nutshell supply side economics - loosen the regulatory straitjacket and marvel at the growth that appears. We should do that. Again.

Gary's not really doing economics

Many will have heard of Gary, that former star trader who now gives us YouTube videos. And, well, one of the problems might be that Gary’s not really doing economics - he’s acting like a trader. He’s running on what people generally believe, not what is actually happening.

Take this particular video. The central claim is that the rich are getting all the money because inequality is growing. That’s why the mass of the population are worse off even as we have - anaemic, but still do have - growth.

Hmm, well, could be. The thing is, actually, it isn’t. We could look here, at the ONS numbers for the Gini. The country is (mildly) more equal than it was in 2007. Or to look at the long term here. The UK is markedly more equal than the average over the centuries. The low point for inequality was in the 1970s - which, as we all recall, were such fine economic times for the country.

It simply isn’t true that there’s been some recent mass outbreak of inequality. Sure, there have been many claims that there have been, to the point where we’re wholly sure that most believe that there has been. But inequality in the UK economy is about where it’s been for the past 30, 35 years.

It’s entirely possible to say that that’s bad. It’s possible to say it doesn’t matter very much, all sorts of things in fact, but it’s simply not true that this is something new, something of the past few years.

The art of trading is working with what people believe is true. Not, wholly not, what is actually true. We think that’s the little trap that Gary has fallen into there. Sure, everyone believes that inequality is soaring in the UK. Actually, it’s a little lower than the last time Gordon Brown was Chancellor. Traders work off what people believe is true - Gary was a trader. QED.

It’s true that we tend not to have quite the conniption fits some others do about inequality. It’s also true that we differ with many to most over the actually desirable level of inequality in a society - we’re really very sure that differences are necessary in order to provide incentives. But this here is about facts. The UK is currently less unequal than it was in 2007, both then and now being fairly mild variations on the levels of the past 30 to 35 years.

Those saying different are not in fact doing economics.

Happy 125th Birthday Friedrich Hayek!

On this day, in 1899, the Nobel economist and social theorist Friedrich Hayek was born. He was, in the words of Robert Skidelsky, “the dominant intellectual influence of the last quarter of the twentieth century”.

Hayek was the driving force that kept alive the spirit of personal and economic freedom that had been crushed by the Second World War and the Keynesian economic experiment that followed it. Those who think they can rationally design a better society, he argued, suffer from the ‘fatal conceit’ that we know far more about how society works than we really do. Governments simply could not collect and process all the information needed to run a functioning economy, because that information is dispersed, diffuse, incomplete and 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.

Societies do not need to be planned in order to be rational and functional. Their rules and customs contain a ‘wisdom’ that has stood the test of time. A wisdom that we cannot even understand, never mind control. The price system, for example, allocates resources to their most urgent uses, with a speed and efficiency that defies any government planners. Such ‘spontaneous orders’ (including not just markets but language, justice and much else) were, said Hayek, products of social evolution, not rational design. Trying to replace them with some planned ‘rational’ alternative always ends in disappointment and chaos.

Hayek influenced a generation of economists, including many others who would also 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, and Eamonn Butler and Madsen Pirie of the Adam Smith Institute.

These thinkers and activists gave Hayek’s ideas a real political effect. 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 around the world owe to Hayek their enjoyment of the fruits of personal and academic 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).

How glorious efficient markets are!

That this runs in The Guardian makes us think that they might not have realised the import here:

The 59-year-old Wilfred Poggenpoel is a fisher from Lambert’s Bay, a picturesque town 170 miles north of Cape Town that’s popular with surfers and home to 17,000 breeding pairs of Cape gannets. Five years ago, he made the decision to join a virtual marketplace called Abalobi, which enables fishers such as him to sell their catch directly to restaurants, retailers and consumers using a custom-built app.

“I get a better price and I can sell more species now,” he says. “I’ve bought a 60-horsepower motor that I’d never have been able to afford before. I’ve bought a second boat.” He joined, he says, because he didn’t want to spend all day walking around town in the sun trying to sell fish. “My quality of life has improved. I’ve even been able to help some old people in the community.”

Abalobi (which means fisher in isiXhosa, one of the official languages of South Africa) is a tech nonprofit that works to help the small-scale fishers who make up the bulk of the South African fishing industry but are traditionally excluded from it financially.

Those previously in a Polanyiesque marketplace of direct contact and mutual obligations have now moved over to a technologically intermediated impersonal and larger scale market. They are - humoungously - better off as a result.

Which is glorious, poorer people are now better off. Precisely, exactly and wholly because of a deeper and wider market - a more efficient market.

Or, as we might put it, market efficiency matters. It’s what makes people better off. Therefore we must - as we are not - be very careful in evaluating anything that makes markets less efficient for whatever synapse-spasm seems a good idea at the time to those proposing it.

But then we’ve known about this for a long time. That study of sardine fishermen and their mobile phones off Kerala was in one of the very top economic journals back in 2007. The creation of those more efficient markets increased fishermen welfare - profits went up and labour requirements declined. Increased consumer welfare - the price of fish went down. Everyone benefitted - even CO2 emissions declined - none lost, from that mere market efficiency.

Of course, early papers often get revised - the conclusion of doing that seems to be that the original paper under-estimated the benefits, the general increase in human welfare from that more efficient market.

Market efficiency, it’s a good thing and don’t you, ever, forget it.

Well, no, John Harris does have a point here

An important point even:

That day, I had been in Thurrock in Essex: the patch of built-up sprawl just beyond the border of Greater London where, amid Thursday’s endless Conservative meltdown, the Tories would lose 10 council seats and Labour would gain eight, putting Keir Starmer’s party in charge. That change points to the likelihood of the Conservatives also losing Thurrock’s parliamentary seat – which, thanks partly to the local 72% vote for Brexit, they last won with a majority of 11,000. But I was there to explore a much murkier story, which amounts to a parable of the past 14 years – of a Tory-led council that thought it could avoid austerity by borrowing £1.5bn to invest in risky business ventures, and ended up bankrupt, with a deficit.

This disaster finally became clear two years ago. Now, people in such places as Tilbury, Grays and Stanford-le-Hope are faced with a great litany of cuts: cancelled road projects, hacked-down adult social care and transport for kids with special needs, drastically altered bin collections and, to cap it all, huge increases in council tax.

We’re not sure that we’d put all of it in exactly those words but the underlying story is true. Thurrock Council borrowed a lot of money to invest. They managed to lose some to all of it. The result of that is indeed higher council tax bills, lower services and so on.

That’s Bad, M’Kay?

But there’s more as well. The money they borrowed was at less than market rates. They borrowed at those special, Treasury to local council, rates. If you can borrow below market and still, still, lose money you’re really not deploying capital well nor effectively. Warren Buffett has been borrowing below market rates for decades now and he’s turned that into being one of the richest men in the world.#

There’s a lesson from this. Local government doesn’t have the skill, nous, good sense or ability to invest well. Therefore we shouldn't be using local government to make investments. Of course, it might be true that further up government, at the national level, skills, nous, good sense and ability increase. But looking at HS2 there’s not grand evidence of that either. So, perhaps the lesson from this is that we shouldn;t be using government to do the investing for us?

Yes, yes, we know that’s entirely against the current weltanschauung but the evidence we have in front of us about the British state does seem to indicate that rather strongly.

Sure, sure, it’s wholly possible to make the theoretical case that government - packed with those Rolls Royce minds as it is - could do better but actual evidence of the contention seems to be lacking. So, let’s not do that then.

Just to remind, there has been no austerity

There’s a truth here:

Every government looks to save money. Sometimes, it’s a priority to reduce spending, as with post-2010 austerity. Even when overall spending is rising, politicians may reduce spending in one area to make progress on a priority elsewhere. Doing things more efficiently is always a good idea.

But announcing a spending cut is not the same as reducing spending, let alone achieving value for taxpayers’ money. That is a key lesson of the austerity years. Cuts announced in haste in one area today have repeatedly led to costs ballooning elsewhere tomorrow.

But it’s not the line about austerity which is that truth. For spending is up in cash terms, in inflation adjusted terms and as a percentage of GDP. No one at all has spent less.

However, there is that truth. That salami slicing budgets does not work. One way of describing it is as “library cuts”. Not an absolute truth but a great deal more than merely a tendency. When a budget is sliced then it is always the consumer, public, facing service - say, libraries - that gets cut. Never the monstrous bill for the bureaucracy and its pensions that does. “See, See! The b’tards are preventing us from lending you books!” and never is it that papershuffling be done faster and heaven forfend that papershuffling be done less.

Fortunately, we have an actual example of how to do austerity:

Argentina has historically been a country of failed governments, economic collapses, and debt defaults. Yet incredibly there are signs that – against all the odds – the bold, free market reforms of its libertarian President Javier Milei are beginning to work.

With inflation falling, interest rates coming down, and the peso on fire in one market, Milei is already proving the global Left-wing economic establishment – addicted to bigger government and endless deficits – wrong. Indeed, it may provide a template for other countries to escape from zero growth.

Quite so and that template is:

First, even without a majority in parliament, he has been ruthless. Whole government departments have been closed down overnight, regardless of the immediate consequences. The Ministry of Culture was axed, so was the anti-discrimination agency, and the state-owned news service. Only last month, he unveiled plans to fire another 70,000 state employees.

Do not try to salami slice budgets. Do not try to moderate what the state does. Have the state stop doing things. The Arts Council, EHRC and the BBC (yes, the licence fee is a tax, has been since the Brown Terror) sound like darn good places to start too.

Allow fracking, kill the planning system so we can have a concurrent housing led boom - the government needs to stop doing things and also to stop stopping other people doing things.

Chainsaws, that’s the economic tool of choice these days. No, don’t prune, chop down.

Of course Boris can't vote without ID - don't be silly

Several of us here have spent years, decades, living in places and cultures that are not Britain. At which point Boris turning up to vote without ID produces a chortle in everyone. Marina Hyde gives us more such mirthtful examples.

Did we really expect Tory MPs who fought for voter ID rules to follow them? Don’t be ridiculous

But in that is one of the glories of Britain. One that we’d all miss, terribly, when it’s gone.

Yes, of course, it’s possible to think that voter ID is the best thing since that sandwich bread came out. It’s possible to think that it’s voter suppression and all that. And clearly there’s more than just the single chortle to be had from the architects of the idea not being able to vote as a result of not, erm, having their ID.

But the glory? Absolutely no one has said but, but, that’s Boris! Being ex-PM (and who knows, future once again?) doesn’t make any difference. Being, as is pointed out, a current MP (Tom Hunt) makes no difference either. The law says no ID no vote. This applies equally to all, from the very grandest in the country to you, me and the bloke sleeping under the bridge.

That experience of in foreign tells us that this is rare in a society. Sure, argue about what the rules should be but rules are going to be obeyed.

As we’ve noted before the English, then British, deal was always that there weren’t going to be many rules but those there were were going to be important. This brought the societal buy-in which led to near all the population, near all the time, obeying what rules there were. As opposed to many places we’ve been where rules are the thing you swap advice on how to avoid, ignore or undermine. Those places where there are rules about everything, in detail, thus the very concept of rules being important is undermined.

Yes, of course this is slightly handwavey and even romanticising. Yet there’s still that nub of truth to it. As we said yesterday about waste disposal - make the rules too detailed, too expensive, and the black market will arrive. As is obviously going to be true of the foolishness over smoking and vapes.

Britain, largely, obeys the law because there isn’t much law to obey. What law there is is important. Or, rather, that was the old deal. As we become ever more like the Roman Law continent (or, Lord Forbid, like the Soviet system) then the attitude to the law will become like it is there.

We’ll miss the rule of law when it’s gone.