Allow us to explain: The planners have been trying to plan
We do actually have a great big, 1200 page, report on what we should do about climate change:
Why ‘the UK’s biggest carbon emitter’ receives billions in green subsidies
The Drax power plant burns 7m tonnes of biomass pellets a year and generates 4% of the UK’s electricity needs
The why is that the planners decided to try planning. As that 1200 page Stern Review says not to do.
For planners always will get it wrong. Partly because just planning. Partly because the economy is complex therefore any plan will end up more than a bit Heath Robinson. Partly because those being planned will react to the plans and drive coach and horses through the jury-rigged nonsense.
Which is why the Stern suggestions are to keep it simple, stupid. Have the one, grand, intervention into prices and leave the market be to sort it all out. The big point being that this is efficient. Efficiency matters too. For humans do less of things that are more expensive and more of those that are cheaper. Therefore if we adopt the efficient - not the expensive - method of dealing with climate change we will, wholly naturally, do more dealing with climate change.
This isn’t difficult even though it clearly does not accord with political beliefs about the ability of politicians and plans. But there we are.
The reason the country’s largest emitter gets subsidised is that political egos were large enough to think that planning was the solution.
Tim Worstall
It’s market competition that raises the workers’ wages
As Karl Marx so rightly pointed out it’s competition that raises the workers’ wages. That’s why monopoly capitalism - by which he meant our new word, monopsony, or a single buyer - that keeps the workers poor.
Saudi Arabia’s new luxury airline Riyadh Air is fuelling a war for talent in the aviation industry as it poaches British pilots.
The British Airline Pilots’ Association (Balpa) said the impact of a recruitment drive by Riyadh Air, together with Emirates, Qatar Airways and Etihad, was being felt at carriers including British Airways, Virgin Atlantic and easyJet.
Large numbers of pilots retired during Covid, forcing airlines worldwide into a battle to retain captains and first officers.
Amy Leversidge, the Balpa general secretary, told The Telegraph that wealthy Gulf carriers were making it harder for British carriers to retain staff by offering generous salaries and benefits.
Capitalists can make money by employing workers. Or, in the airline industry, capitalists think they can do so. That there are many who so think means that there are many possible buyers of the labour of those workers. Therefore the price paid to the workers goes up. So does capitalist competition for labour drive up wages.
The only time this doesn’t happen is when there’s the single and one buyer of that labour. In that case the capitalist doesn’t have to raise wages for the labour dhe’s then going to exploit. As happened in the Soviet Union of course, Stalin deliberately suppressed wages in order to fatten profit margins so as to pay for his industrialisation projects.
That is, it’s only in market economies that wages track increases in labour productivity. Given the fashion for believing Marx we do think it would be helpful if more paid attention to one of the very few bits he got right.
Tim Worstall
We fully support the citizen testing of the waters
This sounds like an excellent idea to us:
‘Citizen scientists’ to check UK rivers for sewage and pollution
Big River Watch scheme asks general public to help monitor state of rivers after years of deregulation
Not that there’s been any deregulation of course. But still, Burke’s little platoons going out and doing it for themselves, of ccourse we support such. Who wants to have to try and fight through whatever a bureaucracy might tell us when pure and clear information can be gathered by the populace?
We have just the one small concern.
British waterways, pollution in England, around the UK, rivers in England, England and Wales, targets and milestones to phase out spills of human waste into rivers and seas
There seems to be a little variance there about whether this is UK or England or England and Wales and so on. Which we take to be - as the cool kids say these days - problematic.
For the grand question in water politics these days is over the State running the water system or private companies. Which means that we want to see the difference between the private and capitalist companies in England, the social company in Wales, the state companies in Scotland and Northern Ireland. That’s exactly - for of course it is - the information we don’t get from the official, bureaucratic, figures. Near all of England’s overflows are monitored, for example, while only 8% of Scotland’s are. How amazin’ that the State does not check its own performance, eh? And exactly the thing that the little platoons could, possibly should, check up upon.
So, we do, we do, we look forward to this survey of all of the United Kingdom’s waters. With the raw information presented to us all so it is possible to actually check which system, that private or state, produces the best environmental outcome.
That is, obviously, what they’re going to do because of course they are. Right?
Tim Worstall
The Donald, Elon and efficient government
These ideas are always fun and they also near always run into the usual bureaucratic quicksands:
Donald Trump has said he will hire Elon Musk to save the US money by cutting government costs if he wins the November election.
Obviously, we wish them luck if circumstances make the experiment possible and all that. But the lesson of what Musk has done at Twitter needs to be kept in mind. An 80% fall in staff headcount with an - at worst - mild decline in performance seems acceptable.
But simply to think of firing 80% of the government isn’t quite the point. For the thing that Twitter did was identify what didn’t need to be done any more. Like, armies reading every tweet to see if they should be allowed.
Now, yes, it’s possible to say that people shouldn’t say hurty things online. Our view being that if free speech doesn’t include being able to say hurty things then speech isn’t free enough. JS Mill was right about fists and noses that is. The shift was that if hurty things may be said then the army of hurty checkers was no longer needed.
The same is true of government. It isn’t just that the entire edifice is grotesquely overstaffed with people doing nothing - which, obviously, it is. It’s that government is doing many things which, even under the most favourable analysis, only very marginally need to be done. Not doing those things might - maybe - at that margin very slightly degrade the lived experience. But not having to pay for them to be done will so improve life through fructification in the pockets that overall life will improve.
That is, it’s not that we merely want more efficient government. It’s that we need less government.
The trick to reforming government is not, as so many businessmen drafted into it so often mistakenly think, to do it better. It’s to do it less.
Tim Worstall
Is ‘An Englishman’s home is his castle’
Do English people have a cultural aversion to flats? Is it deep-rooted in our DNA to envision a home to be specifically a house? Or is it just that England's planning history means houses are the majority? Is the market really responding to demand, both presumed and real?
Flats and apartments saw the largest increase (in gross terms) for any type of accommodation between 2011 and 2021 in England/Wales, with 21.7% of households being of this type, up from 21% in 2011.
However, these percentages are still very small compared to the EU, where the average percentage of people living in flats was 47.5%. And it isn’t the Soviet-style Eastern European apartment blocks that are responsible for this large percentage. It is Spain with 65.6% of its population living in flats, and Germany with 62.7%, that are the EU countries with the biggest proportion of people living in flats.
The history of housing in England and Wales gives us part of the answer for our dominance of houses over flats. The UK has the oldest housing stock in Europe, largely due to the Industrial Revolution and a housing boom post second world war, which means our housing stock has expanded outwards and not up.
The increase in the proportion of flats being built as new housing has several advantages. For example, they are the most energy-efficient property type in both England and Wales. They are quicker to build than houses, and speed will be necessary to meet the Labour government's goal of 1.5 million new homes in the next five years. They also take less land space to build than houses; the average total floor space of a house in England and Wales is 102.75m², compared to 61.5² for the average flat. This makes flats a good solution to the government's anxiety that housing development will infringe upon the Green Belt area (although 90% of land in England is undeveloped!).
Despite housing build trends favouring flats, this doesn’t mean that English people like them. The Department for Communities and Local Government found that 72% of respondents desired the building of more houses, whereas only 14% desired more flats.
Clearly ‘the dream’ isn’t to live in a flat or an apartment, and I wonder why this is. It might be because English flats are typically smaller than houses, which is less desirable considering English houses are already some of the smallest in Europe. Even the British term ‘flat’, as opposed to the more American ‘apartment’, has more negative associations and perhaps contributes to our cultural aversion.
But does this tell us more about the English psyche than it does about the state of our flats?
The saying ‘An Englishman’s home is his castle’ emphasises that our homes need to be private. They must be self-contained and shouldn’t be overly shared with other people. Is the thought of living in an apartment block with other people too communal for English people? There’s the horror of meeting neighbours in the corridor when taking the bins out, or hearing the conversations in other flats through multiple shared walls and above the ceiling.
An Englishman’s castle must also offer freedom, something that a house provides more readily. For example, in a house you have the ability to relax as you please in a private garden, which flats can’t provide. The pride in buying a first home is a crucial part of the typical ‘English dream’, and the vision it evokes is of a front lawn leading towards the front door, not of a shared corridor.
There is also something inherently more family-orientated about a house; perhaps it is only a house that can truly be considered a home in the English imagination.
Simply put, an apartment ≠ a castle.
Ah, there it is, economic casuistry again
Even, what could be described as an attempt to mislead people:
Ed Miliband has been urged to cut household energy bills by £200 with a cap on “pylon levy” charges imposed by electricity distribution companies.
The Energy Secretary is being encouraged to launch a review of the profits made by power distribution networks, which manage the cables that connect homes to the grid. In contrast to heavily regulated suppliers, their operating profit margins can be as high as 42pc.
Dale Vince, the Labour donor and founder of energy business Ecotricity, suggested that trimming the companies’ profits to a lower level could cut £6bn from standing charges – saving customers an average £200.
The trick in there is that word “operating”.
As we’ve noted before - spitting with rage as we did so - this has been tried on the margins of children’s homes operators. The trick is to look at the gross margin before all the capital costs of the infrastructure necessary. The higher the capital costs of the activity - like, say, having a home to put children in - then the higher that gross margin that can be shrieked about. Exactly the same trick is being used here. For the regional electricity distribution companies absolutely none of the costs of having a regional electricity distribution network are included when calculating that 42pc. But, you know, having the wires and the pylons and there substations and all that is a pretty important part of being a ‘leccie distributor.
Once we do account for all that properly:
He argued that because the industry was highly capital-intensive, a better measure would be return on capital – which averaged around 5pc.
Imagine that - no, go on, just imagine - the government ran these. Borrowed at those famously low rates that government can borrow at. Base rate is 5.25% at present, so the cost of the borrowing would be about, -ish, 5%. That’s now much net margin government would have to make to pay the capital costs of having the network. That is, a good guess would be that these companies are making their cost of capital, there are no economic profits, economic rents here at all.
But that claim of up to 42% - that’s simple casuistry, no? That insistence upon measuring profits by operating profits, by the closely akin EBITDA, rather than actually including the capital costs of the existence of the business at all.
Why are they trying to so mislead, gaslight, us all?
Tim Worstall
Clearly, the only sensible answer is to privatise Scottish Water
From The Guardian:
Sewage pollution of Scotland’s rivers and beaches is far more widespread than realised because ministers have failed to take the problem seriously, an environment watchdog has found.
Environmental Standards Scotland (ESS) said there were thousands of sewage overflow incidents last year, and that nearly half of the country’s storm overflows released sewage more than 50 times.
Of those, a third released sewage at least 100 times, and four sites more than 500 times. Few of these incidents were publicly disclosed; most failed to be justified as exceptional.
“It is clear that some sites spill much more frequently than should be expected”,” the agency said, with human health and the environment put at risk. Unlike in England, where nearly all outflows are monitored, only 8% of Scotland’s are checked.
As is well known it is only possible to manage what is measured. The English water companies do measure those sewage overflows. They’ve a lower level of such overflows than Scotland - according to the incomplete information currently available - and also a better record of reducing them in recent decades.
Therefore, obviously, the correct solution is to privatise Scottish water.
Glad we could help here.
Tim Worstall
Are we being gaslit* by the Secretary of State?
The results of the latest renewables subsidy auction are out and the Secretary of State for this sort of stuff, Ed Miliband, says it’s a wondrous example of how he and his newly installed in government confreres have been able to change things. Well, yes, sort of. The change in strike prices was actually announced in November last year. But that’s probably allowable politics - claiming that all good things that happen are your good things is par for the occupation.
There is something that worries rather more.
That’s all in 2012 prices. Because that’s how those prices always are reported. All of those prices are also uprated by CPI from 2012 to whichever year the money is actually handed over. The BoE’s inflation calculator seems to think that inflation this dozen years has been about 40%. Therefore all those prices are, in fact, in actual money paid, upped by 40%.
That is also before a number of variations possible. Page 5 here.
Costs not included in DECC’s standard levelised costs: CfD top-up payments will be paid on the basis of generation after taking account of the generator’s share of transmission losses, known as the Transmission Loss Multiplier so the strike prices need to be increased to account for this.
PPAs: The revenue received by the generator is a combination of the wholesale price and the CfD top-up, which is the difference between the strike price and the reference price. If the generator cannot achieve the reference price because it sells its power through a PPA at a discount to the market price, the strike price must be increased to compensate for this. PPA discounts reflect route to market costs including the costs of trading and imbalance costs.
Contract length: The levelised cost is defined over the operating life of a project. If the CfD contract length is shorter than the operating life and wholesale prices and capacity market revenue post-contract are lower than the levelised cost then, all other things being equal, the strike price must be increased above the levelised cost to compensate for this.
We’re not wholly sure about that last but we think it says that if a wind farm falls apart before its scheduled end of life then we’ve got to pay them more for the electricity they’ve produced? We agree that could be wrong, clarification encouraged.
But the thing that confuses us. The Sec of State, Mr Miliband, keeps telling us that renewables are much cheaper than fossil derived electricity. It would, obviously, be great if this were true for that would mean we’ve solved climate change. At those 2012 prices it’s also, just about, possible to make that claim - sure, there are a couple of experimental technologies but the big volumes there etc.
Except that the actual prices to be paid are that 2012 price plus 40% inflation plus those other costs and any future inflation to boot. Which is - at least as far as we understand it - significantly above the current gas derived electricity price.
Which is the bit we don’t understand. Why are prices so deliberately reported in this manner? Why are all the announcements of prices 33% below** the actual price being paid and so not comparable with current market prices? We’re sure there must be a reason for this other than trying to gaslight*** us all. We just can’t think of any that is other than that attempt to gaslight****.
Answers on a postcard to the Rt Hon***** Ed Miliband, 3-8 Whitehall Place, London, SW1A 2EG.
*Aha, aha, aha
**Yes, that’s how percentages work, roughly
*** Aha, aha
****Aha
*****Possibly
They identify the cause of homelessness then ignore it to solve it
As we’ve pointed out a number of times before homelessness - in the sense of rough sleeping - is not, in fact, a problem of not enough housing. Which is something made clear here:
As the light fades in Christchurch Gardens, a man, hooded with a soiled blanket hanging across his shoulders, rummages through a bin. Another is having a violent argument with an invisible enemy under a streetlamp. A drunk retches loudly into a flowerbed.
Welcome to Westminster, the gilded backdrop for a crisis that mixes mental health, drug and alcohol abuse, migration and homelessness into a horror show for tourists.
Yes, obviously, these people are homeless. But it’s not all caused by the lack of homes.
Between April and June this year, there were 752 rough sleepers in Westminster, up 39pc compared to a year earlier, according to the Combined Homelessness and Information Network (Chain).
And?
Between April and June, there were 624 people in Greater London who were classed as living on the streets, according to the Chain. Nearly one in four of them, a total of 143, were in Westminster.
There are a number who pass through such rough sleeping, there are those who remain in it. Those passing through obviously have had a problem but there is also some system that aids them in coming out the other side. Which is good, obviously.
A quarter of rough sleepers in Westminster have problems with alcohol and 29pc have drug problems. More than half (51pc) have mental health issues while 29pc have previously been in prison and 13pc have been in the care system.
Note that we’ve more than 100% there. There are those with more than one problem. But the problem of those rough sleepers is those problems, not housing itself. From other reports we know that at least some of them have already been placed in sheltered accommodation and then left it again. It’s the inability to cope that is the problem, not housing itself.
OK, so what might we do about it?
It is a problem that Labour is desperate to fix, with a promise to boost social housebuilding,
That’s the wrong answer, isn’t it?
“I haven’t seen the Government actually making the commitment to social rent that is really needed,” says Lord Best, chairman of the Affordable Housing Commission.
Not addressing the cause of the problem in the slightest.
Housebuilders have warned Labour’s target of 1.5m homes over five years will be impossible to achieve and the housing associations who build the vast bulk of social rent homes have warned they do not have the money to ramp up development.
Without a cash injection, local authorities will be unable to fulfil their existing homelessness duties, adds Jasmine Basran, head of policy and campaigns at Crisis.
We had rough sleepers before we had a shortage of housing, we’ll have rough sleepers after we don’t have a shortage of housing. For housing itself isn’t the problem being suffered.
What the actual and correct solution is is another matter - perhaps devolving mental health and addiction care to the community of the fresh night air wasn’t the right decision - but as ever we can only solve a problem if we divine and define it correctly in the first place. That hard core of hundreds of rough sleepers is not caused by a lack of housing. Therefore more housing won’t cure it.
Tim Worstall
Behavioural Economics in Public Choice
I have been writing on the different schools of economic thought through the ages. One interesting take-away from the last half-century is how much economists’ attention has been drawn away from mechanical, macroeconomic explanations and towards how people actually make their economic decisions. There is, for example, a revival of the Austrian School, which stresses the subjective nature of values and economic choices; the Public Choice School, which looks at how collective decisions are made, and the consequences of that for economics; and Behavioural Economics, which attempts to bring human psychology into the study of personal choices.
At the heart of the Public Choice School approach is the idea that every stage of the democratic decision process — from elections, through the legislature, to the bureaucracy that implements the laws and the judiciary that interprets them — is riddled with self-interest, leading to decisions that are irrational and often factional. And for its part, Behavioural Economics hinges around the idea that natural biases in the way human beings see and respond to events also creates some shocking irrationalities.
Behavioural Economics has applied this psychological approach largely to the ways that individuals make choices. But I wondered what might be revealed if we took it into the making of collective decisions. Is there more than mere self-interest at work? Is the democratic process not riddled with other psychological biases too.
To start with, one of the strongest natural biases identified by Behavioural Economic is risk aversion. It is why bad news sells newspapers; we are much more alert to and concerned about bad things than good ones, partly because bad things can be fatal to us. But this shows up in the public choice environment too. I saw an example of this in the Thatcher era, when a UK-wide private hospital company decided to bid to build and run a new NHS hospital. Department of Health bureaucrats were so keen to cover their own backs that the tender documents with all their provisos formed a metre-high stack, requiring the company’s response to be even higher. And how did the bureaucrats respond to this bid to run NHS provision in a completely new way? After two months of silence, the first question they asked was what kind of cutlery would be used in the staff canteen.
Can’t be too careful, they say. But yes, that was too careful, and indeed the political system abounds in being too careful. We pass laws and regulations that attempt to keep people completely safe from harm. It is irrational, because the extra cost of guaranteeing that extra featherbedding is huge; and overprescriptive regulations thwart people from trying new ways of doing things that might just prove more productive, and even safer.
As we make our way through the other cognitive biases identified by Behavioural Economics, we see the democratic — i.e. political — system falling for every one of them. Bounded rationality, for example: rather than consider very possible implication of every possible option, we tend to follow ‘rules of thumb’. And if those work reasonably well, we tend to stick with them (what these economists call ‘satisficing’) even though other rules of thumb might actually work better. In Public Choice terms, Bryan Caplan showed the bounded rationality of electors: they tend to favour government solutions, for instance, over market solutions. As do politicians, of course. And for their part, bureaucrats, especially regulators, tend to assume the superiority of regulation over competition.
How decisions are presented. the choice architecture, also affects personal choices. That is the whole theory behind ‘nudge’ — tell people the downsides of smoking, for instance, and they will probably do less of it. But it works in political decision-making too. Should we have more free trade, which could deliver better choice and lower costs? Well, international competition might also create job losses too, and you can be sure that the media focus will be on the unemployment (risk aversion). No wonder that electors and politicians opt for protectionist policies.
Confirmation bias is another human quirk, where we see and judge things in terms of our own beliefs, rather than against any objective standard. Politicians are particularly prone to this error. Rent controls, for example, make it less worthwhile for property owners to rent out rooms and homes; so they evict their tenants and quit the market. That leads to calls for more tenant security. And if owners can’t evict people anyone but can’t make any money out of them because of the rent controls, they just let their properties fall into disrepair. Which is taken to be proof of how greedy ‘landlords’ are and leads to yet further controls… and so on, until the whole rented sector dries up. Rationally, we should scrap the controls and let the market allocate things. But rationalism is little use in politics.
Politics abounds with another bias, the sunk costs fallacy. The high speed rail link (HS2) between London and Birmingham is costing hundreds of billions of pounds for very little difference in journey time, but so much construction has been done that politicians are embarrassed to pull the plug on the project. The same happened with Edinburgh’s (three times over budget and five years late) new tram system and Scotland’s (also three times over budget and five years late) replacement ferries.
Politicians also make decisions on the basis of salience. What is playing in the media today — prison escapes, dangerous dogs, school truancy — is likely to shape policy far more (and more urgently) than longer term issues — like disincentives in the tax and welfare systems — that might be far more significant in their effects.
The Behavioural Economics bias list goes on. Optimism bias — plenty of evidence for that in public procurement, and projects like the postwar replacement of ‘slums’ with ‘modern’ blocks that people hated even more. Or mental accounting — sticking with 1001 budgets for separate projects, rather than re-thinking spending as a whole (as Canada did in the 1990s). Or the endowment effect of over-valuing what we already have (like ‘our’ ‘precious’ NHS). I have decided to explore all this psychology of public choice in more detail. If we know exactly what foibles are producing such daft public policy, after all, we might be able to do something about it.