Quelle Surprise: Nick Stern wrong again

We’ve yet another attempt from Nicholas Stern to persuade us all that beating climate change would actually be good for the economy. Fortunately we’ve also got Richard Tol around to tell us what’s really going on here:

The original Stern Review argued that it would cost about 1% of global GDP to stabilise the atmospheric concentrations of greenhouse gases around 525ppm CO2e. In its report last year the Intergovernmental Panel on Climate Change (IPCC) put the costs twice as high. The latest Stern report advocates a more stringent target of 450 ppm and finds that achieving this target would accelerate economic growth.

This is implausible. Renewable energy is more expensive than fossil fuels, and their rapid expansion is because they are heavily subsidised rather than because they are commercially attractive. The renewables industry collapsed in countries where subsidies were withdrawn, as in Spain and Portugal. Raising the price of energy does not make people better off and higher taxes, to pay for subsidies, are a drag on the economy.

Just not impressed there is he?

There are some eminently sensible things that could be done, things that would have the effect of reducing climate change into the future. Poor and oil producing nations throw $600 billion a year in subsidies at fossil fuel use for example. Stopping that would be a sensible thing to do: but it would be a sensible thing to do simply because it’s a sensible thing to do. The effect on climate change is just an added benefit.

But the most important part of this latest report is this:

“Well-designed policies … can make growth and climate objectives mutually reinforcing,” the report claims.

Yes, that’s entirely true. But as Tol also points out:

But low-cost climate policy is far from guaranteed – it can also be very, very expensive. Europe has adopted a jumble of regulations that pose real costs for companies and households without doing much to reduce emissions. What is the point of the UK carbon price floor, for instance? Emissions are not affected because they are capped by the EU Emissions Trading Systems, but the price of electricity has gone up.

There’s an awful lot of weight resting on that “well-designed” there. In fact, absolutely every report, yea every single one, that has concluded that we’d be better off trying to avert climate change than to go through it has been running the numbers on the politicians using sensible methods of aversion rather than not sensible ones. And yet when we see what those same politicians actually enact on that evidence base they’re not sensible policies. Thus the justification they’re relying upon doesn’t in fact exist.

£8 minimum wage hype: political trick, economic disaster, moral outrage

Brtitain’s Labour Party leader Ed Miliband says that a Labour government would boost the national minimum wage to £8 an hour, an increase of about £60 per week, by 2020. He says the UK economy is booming, and the low-paid should get a bigger share of it.
 
Actually, at present rates of growth, the minimum wage will be close to £8 in 2020 anyway, so this is a one of those political sensations that doesn’t amount to much. Even so, it is foolhardy now to commit UK businesses to pay any specific figure in 2020, since anything could happen in the meantime.
 
The minimum wage gets unthinking politicians (and not just Labour leaders) dewy-eyed. ‘We can’t have people being paid a wage that isn’t enough to live on.’ ‘Businesses should pay their workers more, and take less profit.’ ‘The minimum wage hasn’t killed jobs as the doomsayers say.’ You know the story.
 
In fact, high minimum wages do destroy jobs. in particular, they destroy those starter jobs, the low-paid, temporary jobs that once gave young people their first step on the jobs ladder – pumping petrol (as I did), stacking bags in supermarkets, ushering people to their seats at the flicks. Now those jobs don’t exist, because they are not worth the minimum wage (plus all the National Insurance and the burden of workplace regulation that goes with them – a particular burden on small firms). So we have a million young people out of work.
 
As for profit, try using that argument on anyone running a small business, already weighed down by taxes, rates, and regulation. Often they are getting less than their lowest-paid employees, and working longer hours for it Higher minimum wages mean they can afford to employ fewer people, or provide less generous perks and conditions.
 
I don’t want to live in a country where people can’t afford to live on what they take home either. That is why we have a welfare system, to top up the earnings of the lowest paid. We need a negative income tax – above the line, you pay tax, below the line, you get cash benefits – structured so that you are always better off in work than out of it. A paying job, even a low-paid job, is the best welfare system the human mind can devise. 
 
And we must take low-paid people out of tax and national insurance entirely. Then more small firms could afford to take on more low-skilled workers and give them that first step on the jobs ladder.
 
If we could simply vote ourselves higher pay, why stop at £8? Why not fix the minimum wage at £800 an hour. The answer is obvious. The only people who would be worth that amount to anyone would be a few Premier League footballers, rock stars, investment bankers and high-class hookers. The rest of us would be out of a job.
The minimum wage does no harm to people who are already earning it, though it does them no good either. But it does positive harm to those earning less, or those who cannot get a job at all. The former will be let go, or will have to endure worse conditions; the latter will find it very much harder to get a job. And all that, of course, has already happened.

Of course poverty traps exist: but they’re possible to escape

Over at The Economist some musing on whether there really is a poverty trap that developing economies can get stuck in. and the answer is yes, of course there is: but also that it’s potentially possible to escape such traps.

DO POVERTY traps exist? Academics seem to think so. According to Google Scholar, so far this year academics have used the phrase “poverty trap” 1,210 times. (Paul Samuelson, possibly the greatest economist of the 20th century, was mentioned a mere 766 times). Some of the most innovative work in development economics focuses on how individuals’ lowly economic position may be perpetuated (geographical and psychological factors may be important).

But, says a new paper by two World Bank economists, the idea of poverty traps may be overblown. They focus on national economies and present some striking statistics. In the graph below, a country that manages to get to the left side of the line has seen real per-capita income improvement from 1960 to 2010.

So that’s the empirical evidence. But there’s also a basic logical point that we can make.

Three hundred years ago all countries were poor. Now some countries are not poor and some countries still are. It’s thus logically certain that it is possible to escape whatever poverty traps there are. For some places have done it. It’s also equally true that there must be things that prevent that economic growth from happening for some places haven’t had that economic growth. Thus we can assert, without possibility of contradiction, that sure, there are poverty traps but there’s nothing inevitable about them at all. It is possible to escape for some have done so.

The new population estimates are already being misunderstood

New estimates of future population size have only been out a day and already they’re being misunderstood. Firstly they’re being misunderstood by the people who actually made them:

Rising population could exacerbate world problems such as climate change, infectious disease and poverty, he said. Studies show that the two things that decrease fertility rates are more access to contraceptives and education of girls and women, Raftery said. Africa, he said, could benefit greatly by acting now to lower its fertility rate.

Piffle, stuff and nonsense. It’s a well known finding that access to contraception drives, at most, 10% of changes in fertility. It’s the desire to limit fertility which, unsurprisingly, drives changes in fertility. And the education of girls and women, while highly desirable, is a correlate, not a cause, of declining fertility. Economies that are getting richer can afford to educate women: economies that are getting richer also have declining fertility. It’s the getting richer that drives both.

But that’s not enough misunderstanding. We’ve also got The Guardian displaying a remarkable ignorance on the subject:

Many widely-accepted analyses of global problems, such as the Intergovernmental Panel on Climate Change’s assessment of global warming, assume a population peak by 2050.

That’s not just piffle that’s howlingly wrong. The IPCC assessments do not assume any such damn thing. For example, the A2 family, which is the family that the entirety of the Stern Review is based upon (and yes, it’s one of the four families used by the IPCC) assumes a 15 billion global population in 2100. That is, it assumes a significantly larger population at that date than even these new estimates do. But you can see how this is going to play out, can’t you? Population’s going to be larger therefore we must do more about climate  change: when in fact these new estimates show that population is going to be smaller than the work on climate change already assumes.

As we might have said here before a time or two we don’t mind people being misguided in their opinions and thus disagreeing with us. We pity them for their mistakes of course, but that’s as nothing to the fury engendered by people actually being ignorant of the subjects they decide to opine upon.

What next after the Scotland referendum?

Within hours of the decisive NO to Scottish independence, UK markets started to recover. The pound rose, the stock market strengthened, and the Royal Bank of Scotland confirmed it would not be moving south as it had threatened. All are signs that confidence has been restored, now that the result has been settled.But there are going to be big changes, even with a NO vote. David Cameron, on the steps of Downing Street just after the result had been announced, declared that not only would Scotland be getting extra powers – something promised by all the main political parties – but that in fairness, Wales, Northern Ireland and indeed England could expect greater powers too. He did not mention the words ‘English Parliament’ but it is plain that the constitutional reshuffle that the referendum has provoked will see the West Lothian Question – the enigma of Scottish MPs voting on English issues in Westminster – finally settled.

Some say that the nationalist leader, Alex Salmond, has got what he really wanted – a continuation of subsidies from England, but the promise of more power for his Parliament in Edinburgh’s Holyrood. The truth is, he wants a lot more ‘devo max’ than the main parties are offering, with wide powers over taxation and spending.

And this is likely to happen quite fast. Former Labour Prime Minister Gordon Brown predicts there will be an official paper on new power-sharing arrangements in October. A White Paper, setting out the government’s proposals, will be published by St Andrew’s Day, at the end of November. A draft Scotland Act will be published by Burns Night, at the end of January 2015, though it will not make it through the legislative process until a new Westminster Parliament is elected in June 2015.

The three main parties, spooked by the apparently narrowing polls just before the vote, signed a pledge, all promising more devolution, in the hope of buying off a seemingly strengthening Yes vote. (In fact, the polls had been very consistent, forecasting a strong No vote, over 23 months. Perhaps the last minute narrowing was just Scottish electors trying to give the Westminster politicians a fright. Which worked.)

The Labour Party wants to give Holyrood power to vary income tax by 15p, meaning that the top 50p rate could be restored – something they dream of, but which would see quite a number of top Scottish executives quietly moving their domicile south. The Scottish Labour Party also wants to devolve attendance allowance (a benefit to carers of disabled people) and housing benefit (so it can scrap the so-called ‘bedroom tax’).

The Conservatives want income tax completely devolved, meaning that the Scottish Parliament would raise roughly 40% of its total budget through devolved taxes, and they would devolve housing benefits and attendance allowance too.

The LibDems want Scotland to have more power over income tax, inheritance tax and capital gains tax, to create a new ‘federal’ relationship between the nations of the UK, and to move the block grant from Westminster to Scotland on ‘needs based’ principles.

Alex Salmond, for his part, will be going into the negotiations demanding far more control over all taxes, and over welfare spending. However, that may not deliver the outcome he would prefer. One of the reasons why the Conservatives want to see income tax devolved is because they think it would change the debate in Scotland. At present, the only debate is how the block grant from Westminster should be spent. If there is a new question, of how much should be raised in taxation, and from whom, the debate changes and Scotland would at last have a genuine Opposition in the form of all those who think taxes are too high and the government too big. And government spending in Scotland is big – £12,300 a head, compared to £11,000 for the UK as a whole.But then, according to economist David B Smith, over two-thirds (69.1%) of what is spent in Scotland is government spending – meaning that the majority of Scottish electors are highly dependent upon big government staying big. Independence would have brought some hard choices about the size and cost of Scotland’s government. The No vote will produce only prolonged grumbling about it. The really interesting and sensational change, for constitution-watchers, will be what happens in England. The taxpayers of a more assertive English government are unlikely to do many favours to a high-spending Scotland. That could be Alex Salmond’s worst nightmare.