Tim Worstall Tim Worstall

No, the Russians haven’t found oil reserves in Antarctica

It may well be that the Commons, or a committee of it, has been told that there are oil and gas reserves newly found in Antarctica but it’s really not true.

Russia has found huge oil and gas reserves in British Antarctic territory, potentially leading to drilling in the protected region.

The reserves uncovered contain around 511bn barrels worth of oil, equating to around 10 times the North Sea’s output over the last 50 years.

The discovery, per Russian research ships, was revealed in evidence submitted to the Commons Environment Audit Committee last week. The committee was assessing questions regarding oil and gas research on ships owned by the Kremlin’s Rosgeo, the largest geological exploration company in Russia.

Antarctica is currently protected by the 1959 Antarctic Treaty, which prohibits all oil developments in the area.

A major reason they’re not reserves is that last sentence of that quote. This is also more than the mere pedantry we’re so fond around here. The world simply will not make sense if you don’t grasp these differences. We’ve explained them, at book length, here. To give a simpler version just in case any politician is about to believe these claims of Russian finds of reserves.

Just one note, fossil fuel and mineral reserve definitions are slightly different but the base ideas apply to both.

Resources and reserves are things that are man-made. Deposits are not, they’re natural. It’s vital to grasp this.

So, a mineral deposit is that there’s something there in that rock. OK, fine, it’s there. A resource is when that something has been studied enough, tested, that we become reasonably (and there are gradations of “reasonably” leading to gradations of resource) sure that we can lift that mineral (or fuel) from that deposit in both technical and economic terms. A mineral reserve is when we have proven that we can extract, using current technology, at current prices, make a profit doing so and we’ve the varied licences and rights to be able to do so. Effectively, a “mineral reserve” is something proven up to the standard that a bank will lend against it or a stock market allow capital to be raised against the claim. That proving document is often called a Bankable Feasibility Study - proof enough to convince the bankers to unlock the vault.

The mineral deposit simply is - but those resources and reserves are man-made things. Created by applying the attention and capital necessary to prove the volume, concentration, chemistry etc of the deposit up to that financeable stage.

The importance of this is that people like the Club of Rome, varied environmental wowsers and idiots everywhere look at the volume of reserves - the man made things - and conclude that’s all we can have. Run out of those and we all die. The very slightly more sophisticated apply the same misinsight to resources. Both are wholly and entirely wrong - humans are unlikely to run out of things made by humans. The limitation is deposits, not resources or reserves. But as we point out at book length (again) there’s no shortage of deposits that can be transformed by that human effort into resources and or reserves.

But back to oil in Antarctica. These findings are all at a very early stage as yet so they’re not reserves and it’s doubtful that they’re even resources. Deposits, yes they are. But most importantly - a reserve is defined, in part, by the legal ability to extract and as oil extraction in Antarctica is illegal then any oil in Antarctica is not a reserve, is it?

In just the same way that all that lovely gas trapped in the Bowland Shale is not a gas reserve because it’s not legal to go fracking in England, is it? That copper at Bristol Bay is not a reserve because saving the fishies means no legal right to mine it. For while humans create mineral reserves by their actions humans can also - and do - destroy reserves by their legal and permitting actions.

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Maxwell Marlow Maxwell Marlow

‘The War on Prices’, a review by Dr Eamonn Butler

The Cato Institute has just published a new book that I (and others such as Deirdre McCloskey) have contributed to, The War on Prices: How Popular Misconceptions about Inflation, Prices, and Value Create Bad Policy.

In my chapter, I point out how, from ancient Egypt to the US and UK today, government efforts to control wages and prices have never worked. Price caps, minimum wages, limits on wage increases and all the rest have not stopped inflation, nor helped the poor. but have invariably created shortages, reductions in product quality (and ‘shrinkflation’) and black markets. In the end (surprise surprise), it is the poorest people who suffer most.

The book debunks the official narrative about the recent surge in prices and the cost of living. No, it wasn’t caused by corporate greed, or wage-price spirals, price gouging, or oil prices, or Brexit, or anything else like that. It was caused by the US Federal Reserve, the European Central Bank and the appalling Bank of England keeping interest rates down too far for too long, and printing too much money. The authors are telling the politicianFederal, state, and local governments already institute damaging price controls in a range of individual markets, including on rents, interest rates on short-term loans, minimum wages, prices amid emergencies, healthcare premiums, credit card late fees, and much else besides. 

The authors show how minimum wage rises, which are intended to help poorer workers deal with the cost of living, simply price people out of jobs, particularly those who are young and unskilled. And even when there aren’t layoffs, minimum wage bills cause employers to cut perks, insist on less flexible work schedules, and neglect the work environment. Minimum wages are a very bad way to tackle poverty. 

There’s much more of interest in the book, including analysis of price controls in World War II, Modern Monetary Theory, water pricing, CEO pay, oil and gas price controls in the 1970s, and much else. The book has received some excellent reviews to date, from a diverse range of economists and commentators. So order your copy here!

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Tim Worstall Tim Worstall

Council housing increases the unemployment rate

A useful little illustration of the problem that the planners always have - the world’s a complicated place.

John Harris tells us that:

Particularly in cities, selling council houses sooner or later eats away at places’ sense of stability and continuity: once buy-to-let landlords enter the picture, most tenants tend to become transient and disconnected from where they live.

It’s even possible to accept that this is a real thing. And yet. Council housing also raises the unemployment rate. The issue was raised by Blanchflower and Oswald:

We explore the hypothesis that high home-ownership damages the labor market…..We show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility,

Lower labour mobility - less ability to move to where the jobs are - leads to a higher unemployment rate. Now, true, the paper looks at home ownership, not council houses - but they are something that doesn’t really exist in that US market analysed. For us we need to know that council house tenures are longer than private rentals (obviously) but also than direct ownership. Further, while it is theoretically possible it’s something that takes many years, if achievable at all, to move council housing across a council boundary. That right to housing does, after all, depend rather upon “a local connection”.

From the way that British council housing works this means that the effect upon unemployment is higher than mere home ownership.

Or, to put this the other way around, keeping the unemployment rate low (the structural that is, not the cyclical) depends upon there being some transience, possibly disconnection, in the labour force. Even, less stability and continuity.

As oft said, there are no solutions, only trade offs. One of them being that the less of the population we have in the current form of council housing the lower - at that resting, structural, state - the unemployment rate will be. Stability and continuity can indeed be seen as virtues - less so when the jobs are now three towns over of course.

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Tim Worstall Tim Worstall

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?

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Tim Worstall Tim Worstall

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.

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Tim Worstall Tim Worstall

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.

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Tim Worstall Tim Worstall

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.

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Tim Worstall Tim Worstall

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.

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Eamonn Butler Eamonn Butler

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).

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Tim Worstall Tim Worstall

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.

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