R&D’s great but why a target for spending on it?

R&D’s just lovely, it is, after all, how we develop the new technologies that are such an important part of economic growth. But we do hesitate a little bit when people start to say that we should have targets for spending upon something, whether it be R&D, poverty alleviation or education:

A “bold strategy” is needed to remedy weaknesses in Britain’s supply chain, according to the CBI, in a push to create 500,000 new jobs and boost the economy by £30bn.

The CBI feels a long-term target of 3pc of gross domestic product for public and private sector spending on research and development would underpin a turnaround over the next decade.

It’s all a bit never mind the quality, feel the width, isn’t it? For it’s not actually true that devoting more resources to something is desirable: what we want is more output of whatever it is from the resources that we do devote to that thing. We could describe this as being almost Stalinist: don’t worry about how good each car is but just weigh how much steel we put into each one! Or, another way of making the same point is that GDP, the thing we use to measure economic growth, is actually measuring value added in the economy. Except when we come to talking about government of course. There we’ve no idea what the value added is so we just assume that the output is worth the value of the resources devoted to producing it.

That’s not an assumption that holds true in the real world of course: and so it is and would be with R&D spending. How much we spend on it isn’t the interesting or important point: how much cool new stuff and shiny shiny we get from spending on R&D is.

The report shows a lack of investment in research and development, along with a growing skills crisis, has weakened “foundation industries” such as plastics, metals and chemicals.

It is also calling for a change in research tax credits to help innovation and incentives to encourage more graduates to take science, technology, engineering and mathematics (STEM) degrees.

Creating a national materials strategy to protect and enhance critical supply chain sub-sectors and doubling the budget of Innovate UK are among other measures in the CBI programme.

It all does smack rather of that old industrial planning, doesn’t it, where success is measured by resources consumed rather than the value of the output.

Finally, as an aside, encouraging more people to take STEM degrees is very simple indeed. The employers of those who graduate with STEM degrees should increase the wage they pay to those with STEM degrees. Rather than demand that the State subsidise the creation of a willing workforce.

The terrible error of Naomi Klein

Naomi Klein tells us that the polluter must pay. Something that is both logical and true. Then she tells us that the fossil fuel companies must be made to pay for the damage that they do. Also logical and true:

Up until the early 1980s, that was still a guiding principle of environmental law-making in North America. And the principle hasn’t totally disappeared – it’s the reason why Exxon and BP were forced to pick up large portions of the bills after the Valdez and Deepwater Horizon disasters.

We might quibble about whether the damage was quite what was described or paid for but the basic principle is entirely fair. However, here comes the error:

The astronomical profits these companies and their cohorts continue to earn from digging up and burning fossil fuels cannot continue to haemorrhage into private coffers. They must, instead, be harnessed to help roll out the clean technologies and infrastructure that will allow us to move beyond these dangerous energy sources, as well as to help us adapt to the heavy weather we have already locked in. A minimal carbon tax whose price tag can be passed on to consumers is no substitute for a real polluter-pays framework – not after decades of inaction has made the problem immeasurably worse (inaction secured, in part, by a climate denial movement funded by some of these same corporations).

Assume, for a moment, that CO2 emissions are indeed causing damage. So, who is responsible for those emissions? Who is the polluter here who must pay?

When I drive to the shops it is me making the decision to do so, me making the decision to emit CO2 in gaining my supply of comestibles. I am therefore the polluter. That’s why, if there is to be a tax on polluters it should be upon me, the polluter. Which is the entire point of a carbon tax that can be passed on to the consumers. It is we consumers who are the polluters which is why we should have that tax which falls upon the polluters.

This is the most appalling and most basic error by Klein. We do not consume fossil fuels because Teh Eeevil Corporations force them upon us. We consume them because they provide us with things that we desire, transport, heat, light and so on. The fault, as it were, is not in our suppliers but in ourselves.

Of course, as many do around here, it’s entirely possible to reject the entire thesis. But working within the logical structure of the IPCC we still end up with the result that a tax which falls upon consumers is the correct action: as every single economic report about the problem, from Stern through Nordhaus and the IPCC itself, has pointed out. Because it’s the consumers who are the polluters and yes, the polluters should pay.

Yes, of course we’re being lied to, why do you ask?

We’re all wearily familiar with the ritual incantations that it’s those nasty multinationals that dodge taxes in developing countries and that therefore little babies die. This is not, despite the frequency of those incantations, actually true. The extremely impressive researcher, Maya Forstater, has rather more of the truth for us here:

Nevertheless if current estimates are best we have to go on, they should at least be communicated clearly. One thing that becomes clear once you take away all the showmanship of the killer facts is that the estimates commonly used are simply not that much money. Global numbers in billions are hard to comprehend, but we can make honest and clear efforts to make sense of them on a country-by-country basis. According to the data that ONE sent me (which uses PWC data on national tax rates to estimate the tax revenue losses associated with GFI illicit flows estimates) it looks like most countries where aid contributes a significant proportion of government budgets have estimated trade related tax losses in the region of 15% or less of aid receipts. Not nothing, but not the grand problem-solving amounts we are led to believe.

If you look at what this amounts to on a per capita basis (based on the ONE data and my calculations), Bangladesh could raise $2.77 extra tax for each of its citizens, Ethiopia $6.81, India $9.31and China $4.14. That is dollars; single dollars. Per person. Per year.

We thoroughly recommend reading her whole piece in full. Maya’s forte is to take these various reports from the various usual suspects and then drill down into the actual numbers and assumptions that they are making and test the veracity of them. An earlier success of hers was pointing out that estimates that Zambia had been diddled out of $10 billion in copper revenues was based on the pricing structure of 2 tonnes (yes, just two tonnes) of samples that had been sent out. Thus over-estimating the correct copper revenues by a factor of five (the very boring technical detail which I was able to help with subsequent to that article is that samples cost more than production lots. Largely because customs data on pricing (which is where the prices came from) includes the cost of transport in said customs pricing. So if you send someone 20 kg of copper as a sample through DHL the customs price for that 20 kg includes the DHL package costs. Which is, as we all know, rather higher per kg than the transport costs of 10,000 tonnes of copper on a ship).

It’s important for us to recognise all of this: and Forstater’s major point here is that these numbers we’re being fed about the impact of tax losses on developing countries simply are not true.

George Monbiot doesn’t quite get this competition thing

We’ve George Monbiot telling us all that this market thing, this rampant individualism, means that we all no longer cooperate with each other. Sadly, this shows a terrible misunderstanding of what markets actually are. They are, of course, a method by which humans cooperate with other humans. Competition is simply the method by which we decide who to cooperate with:

Yes, factories have closed, people travel by car instead of buses, use YouTube rather than the cinema. But these shifts alone fail to explain the speed of our social collapse. These structural changes have been accompanied by a life-denying ideology, which enforces and celebrates our social isolation. The war of every man against every man – competition and individualism, in other words – is the religion of our time, justified by a mythology of lone rangers, sole traders, self-starters, self-made men and women, going it alone. For the most social of creatures, who cannot prosper without love, there is no such thing as society, only heroic individualism. What counts is to win. The rest is collateral damage.

If I grow the pears, you grow the apples, then Bob and Jim make the cider and perry from them, then we sell some and drink the rest, are we competing against each other here? Or are we cooperating over the specialisation and division of labour and then trading in the resultant production? It is the latter of course: competition only comes in when we’re deciding whether it’s you growing the apples for this enterprise or Charlie in the next orchard over. The same with Bob and Jim: there might be competition to see whether it should be Bill and Johnny making that alcoholic nectar, but the end result is still that competition is how we decide who to cooperate with, the actual activities in the market, in the production cycle, being cooperation.

This same is true if it’s Danny in Taiwan making the chips, Yue in China assembling them and Rupert in Cambridge writing the operating system that makes the smartphone work. The market is still the method by which we coordinate cooperation among human beings.

Over and above that misunderstanding there is also this from George:

This is the Age of Loneliness.

Well, yes, intellectual who lives in the depths of rural Wales thinks loneliness is an important phenomenon. There is a reason why the intelligentsia of every society tends to cluster in the cities. We might even identify a little bit of excessive projection from the personal to the general in this screed.

In praise of subprime auto loans

We’ve another one of those laments, over at the Guardian, for the way in which the financial markets deliver financing to people who are poor. Apparently this is very bad, allowing poor people to finance capital expenditures in the same manner that we richer people are able to. You know, how nefarious Wall Street must be if it lets the poor, we mean really, poor people!, buy a car.

Many people are buying those cars with they help of Wall Street banks, which are lending money to people with bad credit again – just as they did prior to the financial crisis of 2007. In the last crisis, it was houses.

The $26bn worth of subprime car loans is far short of the $500bn of subprime real estate securitization in 2006, at the top of the housing bubble, partly because cars are a lot cheaper than houses.

This time, like last time, Wall Street isn’t directly lending poor people money. That part is done by an array of smaller financial companies in strip malls and office parks.

The smaller financial companies sell the loans to Wall Street. Wall Street puts them into big piles, sorts them from weakest to strongest credit scores, and then sells the pieces and parts of them to their customers. The customers can be hedge funds in Greenwich, Connecticut, or other banks. No part of the loan goes unsold: from the highest rates to the lowest-rated, buyers are always there.

This process is called subprime securitization, and about $26bn of it will be done this year in auto loans to poor people.

This is, according to the author, just terrible. And of course the reality is that it’s just wonderful.People who would not be able to afford a car can now do so: this enables them to get to work, to the shops, and thus makes them less poor. And the miracle here is that securitisation, the securitisation that distributes the risk.

Now it is possible, of course, to associate this subprime securitisation with what happened with subprime mortgage securitisation and thus wonder whether there’s going to be a replay of 2008. But there won’t be for two reasons. The first being that there’s just not enough of these auto loans to cause anything like a systemic crisis.

The second is that it wasn’t securitisation, nor subprime, that caused the problem last time around. It was fractional reserve banking: more specifically, that the slices and dices of these loans were on the books of banks who were leveraged in their holdings of them. So, when the value of the loans slid the banks became illiquid and possibly insolvent. If those same slices and dices had been in non-leveraged hands, pension and or insurance funds for example, then there wouldn’t actually have been those runs on those banks.

So, all we’re left with here with these subprime auto loans and their securitisation is that poor people get to buy cars more cheaply than they would without that spreading of the risk. And maybe The Guardian thinks that’s terrible but the rest of us should regard it as a pretty good idea. We are, after all, the people who are pro-poor, aren’t we?