Wind turbines increase carbon!
Now here's an interesting mini-point. We all know that wind turbines don't work when the wind isn't blowing, which can be pretty annoying if you want to cook your Christmas dinner and the country is beset by an eery calm. So you need to maintain other methods of generating electricity to step in when the blades aren't turning. Right now, that generally means fossil-fuel generation – gas or coal. You turn it on when the wind isn't blowing, and off when the turbines are making juice. Simple and efficient, eh?
Not quite. Bentek Energy, an energy market analytics and data company in Colorado, points out that you can't just turn a fossil-fuel power station on and off. If you do, you find that the emissions caused by the thermal inefficiencies when you are warming up and cooling down outweigh the reductions in emissions from the wind generators themselves. You would be better to run the coal-fire stations at their efficient level all the time.
So you might think that wind turbines are a good way to reduce carbon emissions. Actually, they are a good way to increase carbon emissions!
Just do nothing
Everyone is against red tape and vows to cut it back. Yet, year after year, there’s more red tape, regulation and form-filling than ever before. The trouble is that each instance of red tape and its ilk is usually tiny in the greater scheme of things and is spun strand by strand by otherwise insignificant busybodies nagged by vested interests. Over the long run, though, these strands together hold down the greater Gulliver.
We wish the British government all the best in cutting through this tangled web - call us when the job’s done. In the meantime, here’s a piece of advice to make things easier. While you’re hacking away, make sure the minions behind you aren’t spinning more tape.
The Guardian reported last week that HMRC is planning raids on fashion companies to ferret out interns “at ‘high risk’ of abuse under national minimum wage laws.” It seems HMRC has convened a 12-person “dynamic response” unit to make unannounced inspections of businesses where interns are being used as workers rather than just shadowing staff.
We all know where this is headed. The threat of raids will mean companies stopping internships whether these companies are “abusive” or not. What small company needs the hassle of proving innocence or defending alleged guilt?
Pretty soon, the cry will go out that there’s no internships in the land and a national “intern partnership” with business will be launched, complete with legislation, regulations, budgets, ministers and bureaucrats. It won’t take long for someone to learn that access to internships isn’t “fair” so more regulations will dictate that daddy’s friend can’t take on his daughter for the summer. Then someone will notice that the quality of internships is a “post code lottery” so there’ll be equalising funds for the intern-challenged regions. And let’s not forget the massed ranks of equality champions, seeking for new pastures.
HMRC commando raids to rescue intern hostages just don’t seem like a top priority. Nobody has snatched the interns off the street, bound and gagged them - they’re free to drift away and slump in front of daytime TV anytime they want. But they choose not to because they’re having more fun, learning something useful about the real world and slowly building an interesting resumé. Meanwhile, the businesses get a cheap’n’cheerful way to assess potential employees at minimal cost. That’s become more important as getting rid of bad workers grows harder due to more onerous “rights” granted to new hires.
Youth unemployment is, indeed, a problem. The cost of red tape and regulation on small business is one cause as is an uneconomic minimum wage. Call off the HMRC hounds before they make matters worse.
Meet the new boss: same as the old
This little snippet makes me rather angry. Irate even:
Grant Thornton, the accountancy firm, says that if wages increase at the rate predicted by government economists there will be a record 5.5 million higher rate taxpayers by 2015.
Even if wages grow at a more conservative 2.5 per cent, more than 700,000 people will become higher or additional rate taxpayers in the same period.
At present, anyone earning more than £42,475 pays higher rate tax at 40 per cent, while those earning more than £150,000 pay additional rate tax at 50 per cent. The Chancellor announced a three-year freeze on tax thresholds last June. Mike Warburton, senior tax adviser at Grant Thornton, said the freeze, coupled with wage growth, would create twice as many higher rate taxpayers by 2015 as there were in 1997.
For governments of all stripes have been playing this little game all along. It's called "fiscal drag" and it's part of the pernicious hidden side of the tax system.
We're all pretty hot on knowing the rate of tax that we pay: it's a fairly easy thing to spot. What's much more difficult is figuring out how much of our income that tax rate is being applied to: more specifically, whether there's been a change over time. We can all see that tax rates have come down but if that rate is being applied to more of our income then it's not so clear cut, is it? And the specific point at issue here is the personal allowance and the tax bands.
Looking at historic tax rates and then feeding them though a prices and average wages calculator, we can see that in 1973 you started paying income tax when you earned £595 for the year. If that number had kept up with wages growth it would now be £8,700 a year: but it isn't, it's £7,475. So the poor are being sucked into the tax net simply by not updating the tax system properly.
It gets worse at the other end of the tax system though. You started paying the higher rate when you were earning £5,000 back then. If that was upgraded properly it would be £73,000 now. As above, it's a shade over £42,000 now. What was a tax band that affected the top 2 or 3% back then is about to become one that affects the top 20% of earners.
This process is terribly attractive to politicians, of course. For they get to tax ever more people ever more money without actually having to put up tax rates and take the political pain for having done so. But if we let it continue on for another generation we're going to get close to the paper round being more than the personal allowance and anyone working full time will be on higher rate tax as they're "rich". Even defenders of progressive taxation would blanch at that, wouldn't they?
Private property is the solution
What to do about certain environmental problems is the great question of our age. It's obvious that, steering clear of contentious matters like the atmosphere, that we're driving some ecosystems entirely into extinction. How to stop this, how to solve these sorts of problems, is something we really ought to be concentrating on. And as it turns out, private property rights are indeed, for some subset of these problems, that very answer.
Take fishing for example: we're vacuuming everything edible out of the seas at present and we're really not going to be able to do that much longer. The current bureaucratic methods of trying to control this aren't working: we're still vacuuming just about everything edible out of the oceans. Which is what makes this story so interesting.
Chesapeake Bay is that huge squiggle on the map, running some 200 miles south from Washington DC in between Maryland and Virginia. It's also long been the source of bounteous harvests of oysters (my own immediately post-school teenage years were spent opening such delights for restaurant patrons in the area). However, the legal regimes on each side have been completely different. On the Maryland side, only the "hunting" of wild stock was allowed, on the Virginia the leasing of seabed and planting then harvesting.
It shouldn't come as much of a surprise to find out that Virginia produces vast numbers of fat oysters and has similarly vast numbers still in the water. Maryland has been pretty much fished out.
We really do need to take note of where fisheries are abundant and where they're not and then copy the management methods of the abundant ones: the Alaskan halibut fishery, the Icelandic and Faroese general fisheries, the New Zealand Orange Roughy. These are the places which have granted private property rights to fishermen and which as a result have waters still teeming with fish.
In effect, we've got to stop fisheries operating on hunter gatherer economics and move them over to working on farming such.
Why do we really want competition in the NHS?
No, it's not just so that we can financialise all that is holy, expose the UK's great socialist experiment to filthy lucre. The reason, actually, is so that we can try and work out how to make the NHS better.
There's a report in the BMJ about how independent sector treatment centres (ISTCs) have been doing and the general answer is, umm, OK really. The medical outcomes are a little better than the standard NHS, even allowing for the different mix of patients. And the patients seem to like them more than he NHS as well. Better production and happier customers: but only a bit. It's not a bad outcome certainly.
It's also not quite enough to provide a conclusive answer to the question of why we want to have competition in the NHS. A bit better is, after all, only a bit better. The true answer about competition is that no one actually knows how to make health care better. I most certainly don't, I doubt you do and I know absolutely that Andrew Lansley doesn't. We also know that the knowledge of how to, perhaps, make it better is local: it's in the hands of the surgeons and nurses and managers and cleaners and aides and porters and......So, what we want to do is open up the space, allow people to try things out, provide them with incentives to do so and then we can see what works.
For example, perhaps this would be a good idea?
This is cardiac surgery on the production line, in an extraordinary hospital in India.
The Narayana Hrudayalaya in Bangalore is the largest heart surgery hospital in the world. It has 1,000 beds, and last year it carried out a staggering 6,000 operations, half of them on children.
By contrast Great Ormond Street in London did less than 600.
"We are all products of the National Health Service in the UK, and what we learnt over there we have implemented in perhaps a slightly different manner," says Dr Devi Shetty, India's most famous heart surgeon, and the driving force behind the hospital.
"We believe that the only way is to build large hospitals - 100 or 200 beds are not going to be the solution for the current world health problem. We need to build large hospitals where hundreds of operations are carried out every day."
And here in Bangalore, the theory appears to work. Despite the huge volume of operations, mortality rates are comparable with or better than those in Britain and the US, and costs are much lower.
Maybe this is a good idea, maybe it isn't. I don't know, you don't and Andrew Lansley doesn't. And that is the reason that we want competition in the NHS. We're all entirely buggered as to how to make it better. So we must open it up to experimentation, to that market process of trying things and then sorting through the successes and failures, so that we can actually work out what does make it better.
Yes, there will be failures just as there will be successes. But the evidence of the 20th century is that such market processes reduce costs and improve outcomes over time. A useful lesson for us to remember in the 21 st century.
If solar's so great why isn't.....
An interesting question being asked. If solar power is so great, if it's all just on he verge of becoming economic to use without subsidy, then why can't we see this in the prices and valuations of the companies that make solar power?
Last week, Tyler Cowen asked a good question: if solar energy is really close to dropping below the cost of conventional energy, why isn't it showing up in markets? How come solar companies (and not just thin film firms like Solyndra) getting hammered, while things at good old fossil fuels are getting better?
There are two possible answers as far as I can see. The first is of course that solar isn't about to make some great big price breakthrough, we're not all about to start using it without subsidy and essentially the whole story is a crock.
Or there's the other answer which is the one that I believe. Solar is getting better, it will cross that "profitable to use without subsidy" line pretty soon. However, the reason that the share prices of solar manufacturing companies are not soaring in anticipation is because share prices don't in fact measure sales. Or consumers' use of the company's products, not boiling Gaia or even prices falling into viability. What share prices measure is future profits.
And I'm deeply suspicious that anyone is going to make large profits by manufacturing solar cells. There's just too many people in the business: and it's not even that complicated a business either. We're actually seeing something approaching a properly competitive market in fact.
In order to make solar cells more cheaply a producer has to get cheaper sand, cheaper energy, use less energy in the process (it is essentially baking beach sand in order to get the silicon), slice the ingots more thinly or finally, just be better at the boring manufacturing stuff. Fewer faults, less labour being used, all that sort of stuff. And the problem from the manufacturer's point of view is that there's no particular point at which they can claim unique intellectual property, a patent, or any real protection for their ideas or processes. It's not like a computer chip where you can copyright (at the least) the coding in or anything.
Solar cell manufacturing is, for all its newness and gadgetry, really just mass manufacturing of entirely interchangeable parts. As such we really wouldn't expect those doing it to make good or large profits over the long term: we'd expect profits to be competed away down to the average return on capital in fact.
As, in fact, we can see is happening as the things get 4 to 5% cheaper every quarter. So the reason we don't see solar stocks soaring as a result of the price competition bringing them closer to economic viability is, umm, the price competition bringing them closer to economic viability.
Bank reform: getting the policy right
Create new, 'safe' banks if you want to – but not at the cost of lots more regulation and dismembering Britain's hugely important financial services sector. That's the message of a new report and briefing paper being published by the Adam Smith Institute today.
The Independent Commission on Banking (ICB) – set up by George Osborne – was told to work out ways to make the banks more secure and avert future banking crises. Their first suggestion was to split up the banks into 'safe' high-street and 'risky' investment operations. Then load them with higher reserve requirements, so they have to keep a bigger cushion of 'safe' assets.
Both prescriptions are wrong. It wasn't the 'risky' investment banks that caused the UK's problems. It was the retail banks and building societies that got into trouble, mostly by lending too much on mortgages during the housing boom, or buying US investments that they did not understand. When the boom subsided, their customers couldn't repay their mortgages and the US investments turned out to be highly toxic. Regulators daydreamed while this was all happening, and the Bank of England – having fuelled the boom – squeezed hard just when the banks needed more cash to tide them through this rough patch. The retail banks just ran out of money.
So breaking up the banks isn't going to make any difference. And raising their capital requirements higher than anything being contemplated by Brussels or Basel will just put them at a huge disadvantage against world competition. It also means they will have less cash lying around to lend to small firms – the drivers of employment and growth in the UK. Small firms will find it harder to get loans, and will pay more for them.
Investment-bank customers are savvy enough to look out for themselves, but ordinary families and businesses want banks that are safe. So, instead of trying to dismember existing banks, why don't we simply allow people to create new ones? We suggest a new form of banking licence that allows people to create Trust Banks to do just that. They could operate as they pleased, but the Bank of England would have to be sure that they were sound, and could survive the failure of any parent or sibling company. And Trust Bank customers would be the only ones who would get a government guarantee that they would not lose their deposits. It's a market solution to a problem caused by over-complex regulation, badly enforced.
Beware the politicized medical establishment
As I've said before, politically active doctors are the most immediate threat to personal liberty in Britain. Now today the British Medical Association (in the name of "no platform for fascists", I won't link to their website) want to ban smoking in cars:
The British Medical Association (BMA) is urging ministers across the UK to extend the ban on smoking in public places introduced in 2007 to all vehicles in a further effort to protect people's health.
Children are at particular risk from secondhand smoke in cars because they take in more of the chemicals from cigarettes than adults and may not be able to refuse to travel in a smoky car.
Ah, the Helen Lovejoy argument: won't somebody think of the children?? Of course, if they really believed that rationale, they'd want to ban children from cars altogether. Or, better yet, why not ban cars? A tweeter has an ideal solution:
Let's ban parents! They regularly neglect, abuse & murder their children. I say this menace must be stopped!
Well, quite. Chris Snowdon has the low-down on the figures used by the BMA to justify this piece of health fascism. Basically, they're made-up. And Joshua Lachkovic has written a good broadside against the proposals at the TFA website. But I can't help but wonder if this is a tactical move by the BMA. The best way to shift the centre ground to where you want it might be to take an outrageous, extreme position, so that your true goal seems moderate. Shoot for the stars and you may just reach the moon.
My theory is that this ludicrous proposal is designed to make a politically achievable target seem moderate. The BMA wants plain packaging laws for cigarettes to be brought in, and today's furore will only distracts civil liberties campaigners from that objective. Clever stuff; though I might be giving them too much credit. Maybe they really are what they seem: anti-individual, anti-liberal, anti-choice paternalists who think that nanny knows best.
I wrote about plain packaging laws earlier this week: Plain packaging laws are stupid and illiberal.
We need to cut inflation down to size
Yesterday's inflation figures showed that the Consumer Price Index (CPI) measure of inflation in October dropped slightly to 5%, from 5.2% last month. CPI is the government's preferred measure, which does not take housing costs, such as mortgage repayments, into account. But those of us who still have mortgages to pay off might prefer to look at the more traditional Retail Price Index (RPI), which is even higher at 5.4%, down from 5.6%.
The Bank of England reckons that inflation is largely an effect of the falling pound, which makes imports more expensive, particularly the things it is hard to do without, such as fuel and food, which are largely imported. It is not helped by rising commodity prices as Asian countries bounce back from the slowdown and start building things again. They figure these pressure will ease, and when the VAT rise drops out of the calculations after it has been in place a year, the indexes will fall again, they say.
Well, they would say that, wouldn't they? It rather diverts attention from the £75bn of new money which the Bank 'printed' (in the form of Quantitative Easing) before expanding the programme to £200bn later that year and increasing it again recently to £275bn. And as we know, thanks to Milton Friedman, inflation is always and everywhere a monetary phenomenon. When you print too much money, it loses its worth.
So is that what is going on here? It's hard to say. The other folk who create money are the banks. Indeed, they can create it at the stroke of a pen, just by giving loans to their customers. The trouble for lots of their customers is that the banks have been more reluctant to do that recently, having had their fingers burnt by the crisis of 2007/8. So the Bank of England figures it is just replacing the money that the banks are no longer creating.
Maybe. For quite a long time through the noughties, the Bank had a target of 2% inflation which it failed to meet, month after month. And that was despite the fact that a strong pound and cheap imports from the likes of China meant that, if anything, prices should have been falling. The Bank stoked up a boom, and it was the inevitable bust of that boom that led to our present problems.
Yes, we need an big enough quantity of money around the place that banks and businesses have enough to lubricate the wheels of commerce. But you don't want to take risks with inflation. it is corrosive. When all prices are rising, it becomes harder to distinguish the 'signal' of real price rises and falls from the 'noise' of prices rising everywhere. How many people really know whether their house has gained or lost value, when the cost of living is rising so fast? How many entrepreneurs, for that matter, know if their investments are really paying off, after inflation is taken into account? They don't – and that is why inflation causes people to put their time, effort and money into the wrong things. That's a luxury we really can't afford in these times. We need to get inflation down. And fast.
Cocaine, crack and crime
There's a fascinating post on The Atlantic Cities blog today, which argues that the spectacular drop in crime the US enjoyed during the 1990s was down to a fall in the price of cocaine (and, therefore, the highly-addictive crack cocaine):
Cocaine was the driving force behind the majority of drug-related violence throughout the 1980s and into the early 1990s. It was the main target of the federal War on Drugs and was the highest profit drug trade overall. In 1988, the American cocaine market was valued at almost $140 billion dollars, over 2 percent of U.S. GDP. The violence that surrounded its distribution and sale pushed the murder rate to its highest point in America's history (between 8-10 per 100,000 residents from 1981-1991), turned economically impoverished cities like Baltimore, Detroit, Trenton and Gary, Indiana, into international murder capitals, and made America the most violent industrialized nation in the world.
Then in 1994, the crime rate dropped off a cliff. The number of homicides would plummet drastically, dropping almost 50 percent in less than ten years. The same would go for every garden variety of violent crime on down to petty theft. The same year as the sharp decline in crime, cocaine prices hit an all-time low. According to the DEA's System to Retrieve Information on Drug Evidence (STRIDE) data, the price per gram of cocaine bottomed out in 1994 at around $147 (calculated in 2003 dollars), the lowest it had been since statistics became available.
The Atlantic says that this drop in price is down to more sophisticated smuggling techniques, which increased supply. Of course, correlation isn't causation etc. But it sounds like a plausible explanation – reduced margins for dealers means the risks of jail or death from turf wars (the main source of drug gang-related murders) has less of a pay-off. The emergence of crystal meth (very low-cost to produce) probably hit demand for cocaine too.
The other side of all this, which I'm surprised the article doesn't mention, is that lower costs mean that addicts find it easier to pay for their habit. They're less likely to resort to theft and mugging, and so on. It's also noteworthy that crack probably only emerged as a way to get more "bang for the buck" out of cocaine while trafficking was harder.
The upshot of all this is that reducing the price of drugs like cocaine in Britain would probably help with crime rates as well. Drug legalization would be ideal, but a more achievable work-around might be to instruct customs workers to turn a blind eye or take a coffee break when flights from Colombia are coming in to Heathrow. They do it for European countries already, where there are seldom-enforced limits on how much alcohol or tobacco can be brought in. Extending the practice to one more country could make a surprisingly positive difference to the UK's crime rates.