Reasons for optimism - desalination

Technological advances make it highly likely that the world will soon have no shortage of water of potable quality in the places where it is needed. Although there have been disputes between countries over available supplies, the likelihood is that there will be enough for everyone. On the small scale much is being done to dig new wells and to adopt local water purification techniques that diminish the spread of water-borne diseases. The big advances, however, are being made in desalination.

The world is not short of water; it covers seven-tenths of its surface. The problem is one of removing the salts from it to render is usable for drinking and for agriculture. The most promising developing technology uses seawater reverse osmosis (SWRO desalination) to push seawater through membranes that admit pure H20 molecules, but prove impervious to the salt and other molecules dissolved in it.

It has had problems associated with it, notably the high energy inputs needed, and the high costs this brings, together with the environmental impact on the localized marine ecology, but these are being solved. It has been shown that the local impact can be mitigated by creating or restoring suitable habitats or by restocking with affected species. And the high costs associated with abundant energy use is being resolved as the costs of renewable energy sources decline. The current cost curve for solar and wind energy suggests that energy will become cheaper as time progresses, making osmotic desalination ever more attractive economically.

As energy does become cheaper, it will be possible to move the desalinated water to the places where it is needed by pumping it long-distance though pipelines, much as oil is currently piped across thousands of miles. Lower energy costs will render this viable. The rapid development of desalination technology indicates that water shortage problems can be resolved. This will make it possible to cultivate in currently inhospitable areas. It will enable hydroponic farming to take place in areas lacking fertile soil, further reducing pressure on the land needed to produce food.

Far from facing shortages and possible conflict situations, the likelihood is that fresh, clean water will be both abundant and cheap in the future

Why should landlords have lower tax bills?

If the underlying truth to a matter is misunderstood then we’re going to end up with bad to terrible policy on that matter. Thus it is important that all understand who really pays, who carries the economic burden, of business rates:

Business rates, a tax levied on commercial property occupiers, have created an uneven playing field between bricks-and-mortar chains and their online competitors, helping to drive a slew of high street chains to the wall. Since the onset of the pandemic, Laura Ashley, Cath Kidston, Monsoon Accessorize, Paperchase and Edinburgh Woollen Mill empire have all fallen into administration. The collapse of Debenhams, often an anchor tenant in shopping centres, will damage the prospects of other businesses around it.

“It’s a double crime because we are letting online businesses like Asos and Boohoo out-compete rivals by not paying as much tax — and when they kill their competitors, the creditors, which includes HM Revenue & Customs, pick up the tab for that too,” said former Sainsbury’s chief executive Justin King, who now sits on the board of Marks & Spencer. “It would be funny if it wasn’t so serious.”

It is true that the occupier hands over the cheque for the rates. But the person who carries the economic burden is the landlord, they can charge a lower rent because of the existence of the tax. This is as close as our current tax system gets to a land value tax and is, in fact, a good tax. Good here meaning both efficient and equitable, rather than it being good to have to tax, that’s a cost given that we’ve got to pay for government somehow.

So, the current argument, the one being made against business rates, is that landlords should pay less tax and the shareholders, workers and possibly customers of online retailers should pay more.

It’s possible that that is true, not that we think so, but that is the argument that is being made and is the case that has to be proved.

So, before anyone signs up to this change in taxation methods there’s the big question that needs to be answered.

Why should landlords pay less tax?

GameStop and short selling

As ever, when there’s something interesting happening in the stock markets there are the claims that something must be banned. The GameStop story has certainly been interesting and it’s leading to the call that short selling be banned.

Ourselves, well, one calculation is that short sellers have just lost $20 billion. If short selling should be reduced then we’d consider that a pretty good incentive for short selling to reduce.

However, we are these days told that we must “follow the science”. On this particular point the science being Robert Shiller and his Nobel. His point is that the efficient markets hypothesis works only within certain caveats, one of which is that markets must be complete. If people can buy something then we get the views of those who think it will rise. If people can not buy something then we get the view of those who, perhaps, have no view. Only if people can go short can we gain the views of those who think the thing should or will fall in price.

Thus a market which does that market job of price discovery does so better in the presence of the ability to short sell. This is why his solution to the US housing frenzy of 2003 to 2006 being the creation of futures markets where more speculation can take place. That speculation on lower prices is possible tempers and reduces such frenzies.

The implication there - baldly stated by Shiller at times - is that having to short housing finance (those CDS and CDO things) rather than housing more directly delayed the pricking of that bubble.

A proper and decent financial market is one that deliberately creates the structures in which is it is possible to speculate upon falling prices, to sell short. At which point we’d probably not ban the very thing which creates that proper and decent financial market.

We can take a step further back too, to Galton’s Ox, that foundation of the idea of the wisdom of the crowds. The random mass is asked the weight of the dressed carcass and no individual gets it right. The average of the random mass does with startling accuracy. But, and here’s the essential caveat, it only does so when all views, however objectively silly they are, are included.

This is rather redoubled in a financial market where things are worth exactly and precisely what people think they are worth. Banning short selling excludes views from that price setting therefore the price that is set will be wrong in the absence of short selling. Not because there is some objective price that is correct, but because we’re excluding some of the views as to what that price should be.

Of course we can value the environment, the ecosystem services

Whether the current calculations of the environment, of ecosystem services, are quite right and accurate is one thing. But the idea that we cannot or even should not do so is false:

Some environmentalists wince at the financial characterisation of the natural world, disputing an anthropocentric understanding of ecosystems and organisms as capital that derive value from how well they “serve” humanity. Guardian writer George Monbiot calls the approach “morally wrong, intellectually vacuous, emotionally alienating and self-defeating”. Others dislike the seductive logic of including the environmental damage of eating a beef burger or driving a petrol car in their “true” costs, deforestation and melting glaciers included.

We’re the only valuers around to apply a value to anything. Further, the valuations that are calculated are the valuations to human beings.

Of course, to claim that there is some pure and just value, independent of that applied by humans, is to make the same error that Aristotle and Aquinas did. This is not then to go on and say that all values are captured by market prices. We’d argue that a lot of them are but never that extreme that all are. It is though to insist that, among humans the value of something is the value humans ascribe to it.

To give an example, the cost benefit analysis for the varied alternatives to the Swansea Barrage, the Severn tidal dam and so on. In there is an amount for the value of mud flats for wading birds. Given the birds’ lack of money, so too the clams, the mud itself and so on, it’s obviously not a straight market calculation of how much they’d pay to keep that environment rather than having a lagoon generating electricity.

What that mudflats value actually is is that some people like the idea that there are mudflats for wading birds. That’s humans applying a value to some part and or form of the world. Working out exactly what that value is is a bit of an art (how much do people show, by their actions, that they value this at?) but the logical concept is sound. It’s exactly the same logical method we use to work out the statistical value of a life - how much, by their actions, do people show they value a representative life?

It’s also true that not only can we do this but we should. The aim of this economic game is to maximise the utility of us folks in aggregate. Therefore we need to know the calculations being applied to the varied things that are valued and produce that utility.

Gawping at mudflats, even knowing they exist, produces utility for some human beings. Thus it’s a part of the maximisation of utility. As are, of course, the alternative uses of that same chunk of the environment which is why we want to know the values in varied uses.

It’s common enough to declare that certain values are not commensurable. That value of the curlew getting its dinner as against the electricity with which a human can cook theirs. But all commensurable means is capable of comparison and given that both are the values ascribed by humans to those things then of course we can compare them. For they are the same thing - values ascribed by humans.

The Left and the Zero Sum

When I published my logic book, “How to Win Every Argument,” I said that if fallacies were assigned to nations, the English would have the Argumentum ad Temperantiam, which falsely attributes superiority to a middle way in the absence of supporting argument or evidence. I remarked that if one group in a pub was arguing that two plus two equals four, while another group argued that it made six, an Englishman might conclude that the answer was probably about five. Moderation in all things, even accuracy.

If fallacies were instead assigned across the political spectrum, the Left would have the Zero Sum Game fallacy. This is the fallacy that falsely supposes something to be limited in supply when in fact it is not. Some have dubbed it the Pizza Pie fallacy, because a pizza pie is limited in size, and if some take a larger share, there is less left for others. The fallacy lies in extending this reasoning to things that are not limited in size.

Many on the Left apply this to wealth, supposing that some people are poor because others are rich. They suppose that a small number of very rich people are somehow making the rest of the world poorer by taking too large a share of a fixed supply. The reality is that the world’s wealth is not limited, and that wealth is created every day. When people trade and exchange both sides give what they value less in return for what they value more, and both have greater value than they had. The trade takes place because both people gain; this is how wealth is created.

Some on the Left suppose that rich nations became rich by taking wealth from others, whereas the reality is that they became rich by creating wealth through trade and exchange. Some also claim that poorer countries can only become richer if the world’s wealth, supposedly in fixed supply, is “shared out more equally.” Poverty is neither man-made, nor is it caused by wealth. It was the default condition for most of humankind for hundreds of millennia. It was only when we discovered how to manufacture productively and to trade and exchange with others that we climbed out of it, as more are doing every year.

The presence of a few billionaires does not make the rest of the world poorer. Indeed, they probably makes it richer by heading up corporations that add value to people lives by giving them new opportunities. Oxfam, which once was the Oxford Committee for Famine Relief, dedicated to the worthy cause of providing food to those hit by famine, has fallen head over heels into the Zero Sum trap. Their new report, “The Inequality Virus,” blames the rich for the poverty of the poor worldwide.

 “This inequality is the product of a flawed and exploitative economic system, which has its roots in neoliberal economics and the capture of politics by elites. It has exploited and exacerbated entrenched systems of inequality and oppression, namely patriarchy and structural racism, ingrained in white supremacy. These systems are the root causes of injustice and poverty.”

This is simply wrongheaded on all counts. “These systems” are not the root causes of injustice and poverty. It is lack of economic opportunity that perpetuates such poverty as remains worldwide, for a diminishing proportion of humanity. Globalization has enabled billions in poorer countries to enter the world market and to trade their produce and their labour with people in richer ones. It is by buying their produce and employing their labour that richer people have helped them up the ladder, not by transferring to them more of a fixed supply of wealth. Wealth is infinite, and there is no limit to the amount that can be created. The important thing is not to share it out on a more equal basis, but to enable more people every year to gain more of it by creating more of it. It is not a zero sum game.

Economics 101 has its merits

It’s a common denigration of simple economics that it is simplistic. The world’s much more complex than that description of it in the Economics 101 course. This is why - the argument inevitably goes on to point out - we must do these things which violate those precepts of Economics 101. You know the sort of thing. Sure, higher prices mean people buy less but this doesn’t apply to a minimum wage because reasons. We’ve even seen the argument that higher corporate taxes would increase investment because complexity.

So it’s nice to see agreement that this base and basic view of the world does still have some power:

Low EU purchase prices per vaccine might have further slowed down deliveries.

That’s directly from the chart on the first page or two of every Econ 101 book, the supply and demand curves. The lower the price on offer the less excited people are to supply the item. A useful confirmation of the textbook from that reality outside the window.

We also have confirmation of a finding from Politics 101:

But the EU must now learn lessons. It needs institutions comparable with those of the US to deal with such situations. The commission’s initiative to boost the European Health Emergency Response Authority is to be supported. EU citizens should decide how much risk they are willing to take when it comes to vaccine authorisation and liability, and leaders should provide more financing for vaccine development and procurement. For now, the EU’s priority must be to mobilise all financial and political resources to increase vaccine supplies.

The current political structure hasn’t worked very well. Therefore we must give more power to the current political structure. This is indeed basic politics, removing power from failure is something that only happens out in markets - you know, that part of life that works?

The wrong way to deal with climate change

A suggestion here for what should be done about climate change:

Ministers should consider launching tax breaks for companies investing in green technology, according to EY’s former UK boss Steve Varley.

The UK will host COP26, the UK’s climate change conference, in November and has pledged to support green and sustainable investment as part of its economic strategy.

The Bank of England plans to launch its first green bond this year while the Government has made a legally binding commitment to end the UK’s contribution to global warming by 2050.

Mr Varley said taxation could play a role in the Government’s efforts to achieve that aim.

He said: “In the past the UK... had incentives for research and development innovation. I think exploring those and reintroducing those at a greater scale to spur on green investments and green technology would be a really smart avenue for the Treasury.”

No, that’s the wrong way. This however:

A carbon tax could play a role in the UK’s fiscal policy over the next three to five years,

That’s also wrong. It should read “A carbon tax will play the role”.

As to the reason why Donald Rumsfeld’s known unknowns idea aids in explanation. There are things we know, known knowns. Things we know we don’t, known unknowns. Things we don’t know we know, unknown knowns and things we don’t know, unknown unknowns.

Assume, just for the moment, that those future terrors of climate change are in fact true. We thus want to mobilise all the things we can in order to solve that problem. That requires all of those things, all four of them, known and unknown.

By definition a tax break can only deal with things we know about. Because we must be able to identify that thing in order to craft the tax break itself. But we want to mobilise all those things we don’t know we know as well as all those things we don’t know as yet.

Therefore our incentive structure has to be the other way around. Instead of a break for anything that we know about we want to make the ill-activity more expensive for everyone so as to uncover all of those things we don’t. That is, instead of lower prices based upon current knowledge we want higher prices to encourage those unknowns.

Yes, obviously, this does depend upon accepting the existence of the terrors in the first place.

It also insists that politicians don’t get to do any picking and choosing. One simple rule, set once, then leave it alone, allow prices and the economy in general to chew through the problem. Given the propensity of politicians to fiddle this is exactly why the one, pure, solution to climate change, that carbon tax, never has been instituted anywhere properly. After all, where’s the fun of power if a problem actually gets solved?

Reasons for optimism - cultured meats

Although the general public probably regards cultured (lab-grown) meats with some amusement, and perhaps disdain, it is a technological advance that promises to transform the agricultural industry of many countries. Cultured meats are made without killing or even harming animals. Muscle cells are taken from a biopsy of a living animal and grown in what is sometimes called a bioreactor by being fed and nurtured so they multiply. The muscle tissue they create is biologically identical to the meat that comes from a slaughtered animal, but is made in premises that have more in common with a factory than a farm.

The first cultured burger was unveiled in 2013 by Dr Mark Post of Maastricht University. It had taken two years to produce, and cost $300,000 to achieve, and was partly funded by Sergey Brin, one of the co-founders of Google. Since then the cost of production has fallen dramatically, as have the techniques needed to give the meats the texture and taste of the animal-produced meats they replicate. It is calculated that this year will see the price of cultured meats fall to the point where it can compete on price with traditionally-reared meats.

Rapid progress is being made with different types of meats. Cultured fish is seen as an alternative to depleting fishing stocks worldwide. It has yet to replicate the muscle texture of wild or farmed fish, but can already serve as a substitute in fish fingers, fish burgers or fishcakes. Cultured chicken was the first lab-grown meat to be passed for human consumption when it was approved by Singapore in 2020. It proves a valid substitute in chicken nuggets.

The chief advantage of cultured meats is that they are potentially limitless. Synthetic beef does not require vast acres of land for pasture, and does not threaten to convert rainforest land to agriculture. It does not use the antibiotics given to farm animals, and risk spreading antibiotic-resistant bacteria. It does not involve the mistreatment, suffering or slaughter of animals.

Cultured meat raises the prospect in some countries of allowing current farmland to be returned to wooded or wild conditions, with the ecological and environmental gains this brings. It could enable people in poor countries to improve their diet without putting excess strain on the Earth’s resources. It currently has a high energy input, but this will diminish as production is scaled up and can be supplied from renewable or non-polluting sources.

For about 12,000 years humans have used animal husbandry as a source of protein, but the technology of cultured meats looks to change that. It will bring about major economic, environmental and cultural changes, enabling us to produce more food for the world without the drawbacks that this might otherwise involve.

Sir Simon believes things that just ain't so

Simon Jenkins tells us that inequality has increased considerably in this 21 st century:

Political economists on both the left and the right are coming to the conclusion that the gap between rich and poor countries, as well as between rich and poor people, is destabilising and dangerous to democracy. The so-called Gini coefficient of inequality in personal incomes and wealth fell steadily in the latter decades of the 20th century, but has risen sharply in the 21st. The world is getting less equal.

As Mark Twain pointed out it’s not what you don’t know, it’s what you believe for sure that ain’t, which is dangerous.

Globally the world is becoming more equal. That’s what neoliberal globalisation has been doing - the poor countries continue to grow faster than the rich ones and the gap between them shrinks. It’s entirely true that we here don’t worry very much about inequality thinking that absolute poverty is the thing we should be striving to defeat. Fortunately this neoliberal thing beats both, proper poverty and also global inequality.

If we restrict ourselves to the UK then Sir Simon really should have a look at his own link to the evidence he says supports his thesis. His own dang newspaper points out that the Gini rose substantially in the last decades of the 20th century and has been roughly flat since - actually, it’s a little below 2008 levels right now.

It’s possible to become a little curt, possibly even short, here and mutter than basing policy on entire ignorance of the subject under discussion might not be the best manner of running the world. Or even of writing columns about what that policy might be. But there’s more here:

The world’s most successful industries – largely the concern of the top 10 wealthy individuals – are still operating virtually tax-free. The reason at root is that these industries are global, while taxation is national. Tax regimes tend to be deeply conservative, continuing to undertax wealth, notably property, and overtax lower and middle incomes. Fiscal authorities, such as Britain, are also cynically indulgent towards tax avoidance and money laundering, while loading taxpayers with regressive imposts such as council tax and VAT.

The global marketplace of Apple, Facebook, Google and their sprawling dependencies is essentially left alone in space. No one country has yet had the nerve to confront it – except possibly China – despite its vast tax potential. This will end only when Europe and America take the lead and act in concert, which should be a top item on Joe Biden’s agenda.

This has already been done, this was part of the Trump tax reforms. It used to be that if profits could be squirreled out of Europe or other such areas into a tax haven then they remained, for a US corporation, untaxed forever. Or could, potentially so, remain untaxed. This is now not possible. Overseas profits made by a US corporation are taxed in the US. That loophole being complained about is at least 3 years out of date now.

It’s possible that soaking the rich is the answer however much we think it would be completely the wrong thing to do. But those who would advance that argument should be held to a reasonable standard of proof. Offering justifications which are at least true rather than clearly and obviously not being so a good starting point we think. Inequality is not increasing, globally or nationally. Big Tech profits no longer go untaxed.

Any other reasons to offer up?

One wing good, two wings better

90 years ago, the Air Ministry dismissed monoplanes as fighter aircraft on the grounds that biplanes had served us well in World War 1 and biplanes were what our world-beating aircraft industry built. The fact that monoplanes were breaking airspeed records and winning international races merely indicated their suitability for amateurs. It should have been no surprise, come 1939, that British “string bags” proved no match for the Luftwaffe’s monoplanes.  Luckily, and just in time, the private sector had rebelled and put the Spitfire, and then the Hurricane, into production. MIT Professor Eric von Hippel has long demonstrated that “user innovation” is more successful than that by bureaucracies. 

The Department for Business, Energy and Industrial Strategy (BEIS) exhibits the same “two wings better”. It is widely accepted that a zero carbon 2050 means that most electricity by then will have to be generated by renewables and, because the wind does not always blow, nuclear. BEIS is committing us to the third generation of pressured water reactors (PWRs) like Hinkley Point and Sizewell C. They expect those to be followed by Rolls Royce which is “planning to build 16 Small Modular Reactors [SMRs], and says the first one could be on the grid by 2031.” There are a number of other types of nuclear plant that BEIS could be evaluating but the most attractive looks to be Molten Salt Reactors (MSRs).  However, BEIS does not want to consider those before the 2040s. 

There is no BEIS analysis today, e.g. in the White Paper, of the best options.  PWRs roll on because that is what we have done before.  PWRs purchased from EDF, described by Alistair Osborne, The Times Business Editor as “the cost-overrun and late-delivery specialists behind the consumer-fleecing £22.5 billion Hinkley Point C.” What with flood risks, ecological damage and nuclear waste disposal, these are unpopular and virtually banned in Germany. Seven of the existing eight UK plants need decommissioning by 2030 and it would seem that we can expect more of the same out-moded PWRs. 

The case for the Rolls Royce SMRs rests on Rolls Royce being British.  If any performance or cost comparisons have been made, they have not been published. The case for MSRs rests on safety, size, cost, and rapid deployment. We should look at those in turn. 

“The basic idea is to dissolve the nuclear fuel in a liquid – a molten salt at 600-700 degrees C – that is continuously circulated through the reactor core. In the core, the liquid-carrying channels are surrounded by neutron-moderating material (mainly graphite), which provides the conditions for fission chain-reactions to occur in the dissolved fuel. Leaving the core at a higher temperature, the fluid runs through a heat exchanger, transferring the extra heat energy to a secondary circuit. It is then recirculated back to core.” I am not sure that explanation leaves me much the wiser.  Let’s just say, it is high tech and it works. 

MSRs operate at low pressures without the need for large containment structures. Radioactivity declines as they heat up with no risk of radioactive isotopes escaping.  They are small, built on a factory production line and delivered by road. They can also be mounted on special barges and moved close to where electricity is needed. They do not need large quantities of cooling water which means that they can be located inland. 

Capital cost estimates are in the range £1.5m to £2.5m per megawatt (MWe) of output. This is significantly lower than the capital cost per MWe of output of Hinkley Point C (currently around £6.6m per MWe) and would make electricity from molten salt reactors cheaper than electricity from gas fired power stations. 

Total costs (including running costs) are compared using the ‘Levelised Cost of Electricity’ (‘LCOE’). The LCOE for molten salt reactors is in the range $40 to $50 per MWh. For comparative purposes, the LCOE for conventional nuclear is in the range $118 to $192 per MWh. Offshore wind is estimated at $111 to $115 per MWh.  

MSRs were successfully tested in the USA in the 1960s. The Seattle-based USNC expects to get approval for a demo plant in Ontario in 2022 and commercial operations are due to start in 2026. At the end of 2021, the Washington State based ThorCon will begin the first stage of construction of its 500MWe demo plant for installation in Indonesia by the end of 2024. Most of their plant will be built in a Korean shipyard. Using rapid modern shipbuilding techniques, they will be able to build most of a plant in a year. ThorCon started as outsiders in the industry – but so was Elon Musk and he is now well ahead of the traditional car makers.  Moltex and Terrestrial Energy, both with offices in Canada, the US and the UK, have received large financial backing from both the US and the Canadian Governments. USNC, Terrestrial and Moltex are the front runners to produce cheap electricity for the Provinces of Ontario and New Brunswick by 2029. Those companies estimate dates for deployment of full-scale MSRs in 2024 (Indonesia), 2027-2029 (Canada, USA & Denmark) and 2030 (China).

It really is remarkable that BEIS should ignore international developments and fail to cost or compare the options available. Some people might consider that unprofessional. Unless Kwasi Kwarteng wakes up soon, the UK will be 20 years behind other leading nations.