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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Choo-choo-choosing stability in the railways

Written by Dr Eamonn Butler | Wednesday 04 May 2011

trainspottingThere is an important entry in the diary of Sir Richard Branson, boss of Virgin Trains. On 31 March 2012, the company's fifteen-year franchise to operate on the West Coast Main Line (WCML) – the important stretch of Britain's rail network that links London, through the West Midlands and North West to Scotland – is to be re-let. He seems confident enough, though, having recently ordered four new trains.

Franchising isn't a perfect system. It arose as part of the effort to introduce choice and competition into the old state-run British Rail (BR) monopoly. BR didn't just run the trains, it made the trains, owned the track, signals and platforms and even ran the station buffets with their infamous dried-up, curly sandwiches. The whole monopoly was no more appetising – bloated and lazy like all monopolies.

One idea was to return to the old Victorian structure, with new private companies running trains across their own tracks and between their own stations – one serving London to the West, one up the North East coast, one up the West Coast, and so on. The trouble is that British Rail had become far more integrated than this, a true national network, with trains running from one end of it to the other, through any number of the old Victorian boundaries. To split it up again would be to cut against the grain of the organisation, and would lead to problems when one company wanted to run its trains across tracks owned by others.

Following an Adam Smith Institute report by Kenneth Irvine, The Right Lines, it was decided to keep the network whole but to allow different companies to run their trains across it, like coach companies competing for business on the national road network. It couldn't, of course, be a free-for-all, so the eventual plan invited companies to bid for the right to operate particular routes and services. It seemed simple enough, until all the lawyers got started – the government's, the regulator's, the operating companies' the infrastructure company's. And since nobody with a franchise of just a few years would make long-term investment in new rolling stock, the rolling stock leasing companies had to be invented, and naturally they brought their lawyers along too. The result was an overcomplicated system that left the public bamboozled about who to complain to when the trains were late.

Not that they were. Privatization led to greater reliability, an increase in services, a rise in passenger numbers, and even (despite two very significant crashes) improved safety statistics. But the system was still cumbersome and confusing, and the private infrastructure monopoly Railtrack turned out to be no better than the public one.

Nor, for that matter, is the new infrastructure quango Network Rail. It has spent an absurd number of billions inefficiently upgrading the West Coast Main Line. The fear must be that the government will want to recoup some of those billions by getting as much as it possibly can from the franchise bidding war. No doubt it will be recruiting game theorists for that purpose. But the last government's experience in getting the highest possible price – in telephones and then again with rail franchises – shows that getting the highest price isn't everything. What is more important is getting a franchise operator that can provide a good service to customers over a long period, without going bust because they have overbid.

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Chris Huhne's "no state subsidies for nuclear"

Written by Tim Worstall | Sunday 25 July 2010

There's something really rather strange about Chris Huhne's announcement that there will be no state subsidies for nuclear energy generation:

Mr Huhne, one of the leading Liberal Democrats in the cabinet, used an interview with The Sunday Telegraph to speak out in favour of harnessing both onshore and offshore wind power in comments likely to alarm Conservatives and place further strain on the coalition.

The Energy Secretary, ahead of a key Commons statement on energy policy on Tuesday, also stressed there was "no money" for state subsidies for a new generation of nuclear power plants – the favoured option of both the Conservatives and Labour.

The strangeness is that every other form of non-fossil fuel generation is getting massive subsidies, so why this prissiness over some to nuclear? The answer lies in how the other subsidies are calculated and paid, not in any principled objections or even any acknowledgment of economic rationality.

Let us start from where we can usefully assume Huhne is now. Climate change is happening and something must be done. That something is that the use of fossil fuels must be discouraged and of non-fossil fuel methods of energy generation encouraged. There is no such thing as a "no carbon" energy system but there are a number of low carbon ones. Wind, hydro and nuclear have roughly equivalent emissions, solar perhaps two to three times these technologies but all are much lower than any fossil fuel based ones.

So, what is it that should be done? Huhne has, as above, stated that there will be no state subsidies to nuclear: but that is what is so odd. There are huge subsidies to both wind and solar.

However, the difference comes from who has to write the cheques for these subsidies. With nuclear it would be Mr. Huhne having to convince his Cabinet colleagues to take some from the tax pot and offer it to the nuclear industry. With wind and solar, it is us the consumers of electricity who have to pay directly, as a result of the Renewables Obligation raising the cost of the electricity we consume. A hidden subsidy, one which a politician can say about "Ooooh, no Guv', not me!" is obviously more attractive than having to raise taxes to fund a subsidy.

It is also convenient for a politician emotionally opposed to nuclear power to be able to dole out the hidden subsidy to renewables while using the directly seen cost of a nuclear subsidy as a reason to balk at such.

So much for the politics, what about the economics?

Well, there's not much difference between having to pay more tax to pay for getting nuclear going and having to pay more for electricity to get renewables going. Given that we all pay tax and we all use electricity, the incidence of either subsidy is most certainly upon all of us. What we really want to know is what is the total subsidy necessary to produce the power that we want? It's at this point that nuclear looks like being much the cheaper option.

By 2020, the government hopes to have 25 GW capacity in offshore wind farms – attracting 1.5 times the standard ROC, on top of 14 GW of onshore capacity. With ROCs paid out at a rate of £53 per MWh, the total annual sum for British electricity consumers will amount to a staggering £6 billion – a total of £155 billion paid to wind subsidy farmers over the expected life-times of the projects (equivalant to the cost of building over 50 nuclear power plants).

Assuming those numbers are right even by an order of magnitude it appears that Huhne is making the wrong decision. But the only reason he can get away with that decision is because any nuclear subsidy would be handed over as a cheque from the taxpayers, and thus be visible, while the subsidy to renewables is hidden in our electricity bills.

So, we'll end up spending massively more than we have to to get a non-carbon electricity generation system and all because the Minister can play smoke and mirrors with the size of the subsidy.

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Chris Huhne's subsidy sleight of hand

Written by Tim Worstall | Monday 26 July 2010

Following on from yesterday's little piece about how Chris Huhne is playing smoke and mirrors games when he says that there should be no subsidy for nuclear generation plants, there's a further consideration.

Feed in tariffs.

Over and above the Renewables Obligation, which is in itself already vastly more expensive than any possible cost of subsidising nuclear power stations, we've just adopted the German/Spanish system of feed in tariffs. If you're generating electricity from a variety of renewables technologies, you get a guaranteed price for you power. The list of technologies and prices is here.

Note again that this isn't money that is being paid out by Mr. Huhne, or his department, or being funded from tax revenue. No, this appears on our electricity bills and so is largely hidden from us. We've still got to pay it, we still bear the economic cost, but no politician has to stand up and state that they're raising taxes in order to pass on this subsidy to someone. It is, in short, a stealth tax.

Look at the numbers there: solar PV gets a guaranteed 30 to 40 pence per unit of electricity generated. Small windmill installations get 25 to 30 p. Small hydro gets 20 p. But how have they reached these numbers? Given that the unti of electricity has the same value to us as consumers, what on earth possessed people to offer different subsidies? All we care about is that non-carbon emitting electricity is flowing through the wires, surely?

Well, they've decided to guarantee an 8% return on capital to those who install such systems. So if solar PV is more expensive, requires more capital, then the guaranteed price must be higher in order to encourage the installation. Which is nonsense, of course. We want a system of subsidy which operates entirely the other way around (assuming we want any subsidy at all of course). We want people to be installing the lowest cost technologies, not people being encouraged to install the highest cost ones. That is, we'd like a flat level of subsidy and thus people will be encouraged to install low cost, not high cost, systems.

But what makes this entire system entirely insane is that, while nuclear has similar carbon emissions to hydro and wind (and some one third of solar PV), nuclear is not eligible for either this system of feed in tarrifs nor the still extant Renewables Obligation. If we guaranteed the nuclear utilities 40 p per unit  they'd have plants up by Wednesday next week: their return on capital wouldn't be 8%, it would be the biggest bonanza in the history of electricity generation. Even if we only guaranteed an 8% return on capital employed (inflation protected, as are the other feed in tariffs) they'd still build as many of the concrete boxes as we could desire.

Now, whether we need a subsidy to nuclear or not is not my point: nor is whether we need a subsidy to renewables, not even whether climate change is real or not. No, my point is that we've got a great deal of sleight of hand, smoke and mirrors going on here.

We're told that there will be no subsidy to nuclear while all of the competing technologies, the renewables, have cash pouring from their ears as a result of the subsidies being stuffed into their gaping maws. The politicians are simply not being honest with us over this matter.

Worse than just the subsidies though is this: we actually tax nuclear as if it is a fossil fuel. Yes, the Climate Change Levy is not paid by users of renewably generated power but is paid by consumers of nuclear.

The basics of economic efficiency (to say nothing of political honesty) tell us that if we wish to subsidise non-carbon forms of energy generation then we should set a single level of subsidy and then watch as the best technology wins. Not pick and choose favourite technologies because some thing nuclear is a bit icky. And most certainly not allow politicians to play games by insisting that there's no money for subsidies while they've changed the law to ransack our pockets, through our electricity bills, for hidden subsidies to their favoured technologies.

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Chris Huhne’s ruinous hoax

Written by Felix Bungay | Thursday 23 September 2010

Yesterday at the Lib Dem conference, Chris Huhne announced the government’s new ‘Green Deal’. The Deal will provide 26 million homes with insulation to save them energy and money. Mr Huhne also promised his scheme would create up to 250,000 jobs and by doing so has unwittingly leapt into an economic misnomer.

Mr Huhne has committed the so-called ‘broken window fallacy.’ The broken window fallacy is a common error made in economics, and it neglects the unseen consequences of our actions. Breaking windows does not help the economy through giving glass manufactures more work, but actually means we lose out on the other goods that could have been produced instead of the extra glass. Unlike businesses and workers who earn their revenue through peaceful and mutually beneficial trade, government only takes its revenue from others by force and is by definition a drain on others. To put it simply, the Government cannot create jobs without first destroying others.

Frédéric Bastiat pointed this out back in 1850. He wrote that whenever the government tries to create jobs, “it gives jobs to certain workers. That is what is seen. But it deprives certain other labourers of employment. That is what is not seen.” Bastiat concluded that such job creation programmes were “a ruinous hoax, an impossibility, a contradiction.”

But not only will this fail in its aim to create jobs, it is also likely to have negative unforeseen consequences. An almost identical scheme to Huhne’s proposal, recently implemented in Australia, has proved to be so disastrous that the Australian Senate is conducting an inquiry into the ‘green’ insulation scheme carried out there. Thousands of homes had their insulation installed incorrectly and hundreds burnt down, killing 4 people. You have to wonder why Chris Huhne has gone ahead with a policy with such a disastrous track record.

Mr Huhne may well wish he could create jobs, but he’ll have to trust in the private sector if he really wants to see more employment.

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Chris Mounsey on Friendly Societies

Written by Blog Editor | Monday 16 November 2009

The first thing to be pointed out is that libertarianism is not about leaving people in the street to die. Libertarianism is, first and foremost, a philosophy based on personal liberty—the central crux of which is the non-aggression axiom...

And so begins an expansion of the excellent speech given at the ASI's recent TNG meeting. Click here to read the full text.

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Chris Tame essay prize

Written by Dr Madsen Pirie | Thursday 04 September 2008

Chris Tame was a lifelong, committed and effective campaigner for liberty.  His memory is honoured by an essay prize of £1,000 organized by the Libertarian Alliance and sponsored by the Promis Unit of Primary Care.  Entries (of 3,000 words excluding notes and bibliography) have to be submitted by October 10th 2008.  The title for this year's competition is: "Can a Libertarian Society be Described as 'Tesco minus the State'?"

Full details and rules can be seen on the Libertarian Alliance site here, but basically essays must be original and unpublished, and in English.  They should be sent to Sean Gabb (sean@libertarian.co.uk) in MS Word format, and sent in hard copy to The Libertarian Alliance, Suite 35, 2 Lansdowne Row, London W1J 6H, UK.

The winner will be announced at the LA Conference in the National Liberal Club on Saturday 25th October 2008, and entries will be published by the LA.  Start thinking and start writing, and best wishes!

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Christian Aid's If: Why won't these people read their own damn reports?

Written by Tim Worstall | Saturday 26 January 2013

Another day another gaggle of idiots demanding that the world be run in their image. This time it's Christian Aid and the usual fellow travellers launching a campaign called "If".

Their basic observation, that's there's enough food that pops out of the fields of the earth to feed us all, is entirely true. Further, that despite this enough food there are those who go hungry, to the point of malnutition and starvation is also true. Thus it is also clearly true that it is desirable than we do something about this.

Excellent, but something must be done does not mean that this is the something that we must do. Their something(s) are that we should collect more tax, spend more in aid, bash the corporations and well, you've heard the list often enough, you can complete it.

Other than the obviously sensible idea that we should stop putting food into cars this is, I'm afraid, just the usual wibble. And what makes it so extremely annoying is that we've had a couple of reports recently telling us what actually does need to be done. Just last week it was IMechE and some months back Oxfam I think it was. They noted that food waste in this world divides into two. There's us people in the rich world who find food so convenient and cheap that we don't even bother to grind up the potato peels into nourishing gruel. Quite the shame on our society. In the poor parts of the world that's not the problem at all: anything not actually rancid that makes it into a poor household is going to get eaten.

There the problem is that up to 50% of the food rots or is envirmined between the field and the consumer. Our food waste could be solved by a good recipe for turnip scrapings. The poors' food problem could be solved by....well, by what? Well, by the same darn system that makes food so cheap for us. The commodity suppliers that do the trucking of food around, run the grain elevators, store the potatoes. The food commodity markets that allow the risks to be spread from farmers and consumers to speculators. The supermarkets and the industrial processing companies that extract every possible calorie and then present it to us in rat and roach free surroundings.

In short, what the poor world needs is a food industry as we have a food industry. One that gets the crops from the fields to where mothers can prepare it for their children without it rotting or being eaten by animals and bugs along the way.

So do they suggest that this is what should be done? The people who know how to solve the problem should be offered access to go and solve the problem? Do they heck:

If we force governments and big corporations to be honest and open about their actions that stop people getting enough food. Transparency and accountability are vital in the global food system. Decisions that can affect millions of people are made behind closed doors, without the participation of those affected. Corporates and governments must be more transparent about their affairs so that citizens can hold to account powerful players in the food system.

It's not that biig corporations aren't transparent. It's that big corporations who know how to do these things aren't there. Often aren't allowed to be there (as in India).

I'm all for solving problems like aiding the poor in gaining access to food. But I really do wish these campaigners would just bother to read what others have been trying to tell them on these very subjects.

After all, we are continually told that it's industrial agriculture and supermarkets that are making us all fat. And isn't that what we're trying to achieve? That the poor also gain an opportunity to get fat? So why aren't we recommending industrial agriculture and supermarkets as the solution?

I assume politics has something to do with this stupidity.

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Christmas is cancelled

Written by Dr Eamonn Butler | Monday 24 December 2007

smokingsanta.jpgAs Santa Claus sets off to drop presents down the chimneys of innumerable households on Monday night, let's hope that he has got the right paperwork. 

Claus, of course, is just an alias. He's really Saint Nicholas, Bishop of Myra, on the southern cost of Turkey. The EU (foolishly) isn't admitting Turkey to the Union, so Claus needs a visa and a work permit to run his Christmas delivery service in the UK. 
His elves, of course, would be bound by the child labour regulations. Working at midnight on 24 December would be right out. And Claus would have to be vetted by the Criminal Records Bureau in order to work with young people. Since that can take up to three months, he's way too late for this year anyway. The education authorities might wonder why the elves aren't in school. And if the elves are paid, then they need to be registered under Pay as You Earn, and for stakeholder pensions.
Because he drops presents (and himself) down chimneys, he is covered by the Working at Heights regulations. He would need training on how to use a ladder, or would have to hire a cherry-picker (with professionally qualified operator).
The fact that Claus uses reindeer to draw his sleigh would of course bring him under animal welfare regulations. The sleigh itself must qualify as an aircraft, and as such has to be licensed by the Civil Aviation Authority. 
If the presents that Claus drops off have their origin outside he EU – Lapland, say – then VAT forms have to be filled out. If Claus claims that his purposes are purely charitable, he would of course have to register with the Charities Commission. 
Of course, like other successful and innovative businesspeople, he might decide not to bother coming to Britain at all.

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Christmas is cancelled

Written by Dr Eamonn Butler | Wednesday 24 December 2008

As Santa Claus sets off to drop presents down the chimneys of innumerable households on Monday night, let's hope that he has got the right paperwork.

Claus, of course, is just an alias. He's really Saint Nicholas, Bishop of Myra, on the southern cost of Turkey. The EU (foolishly) isn't admitting Turkey to the Union, so Claus needs a visa and a work permit to run his Christmas delivery service in the UK.

His elves, of course, would be bound by the child labour regulations. And Claus would need the right documentation to prove it. In some counties (as a Cambridge newsagent discovered to his cost) children must have a work permit issued by the council and signed by the child's employer, headteacher and parents; they can't start until 7am and must be over 13. Working at midnight on 24 December would be right out.

Claus would have to be vetted by the Criminal Records Bureau in order to work with young people. Since that can take up to three months, he's way too late for this year anyway. The education authorities might wonder why the elves aren't in school. And if the elves are paid, then they need to be registered under Pay as You Earn, and Claus would have to sign them on to the new Personal Accounts pension scheme and make sure that the right amount of National Insurance was paid, so he'd need a good accountant.

Because he drops presents (and himself) down chimneys, he is covered by the Working at Heights regulations. He would need training on how to use a ladder, or would have to hire a cherry-picker (with professionally qualified operator) or erect scaffolding. This might require road closures for health and safety reasons.

The fact that Claus uses reindeer to draw his sleigh would of course bring him under animal welfare regulations. The sleigh itself must qualify as an aircraft, and as such has to be licensed by and have a certificate of airworthiness from the Civil Aviation Authority. If the presents that Claus drops off have their origin outside he EU – Lapland, say – then VAT and customs forms have to be filled out, and some tariff duties may be payable.No toys with parts small enough for a child to choke on would be permitted, which is why you don't see Kinder Surprise any more. If Claus claims that his purposes are purely charitable, he would have to register with the Charities Commission.

Of course, like other successful and innovative businesspeople, he might decide not to bother coming to Britain at all.

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Chuck on economics

Written by Junksmith | Wednesday 17 June 2009

Why we shouldn't learn economics from Charles Dickens.

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