Expressive Choices

Why do we have a bigger welfare state than is good for us?

But then, before I tell you why, I’d better justify that assertion. So just take the case of my own country, the UK. Here, the government spends nearly half of everything its citizens earn—and then it borrows. And the biggest chunk of its spending goes on the three big-ticket welfare-state items: health, education and welfare (including housing). 

That makes the welfare state a significant cost on taxpayers. And of course high taxation is very damaging for individuals and businesses, particularly small and new businesses, while the interest payments on the government’s debt raises those costs even further and reduces its scope to spend on something useful.

There are also the dependency and incentive issues. With state welfare focused on the poorest, many find themselves trapped in dependency. If they try to improve their own condition, they find their benefits being reduced, often very quickly. That tapering, combined with the high taxes needed to sustain the welfare system, discourages individuals from seeking work, or moving to better-paid jobs. The result is a lower national income, and reduced labour market flexibility, leading to a fall in the productivity of the economy.

State welfare is also poorly targeted and wasteful. The amount of money we spend on it could make our poorest citizens relatively rich; but much of it lingers in the pockets of those who administer the system, while much more goes to people who do not genuinely need it. Nor does it really help people out of poverty: it simply pays them cash, rather than looking at what they need in order to prosper.

Moreover, state welfare crowds out more targeted and effective interventions such as private charity and philanthropy. And it suggests to taxpayers that their obligations to their fellow citizens have been dealt with for them, making them less willing to take on responsibility themselves. 

I could go on, but you get the picture. We all know the system is inefficient, badly targeted, bureaucratic, wasteful and often counter-productive. So why do we keep voting for it?

I think the answer may lie in what economists call ‘expressive choice’ — as opposed to the phenomenon of ‘instrumental choice’. An instrumental choice is one such as you would make in a marketplace. Perhaps you want a new coat. You go into the shops and choose one from the variety of different coats on offer. You pay your money, and your choice turns into reality—you have the new coat you wanted.

Expressive choices are those such as you make in elections. The chance of your vote making an actual difference—being the single vote that decides if one candidate defeats another, or whether a referendum succeeds or fails—is miniscule. Usually, it is millions to one. So, unlike your coat transaction, you do not always get what you choose. You vote for one candidate, but another succeeds. You vote for one policy, but another is put into effect.

How, then, do people respond to that? One answer is that they vote for things that make them feel good. You can vote for anything you like, because your choice is not actually going to make a difference. So, people vote for high-spending pro-welfare candidates because they see it as a way of ‘helping the poor’—and indeed a way of ‘helping the poor’ that is absolutely costless to them (unlike the coat transaction). So why not?

The trouble is that it isn’t absolutely costless. The costs of all those welfare state programmes mount up, and voter-taxpayers feel the burden of it. And the inefficiencies and disincentives mount up too, which burdens them and everyone else too. 

I don’t see any way out of this welfare ratchet in a democratic system. Perhaps we need to lay down limits on what that system is there to do, and can do and can spend. But I can’t see politicians voting for that.

Wrong decision Prime Minister, wrong decision

No, this is wrong:

Offshore wind projects to receive subsidies boost after auction flop

Claire Coutinho to announce 70pc increase to guaranteed price offered to developers

There are detailed complaints being made about it. For example, one claim (which we do not endorse, nor claim is either true or wrong, merely present it):

Remember its not £73. That's in 2012 money.

The new cap is more like £96 in current money.

The European spot price for gas is around €60 per MWh currently.

But whether that’s true or not the decision is still wrong. It violates the basic logic about climate change, that sort of wrong.

To start with the very basics. The claim is that emissions cause costs. We’ve certainly no problem with the idea that there are externalities - markets are great things but many things are not included in markets and are therefore not great. The answer is to include those things in markets so that markets can work their greatness upon them.

So, how much should we do about something? Our aim is the maximisation of human utility over time. The universe - sadly, the cow - imposes limitations and constraints upon us in that task. Resources are, after all, scarce. We also know that doing anything has costs - at very minimum there are opportunity costs, near always there will also be direct costs. So, whatever the thing, problem, constraint or externality we should do the amount that maximises that utility. This means balancing the costs of doing the thing - no, costs here do not mean mere money, they mean those other things we cannot do because we devote our scarce resources to do this thing - against the benefits of doing that thing to so maximise utility.

So, the price of wind power changes. Why doesn’t matter. A bait and switch by developers, a change in real world prices, makes no difference. Therefore the optimal amount of wind power to maximise utility changes.

That is, wind power changes in price therefore we should have a different amount of wind power - not change wind power prices via subsidy so that we get the same amount of wind power.

This is true of every decision about climate change. Whether to do adaptation or mitigation, which specific energy technology to use - solar, wind, fossil, geothermal, whatever - which transport, what foods to eat and everything. When prices change we should be changing the quantity demanded of each of them - that’s in fact what prices are for, to tell us about quantity.

It’s not economic to stick towers of steel in the North Sea environment? Well, then it’s not economic is it, we should do less of that. We’re even willing to agree - for the sake of this argument - that it’s no one’s fault, this change in offshore wind power prices. It is still true that the change itself, the rise, means we should have less of it. Instead, more whatever - fossil, carbon capture, solar, tidal, geological hydrogen, geothermal and on and on.

Prices have changed, as is obvious. Therefore the correct answer is that both supply and demand should.

We therefore present how that meeting with Ms. Coutinho should have gone:

Offshore Wind Developers (for it is they): “Minister, we can’t build at these prices, just can’t.”

Ms Coutinho: “Well, thanks for trying, Guys. Goodbye.”

Carbon Sequestration: a Net Cost to Our Net Zero Strategy

Carbon sequestration has long been discussed as an essential tool in our quest for net zero. Given that we will likely rely on carbon capture methods to offset over half of the UK’s residual carbon footprint in 2050, it is important to examine the options available and the feasibility of their application over the coming decades.

There are two categories of carbon capture techniques: natural and artificial. The main methods in the former category involve afforestation and reforestation. Given that planting a forest the size of Greater London would over 100 years only offset the next two years of UK carbon emissions, it seems appropriate to focus mainly on the second group.

From extracting carbon dioxide from seawater in Devon, to heat-powered methods at Sizewell C, there are dozens of innovative carbon capture, usage and storage (CCUS) methods being funded by Government net zero investments. Issues only arise when we begin to evaluate the costs of these technologies versus the benefits they provide.

There are two key figures to examine. Firstly, the social cost of carbon: the present value of the damage done by a tonne of CO2 released into the atmosphere. William Nordhaus, 2018 Nobel laureate in Economic Sciences for his work on the economic implications of climate change, has called this “The most important single economic concept in the economics of climate change”, and estimated it in 2017 to be $31/tonne CO2. (It should be noted that there is disagreement around this figure, because of how we weigh impacts on future generations and developing countries. Most papers put the figure around $20-60.)

Secondly, is the price of extracting one tonne of carbon from the atmosphere by these methods. A report cited in 2019 by the BEIS committee stated a cost of £80-160/tonne of CO2 prevented from entering the atmosphere at gas-powered electricity plants.

Assuming a reduced dependence on fossil fuels, carbon capture will likely come from Direct Air Capture (DAC), rather than being attached to a power plant. A planned British DAC plant hopes to decrease costs to £200/tonne. The International Energy Agency has stated that in the best locations and using the best technology, DAC could fall below $100/tonne.

These prices must therefore fall by 50-90% in the next two decades for carbon sequestration to be cost-effective. This is unlikely since most of the cost is from the electricity required by the process, and excepting a breakthrough in nuclear fusion, the price of electricity is unlikely to fall much in the UK, if at all. If this does not happen, capturing carbon could cost more than leaving it in the atmosphere. Given the number of people still sceptical about climate change, funding cost-ineffective policies which will hurt them more than climate change will is not the way to convince them of the very real harms caused by CO2.

The UN Intergovernmental Panel on Climate Change’s latest report shows CCUS to be the most expensive of 31 mitigation options, and exhibiting the joint-lowest potential contributions to net emission reduction. Perhaps unsurprisingly, the Government has not included any discussion whatsoever of CCUS prices across 550 pages of Net Zero, CCUS Strategy or Clean Growth Strategy documents.

It is of course possible that we will succeed in reducing costs. However, there are currently no commercial applications of CCUS in the UK, and even if technology improves, the projects in Devon and at Sizewell C are predicted to bottom-out at £100 and £200/tonne of CO2 removed respectively.

If new methods are to be developed and carbon capture is to become a serious and cost-effective method for reaching net zero, it is far more likely to happen in the Middle East or China, which have comparative advantages in developing this technology. Given the UK’s reluctance to support large infrastructure developments within our own borders, it could be beneficial to partner with these nations and use British brains to aid them in developing these important technologies which, if successful, could then be applied here.

Given these realities it appears that without significant technological breakthroughs to lower capture costs, or unlikely catastrophic climactic changes to increase carbon’s costs, carbon sequestration is likely to be a net cost to our net zero strategy.

This sounds like a remarkably bad idea

Confiscate properties from rogue landlords, says senior Labour MP

Clive Betts says seizure threat would create ‘significant deterrent’ among those who treat fines as business cost

Do what we don’t like and we’ll seize your assets.

What could go wrong?

Rental homes should be confiscated from private landlords who repeatedly break the rules and exploit tenants, the head of the Commons housing committee has told the Guardian.

Clive Betts, the chair of the levelling up, housing and communities select committee, said handing courts the power would create a “significant deterrent” to landlords who treated fines for letting out squalid, unsafe and overcrowded homes as simply a cost of doing business.

As we noted yesterday it’s not always obvious that it’s “private” landlords doing the wrong thing:

Depending upon how you’d like to spin those classifications you could say that either is worse than the other. It is, perhaps, the lack of control on the part of the tenants from it being rental housing which is the problem, not dastardly landlordism nor state slummery.

So, Mr Betts, why is there that qualifier there? Private, not just landlord?

Not that we’d agree with you anyway but until you explain that no one should.

Fie, be off with you.

We find it's always worth checking

The construction here seems a little forced:

The problem is that the people largely affected by suboptimal housing have little power to change it. Notably, damp is five times more common in private rentals than in owner-occupied homes. Roughly 20% of people live in private rented homes, with 520,000 of these properties in England posing serious health problems including cold, damp and mould. Even when these problems are raised with landlords, action doesn’t follow. Renters don’t have the ability to force landlords to improve living conditions, and instead fear an eviction notice or a higher rent being imposed.

Hmm, OK, that’s not good. But as we say, the construction seems forced there. We should really be comparing council and social rented with private rented, no? So we thought we’d have a look.

Social:

While the picture is incomplete, our best estimate from the initial survey was that fewer than 0.2% of social homes have the most serious damp and mould problems, 1-2% have serious damp and mould problems, and a further 3-4% have notable damp and mould.

Private:

On average, 3.6% of private rented sector properties were estimated to have category 1 damp and mould hazards. The lowest estimate was 0% and the highest estimate was 27%. 33% or 83 local authorities (of the 251 who provided estimates that could be included in the analysis in this report) estimated 1-2%. The median estimate was 1.2%.

Now those are not exactly the same measures nor classifications. But they are both government numbers.

Depending upon how you’d like to spin those classifications you could say that either is worse than the other. It is, perhaps, the lack of control on the part of the tenants from it being rental housing which is the problem, not dastardly landlordism nor state slummery.

Which might explain the forced construction there in that first quote from The Guardian. Comparing rental to owned shows a difference, showing social rented to private rented perhaps does not - but that wouldn’t advance the project, would it?

On that, on the project, there is good news though. Sir Keir has just announced that Labour will work so that everyone will be able to buy their own home. We have to admit that we’re not quite sure about that, there are stages of life where a rental is the better solution. However, think of it this way, as of how far the Overton Window has shifted over the decades. It’s now the leader of the Labour Party insisting on fulfilling Maggie’s dream of the property owning democracy.

Which is fun, no?

Seems fairly obviously true

Environmentalists must drop their “capitalism equals bad” attitude and embrace business if next month’s Cop28 climate summit is to stand any chance of success, a former oil industry boss who is helping host the event has said.

We’d actually suggest that everything after “attitude” is superfluous there.

“For far too long the climate conversation has been seen through the lens of activists equals good and capitalism equals bad. And this needs to change if business is going to be a big part of the solution.”

Leave aside all the Marxist wibble about class and capitalism is simply a system in which the savings of these people, here, are mobilised to fund that business over there. And, at this level of analysis, any system that does that is capitalist. The capital comes from, belongs to, those outside the business or organisation doing the whatever it is.

At which point clearly and obviously capitalism is going to be a part of the solution to climate change. As any large scale mobilisation of economic resources must be. Simply because that’s what it means, that mobilisation and divorce between who is providing the capital and who is doing the thing.

So, yes, shrug.

Except, obviously, for those whose embrace of climate change activism is the opportunity to overthrow capitalism. But as that means the end of large scale economic activity that’s always going to remain a distinctly minority view, isn’t it.

Isn’t it?

The real King's Speech

My government does not believe that its purpose is to be re-elected. It is instead to improve the life and liberties of the people of this realm. Accordingly, it has set forth an agenda to achieve that. I commend these proposals to Parliament.

1. We intend to achieve energy independence by authorizing the use of hydraulic fracturing to release the treasure-trove of natural gas under our land. We will compensate those locally affected with cash sums and reduced fuel bills if ever tremors above the raised allowable limits occur.

2. We intend to improve the NHS by establishing a link between the medical procedures its personnel perform and the pay they receive. Doctors will be paid for each consultation with a patient, with greater remuneration for appointments in person than for telephone consultations. Hospital staff will be paid for each procedure they perform. Patients will be free to choose which doctors and which hospitals they wish to be treated by, and the state’s funds will be directed accordingly. We will use the tax system to encourage widespread use of additional private insurance.

3. My government will empower and encourage local councils to purchase non-verdant land on the green belt, including non-verdant agricultural land, and give such land planning permission for housing. Those affected by the new developments will be offered financial compensation in addition to the improvement of local infrastructure and services. Current restrictions on the size of houses and the square footage inside them will be removed.

4. State schools in England and Wales will be given their independence and freedom to determine their own budgets and their curricula. They will be required to teach a basic national curriculum in reading and writing skills, mathematics and the sciences.

5. We will ensure that no foreign court shall have authority over the highest court in the UK. The UK will no longer be subject to the European Court of Justice or the European Court of Human Rights in any area.

6. Recognizing that domestic tariffs are paid by UK consumers, my government will establish the principle of free trade wherever possible, and will seek to negotiate reciprocal free-trade agreements that encourage our trading partners also to recognize the principle of free trade.

7. My government will establish a Council on Competitiveness. Its purpose will be to report the likely effect on UK competitiveness of any regulations and requirements that may be proposed or requested.

8. My government will similarly establish a Council on Freedom. Its purpose will be to report the effect on personal liberties of any regulation that is proposed. It will examine in particular the effect of any attempts to direct the lifestyle of UK citizens.

9. We will take steps to ensure the free speech prevails on our university and college campuses, and will withdraw state funding from any such institutions that do not act to uphold free speech.

10. We will appoint a body to investigate the spread of non-elected quangos and will dissolve those that claim legislative and regulatory powers that more properly belong to this Parliament.

We're not sure of the specific here, but the idea, yes.....

This could be the script for an episode of Tomorrow’s World:

Automated floating factories that manufacture green versions of petrol or diesel could soon be in operation thanks to pioneering work at the University of Cambridge. The revolutionary system would produce a net-zero fuel that would burn without creating fossil-derived emissions of carbon dioxide, say researchers.

The Cambridge project is based on a floating artificial leaf which has been developed at the university and which can turn sunlight, water and carbon dioxide into synthetic fuel. The group believe these thin, flexible devices could one day be exploited on a industrial scale.

As with everything that did appear on the late lamented Tomorrow’s World we’ll all look back in two decades and wonder what the heck happened to that idea?

This particular and specific version of the general idea we’re not sure about that is. But this part we’re near certain is right:

Floated on water, the artificial leaf produces hydrogen and carbon monoxide. “Crucially, we use sunlight to power these transformations,” said Reisner. “And the chemicals that we make this way have already been used to manufacture feedstocks, though it is fuel – like diesel or petrol – that we really want to target. One goal would be to make green sustainable kerosene for the aviation market.”

Aviation is a grand human boon. People like flying. So, if we are to beat climate change we need to do one of four things. Fly less or not at all (and so be measurably poorer ), find some different way of powering airplanes, say the heck with it and fly but have more climate change or, perhaps, find a different way of fuelling jet ‘planes. The actual answer will, we think, involve some part of all of these.

But as we’ve said before we think that new way to make jet fuel is the one that is going to be utility maximising.

As it happens we think that aviation is going to get solved an entirely different way. The renewables to green hydrogen to synthfuel route has promise. The current infrastructure and activities using it would thereby be carbon neutral. Which we think would be a double victory. Solving the climate change impact while preserving maximal human utility has its attractions. But right royally annoying all those who would impose sumptuary laws is even better.

As we say, we’re not sure about this very specific method. Nor are we about Porsche and their turning Roaring Forties wind into petrol down in Tierra del Fuego. The chemistry here is not difficult, if we’ve got either hydrogen or this syngas then it’s well known in fact. Therefore that’s what we expect will happen.

Which does lead to what the policy response should be - nothing. Leave the scientists, engineers and entrepreneurs to battle it out in the market. We here in the UK already tax aviation appropriately for climate effects - APD is a carbon tax. So, in terms of policy we’re done, we’ve set the system up and the correct answer will be what markets produce through market processes.

That is, to policy makers - don’t do anything, just stand there.

Entirely, wholly and completely, missing the point

From one of the little byways of the climate change discussion:

The report, published by food and drink manufacturing consultancy NIRAS, outlines how the brewing industry has a “once in a generation” opportunity to meet demands for sustainability and yet also flags how creating multiple beers with short production runs drains energy resources.

In a deep dive into how to build sustainability into brewing, the contradictions were revealed highlighting how even though the regulations and consumer pressures have led to sustainability fast-becoming a “licence to operate”, rather than a “nice-to-have” novelty, beer trends for variety were contrary to the guidance.

Speaking about the issue, NIRAS vice president Jonas B. Borrit said: “Sustainability is clearly a key consideration for businesses across all sectors and for resource-intensive manufacturers like breweries, it’s no longer a nice to have, but is fast becoming a licence to operate. Stronger consumer appetite for variety over volume has undoubtedly created commercial opportunities for breweries, but producing up to 100 different varieties of beer in a large-scale plant means that short production runs will require more energy and water.”

So, we should have just the one, anodyne, mass produced and lowest common denominator beer - call it “Victory Beer” perhaps - because climate change.

This is to - wholly and entirely - misunderstand the task before us. Leave aside whether climate change matters or not. Just work with the very heart of what economics is about. The universe - unfairly, annoyingly and inevitably - places restraints upon us. Resources are scarce. The addition of the CO2 limits in the atmosphere to those limits doesn’t change the underlying base in the slightest.

We are in a universe of scarce resources. We wish to maximise human utility within those limits. So, how are we to go about that?

Maybe it is some unibeer. Perhaps it is some wide variety of beers. Utility - in near every society we’ve ever had - seems to be increased when there is some socially accepted method of getting somewhere between happy, high and smashed. So, how to decide?

Liberty, obviously - leave people be to find what increases their utility, leave people be to explore what they can produce which increases that utility. Sure, we face limits, those explorations must therefore take place within those limits. But other than that the correct solution is something emergent from that liberty, not something planned by those who do not know, cannot know, the individual utility functions nor therefore the societal one.

It appears that folk like a variety of beers. Observe in any pub how some have a preference for this, others for that. That is, we’ve already our solution - variety not unibeer.

But then this should be obvious to any sentient being. We do not insist upon the one method of getting somewhere between happy, high and smashed, do we? We have the liberty of doing so through dance - from Sufi mysticism through to the nightclub dancefloor - booze, certain drugs (and we should have greater liberty there) to just being drunk on the pure pleasure of another’s presence. That insistence on just the one method, say soma, has been explored but always as a dystopia.

Our task is the maximisation of human utility within what ever constraints the universe insists upon. It is only with the liberty of choice and variety that this is even conceptually possible. Therefore that liberty of choice must be a part of any solution to any of those constraints.

Oooh, that's clever

Very political, we think misleading, but we’ll agree that it’s clever:

Sweden has declared a “system failure” in the country’s free schools, pledging the biggest shake-up in 30 years and calling into question a model in which profit-making companies run state education.

An excellent system that has worked very well but:

A report by Sweden’s biggest teachers’ union, Sveriges Lärare, warned in June of the negative consequences of having become one of the world’s most marketised school systems, including the viewing of pupils and students as customers and a lack of resources resulting in increased dissatisfaction.

Well, yes, obviously, unionised producers aren’t going to take kindly to actually having customers that they must serve and please. All of that’s just obvious. The thing that passed through our minds was, well, how are they going to dress this up?

Edholm also accused some free schools of grade inflation, with teachers awarding children grades that were too high – creating imbalance across the whole system. It is understood to be a particular problem in free schools with a low proportion of qualified teachers and schools run as joint-stock companies.

“Free schools tend to give higher grades than municipal schools. That risks that in the end it could be that the municipal schools give higher grades, and that in turn is very bad,” she said.

“It’s unfair and it leads additionally to students thinking they are much more knowledgable than they are.”

Well, yes, that could be true. It could also be true that the free schools teach better than the municipal ones. We would expect they would too but then that is only our expectation. No doubt there are many who would disagree with us. Which is fine, we just then test the products of free and municipal schools to see which explanation fits better. Grade inflation or better teaching?

They have done that, right? Hmm, they haven’t? We have an evidence free assertion to back a political policy? Well, we’d not say that this is a good idea but it is obviously enough a clever one.