The merits of ocean fertilisation

I've written here and elsewhere before about the potential merits of ocean fertilisation. Assume that climate change is a true problem (as I do) and that we'd like to do something about it (as I do). The question then becomes what should we do? And we know that there are certain areas of the ocean (quite a lot of them actually) where there is insufficient iron in the water to allow algae to grow. Add iron to these areas (as winds blowing Saharan dust sometimes do, as volcanoes sometimes do) and we get an algal bloom. This increases the supply of fish, which is nice, and some portion of those algae, when they die, fall to the ocean floor and end up as the next layer of chalk. We're thus extracting CO2 from the atmosphere and incorporating it into rock, this is true carbon sequestration.

We know all of this, we know all of this is true. The bit we don't know is quite how effective or efficient it is. Just not sure how much of that CO2 ends up in rock and how much just gets recycled around through the circle of life. Here's one claim from someone who has tried to perform the experiment:

estimates that its experiment absorbed 5 million metric tons of carbon dioxide.

That experiment costs $2.5 million to perform. We've thus the claim that sequestration of a tonne of CO2 costs 50 cents. Which is a pretty reasonable price when you think about it. Lord Stern told us that the social costs of one tonne of CO2 is $80. We're thus $79.50 better off for each tonne we turn into chalk in this manner.

Now it is true that others dispute these costs. But we've only had a couple of tests. This particular, not very well monitored, one and one other recently in the Southern Ocean. Given the claims being made here this would seem to be an obvious no brainer to test further. It's possibly extraordinarily cheap to do and it's certainly extraordinarily cheap to test it to see whether it is cheap. Compared to spending $100 billion on the bloody windmills at least.

So governments and scientists are rushing to perform those tests aren't they? We've matelots hurling iron powder over the bulwarks all over the place?

No, no we don't:

They wanted to see if the iron would cause a bloom of algae that could promote fish numbers and absorb the greenhouse gas carbon dioxide from the atmosphere. Instead, in March, they were raided by Canadian officials for illegal dumping at sea.


Environment Canada, the nation's environment ministry, said the experiment was illegal under Canadian law and violated the U.N. Convention on Biological Diversity (CBD) and the London Convention, which governs dumping at sea. World leaders at a U.N. Earth Summit in Rio de Janeiro last year urged "utmost caution" in ocean fertilization due to worries that it could disrupt marine life. Many scientists remain skeptical about whether any form of geoengineering will solve climate change. Allowing research, they argue, may detract from efforts to reduce emissions from cars, power plants and factories.

You what?

The ETC Group, a Canada-based non-governmental organization opposed to geoengineering, said even research is risky. "The moment you accept that geoengineering is a Plan B it will become Plan A for some governments," executive director Pat Mooney said.

Shouldn't we try to find out whether Plan B is going to be better and cheaper than Plan A?

Criticism of HSRC included a statement of "grave concern" last November by the 87 nations in the London Convention, which regulates dumping at sea. "Ocean fertilization has the potential to have widespread, long-lasting and severe impacts on the marine environment, with implications for human health," it said.

Err, yes, that's what we're trying to find out. If it doesn't have large effects then it won't be worth doing. If it does then we've solved our largest environmental problem.

The draft report by the U.N. panel of scientists says ocean fertilization can have unknown effects. Added iron might create algae locally but rob nutrients, such as nitrogen and phosphorus, from other areas. Extra iron could also produce greenhouse gases such as methane in the sea and increase acid levels in the deep oceans as the waste decays.

So, err, shouldn't we do the experiments and find out?

But as you can see, that's not the way that many, including officialdom, are working. It's not just that it might not work out the way we'd like it to. It's that if it does work out as a cheap way to sequester CO2 then that in itself would be a bad thing. As would lots of cheap fish presumably.

I've long said that there is indeed a climate change conspiracy. But it isn't about its existence, not about the science at all. It's about what is the correct response to that science. There's a definite blocking off of the various technologies and policies that could in theory deal with the problem for us: we're not even allowed to do the research to find out whether it's actually necessary to stop using fossil fuels or not. Because it seems that it's already been decided that that is the only possible manner of dealing with the problem, the elimination of the use of fossil fuels. Even if that's not the best way to deal with the basic underlying problem.

And if I'm honest about it that makes me extremely angry. I don't know whether ocean fertilisation will work or not. I've had emails from researchers arguing both sides of it. But I'm incandescent with rage at the argument that we shouldn't go and find out the truth because said truth might be that it does indeed work.

Curbing payday lending is a fool's errand

As the ethical debate around ‘payday loans’ continues, local councils have begun to rally against these lenders. Plymouth Council recently became the first local authority in Britain to ban payday companies from advertising across their billboards and bus shelters, while other councils are looking at following suit.  Councils such as Plymouth City, Newcastle, Dundee and Cheshire East have also already blocked access to the top 50 payday loan websites across their public networks of buildings, libraries and  community centers.

This is partially a response to the Office of Fair Trading’s (OFT) report citing widespread regulatory non-compliance throughout the industry, including a prevalence of irresponsible lending. Whilst the new Financial Conduct Authority is soon to start a consultation over beefing-up industry regulation, the OFT has also instructed the Competition Commission (CC) to look for evidence of any prevention, restriction or distortion of competition within the industry. Last week, the CC announced they would be studying the market for evidence of  “impediments to customer’s ability to search, switch and identify the best value product” and any “significant barriers to [firm’s] successful entry or expansion”.

The CC is probably expecting any anti-competitive behavior to stem from firm’s actions or the market’s structure. However, by restricting consumer’s access to information and erecting new barriers to entry, local councils are themselves making the market anti-competitive.

Blocking payday websites in public buildings means that those needing public internet to research loans are prevented from exploring the range of options open to them. These are generally the people most likely to benefit from discovering lower rates of repayment and flexible deals — and the kind of vulnerable people the council’s actions are designed to protect. Furthermore, banning advertising is simply likely to entrench the market share of current top providers who have an established image — regardless of the merits of other companies. The FCA is currently contemplating a cigarette-style nationwide ban on payday loan advertising , which would further compound this problem. Council’s actions may be designed to hurt the loan companies, but they end up harming consumers too.

It is interesting to see what, if anything, the CC will say about this impediment to effective competition. Given current public opinion it seems likely that any action taken to obstruct the publically-defined ‘predatory’ loan companies is here to stay, even if it were to negatively impact on the most vulnerable.

Instead of banning adverts and adding tighter regulation — both of which are designed to make it harder for these payday companies to operate — there are more effective ways to address the rise of payday loans.

Whilst currently only a small source of finance Credit Unions provide a viable and ethical alternative to payday lenders. However, they currently face a monthly interest cap of 2% and are often a loss-making venture. Easing the restrictions on Credit Unions would better allow them to make profits, grow in scope and effectively compete with payday companies.

Secondly, making the benefits system simpler would provide some with greater financial certainty and could eliminate some of the reasons for resorting to a quick loan.  A benefits system better at tracking changes in people’s situations would reduce the delays people face to get the correct benefits and would reduce the number of people having to pay back over- payments. Similarly, tapering the withdrawal rate of benefits in a gradual way would ensure that people entering work aren’t suddenly hit with unexpected surprises and bills.

Tackling what we deem a worrying trend in society doesn’t always require bans and regulation. It is possible to create alternatives to payday loans and reduce the need to use them without demonizing or blaming the lenders themselves.

As I've been saying for 15 years now about the euro

Not long ago I undertook the challenge to try and find the oldest thing I'd written that could still be found on the internet. It turned out to be (without a really, really, thorough search) something from 1999 in sci.econ. On the subject of how the euro was most unlikely to work as well as the US $ did simply because the eurozone was much less of an optimal currency area than the US was. Well, lookee here:

The euro zone is (to no one's surprise) a less developed currency zone than America. In economic jargon, America: “ more likely than the eurozone to satisfy the three Mundell-style optimal currency area criteria regarding the integration of product markets, symmetry of shocks, and labor mobility, as well as [the] criterion regarding the ability of a central fiscal authority to smooth shocks across regions.”

The effect of all of this is substantial:

For the sample of American regions, the difference between the desired and the actual policy rates was usually between 0 and 200 basis points. In other words, many areas received an interest rate that was perfect for their economy, and almost none received one that was more than two percentage points off. The euro area is a different story. The desired interest rate for peripheral countries (such as Greece and Portugal) was usually 300 basis points above the actual rate—before the crisis. After the crisis, the target was a massive 500-700 basis points below the actual rate.

Imagine how much you must have to hate people to insist upon interest rates that are that far out of line with local needs? And further imagine how appalling things would be here in the UK if we had joined. Interest rates 300 bp below what they actually were during the Brown Boom. And right now those hundreds of points above what they should be? And no possibility at all of doing QE of course, that correct monetary response to being at the zero lower bound for nominal interest rates.

You will all know that my innate bias is that we're well out of the whole thing. But it's not actually an innate bias: it's a considered response to having viewed the evidence. As I've been saying on this here internet for 15 years or so by now. Europe just ain't an optimal currency area. Therefore it should not have one currency.

Don't fear immigration from Romania and Bulgaria

Barely a week goes by without some politician or newspaper warning of an imminent immigration apocalypse after the expiration of temporary immigration controls on Romanian and Bulgarian workers in 2014. They predict unprecedented strains on housing, welfare and the NHS – not to mention a coming “crime wave”.

Examining the profiles of migrants from these two countries currently living in the UK, as well as survey evidence from potential EU migrants, it becomes clear that such doomsaying simply isn’t accurate. As is typical for new migrant groups, Romanians and Bulgarians already in the UK are predominantly young and have small families; as a consequence of this demographic profile, they are statistically far less likely to “have a significant impact on health services as a whole”.

The demographic make-up of potential Romanian and Bulgarian future migrants is, according to a BBC survey conducted earlier this year, extremely similar. Research also strongly indicates that EU immigrants are significantly less likely to claim benefits or social housing compared to UK natives.

As for the numbers themselves, several factors point to some of the more outlandish predictions as being without factual basis. Remember that it is not just the UK, but the entire EU, that will have lifted previous restrictions for 2014. As the Oxford Migration Observatory explains, “the UK might not be uniquely attractive to migrants who would have similar labour market access in other major EU economies like Germany and France”.

Indeed, historically, the UK has not been a strongly favoured location for Romanian and Bulgarian migrants, who often prefer the cultural similarities and pre-established personal networks in countries such as Spain and Italy. The falling unemployment trends in both Bulgaria and Romania weaken claims that joblessness will be a major factor in encouraging migration from these two countries to the UK. 

Immigration is a net fiscal benefit to OECD countries; the hysteria directed at potential Romanian and Bulgarian migrants to the UK is counter-productive in the extreme.

Skwire's First Law

I would like to introduce you to Skwire's First Law:

Politicians are asshats.

We should note that there is no Skwire's Second Law.

In somewhat more detail:

And I want to talk about how Skwire’s law—though simply expressed—is not merely a sigh of exasperation, a political version of “boys will be boys.” It’s a manifesto condensed into three words.

Saying that politicians are asshats means that you acknowledge the deep truths of public choice theory. It means that even if the occasional politician supports a policy you like or gives a speech you admire, you know enough not to turn him or her into a hero. We can debate, as my friends and I have on Facebook, whether asshats become politicians or politicians become asshats. I don’t think that debate much matters, because I think both parts of it are true. Politics is a machine that turns good people and good ideas into bad ones, and turns bad people and bad ideas into worse ones.

Politics is a system that attracts not only people who want to help, but people who want to control. And once those people—good or bad, helpful or controlling—are in the system, they use it to further their ends. And that means that they will take money from people most of us wouldn’t shake hands with. And that means that they will tell us that they do not believe in spying on the American people or in a government that operates in secrecy, while they continue spying on the American people and locking up or hounding anyone who questions that secrecy. And that means they will tell us they want to help care for the helpless while they make it illegal for charities to feed the starving. And that means they will tell us they are deeply concerned about unemployment while they raise more and more barriers to entry-level jobs. And on and on.

None of this is accidental. None of this is a flaw in the system. This is how politics works. And this is why politicians are asshats.

This is clearly and obviously true in its entirety. However, we do have this problem that there are some things that must be done. There are even some things that must be done that must be done by government: they simply require the monopoly of force and legal pressure that government alone can provide. There are even some thing that it is highly desirable that government should do: the provision of certain public goods comes to mind, the intervention necessary to deal with certain externalities perhaps.

But the fact that governments are led by politicians, that politicians are asshats, means that we want government only to be doing those things that both must be done and can only be done by government. We'll get on with the rest of our lives, that vast majority and very extensive part of the rest of our lives, entirely free from the influence of asshats.

If you would be so kind that is.

It's been remarked that pre-1914 the only regular contact with the State the average Englishman had was with the local bobby and the postman. Sounds about the right sort of level really, although now that we know how to privatise the postman perhaps even that was too much.

Why we're hoping the wisdom of crowds can beat Mark Carney

Today we've launched two betting markets to try to use the 'wisdom of crowds' to beat government economic forecasters. Here's the press release we sent out:

The Bank of England’s economic forecasts have been wrong again and again. To counter this, the free market Adam Smith Institute is today (Wednesday 28th August) launching two betting markets where members of the public can bet on UK inflation and unemployment rates, taking the government’s experts on at their own game. The markets are designed to aggregate individual predictions about the economy’s prospects to use the ‘wisdom of crowds’ to beat the predictions of government experts.

The launch coincides with Mark Carney’s first major speech as governor of the Bank of England and follows his announcement earlier this month that the Bank will consider both inflation and unemployment when deciding monetary policy.

The markets (which will be run by bookmaker Paddy Power and can be accessed here) offer these odds:

UK Inflation on 1st June 2015 7/1 - 2% or Less 3/1 - 2.01 - 3.00% 9/4 - 3.01 - 4.00% 5/2 - 4.01 - 5.00% 7/2 - 5% or Greater

UK Unemployment rate on 1st June 2015        9/2 - 5% or Less 3/1 - 5.01 - 6.00% 15/8 - 6.01 - 7.00 % 5/2 - 7.00- 8.00% 5/1 - 8% or Greater

Bookmaker odds tend to be far more reliable than expert opinions about sports, politics and the Eurovision Song Contest, because betters have a strong financial incentive to bet in a dispassionate way and betting markets collect the judgments of thousands of different people, eliminating individual biases.

Even if no single member of the public can beat the experts, collecting the local knowledge of thousands of people in betting markets allows for a much broader set of data points, weighted according to the strength of people’s beliefs. The Office for Budget Responsibility already collects around two-dozen expert predictions, but this is nothing like the kind of volume needed for the ‘wisdom of crowds’ effect to take place.

These markets follow the CIA’s attempts to use betting markets to anticipate geopolitical crises, which were short-lived because of public objections. In future, the Adam Smith Institute will use these markets to compare betters’ judgments about the direction of the economy to those of government forecasters.

Sam Bowman, Research Director of the Adam Smith Institute, said: “No individual can know enough about the economy to make a really reliable prediction about it. By combining the local knowledge of thousands of people, betting markets can outpredict any panel of experts. If these markets catch on, the government should consider outsourcing all of its forecasts to prediction markets instead of expert forecasters.”

Rory Scott from Paddy Power said “Mr Carney – forget your fancy financial models; let’s see where the great British public put their pound instead. Failing that, perhaps the solution to topping up the Bank of England coffers is to take advantage of Paddy Power’s 7/1 for inflation to be 2% lower come June 1st 2015.”

The HS2 argument is getting very confused

Various people seem to have various ideas about the merits or not of the high speed railway line to the North, HS2. Three little comments that stand out from the crowd for me:

Britain's construction and engineering industries need a more stable pipeline of work if they are to stay "right at the top of their game" following major works such as the Olympics, the boss of Crossrail has warned. Andrew Wolstenholme, who is overseeing the £14.8bn rail project across London, has laid down the gauntlet to ministers, claiming a "lack of continuity" is endangering the country’s competitiveness and threatening to push up prices. "If you see where UK infrastructure is right now…the reputation we are gaining to deliver on time, on cost and of high quality is building,” said Mr Wolstenholme. “UK plc is right at the top of its game in delivering these major works." But he added: "What we need to do is find ways to bring the pipeline forward… so that the industry is presented with a continuous pipeline of these major projects."

Nothing surprising about that. Man who makes his living doing infrastructure projects thinks that lots of infrastructure projects is a very good thing. I could be convinced that lots of opportunities to scribble on the internet would be a very good thing I'm sure.

The Institute of Directors (IoD) has urged ministers to abandon the "grand folly" of the £50bn HS2 high-speed rail project, saying little more than a quarter of its members believe it will prove value for money. The IoD's head, Simon Walker, said the business case for the line linking London with Birmingham, Manchester and Leeds over the next 20 years "simply is not there".

Also not a surprise there. That business case for the project has been looking pretty ropey for some years now. And then there's this:

I want the schoolchildren of the North-west to be captivated and inspired to take up careers in construction and engineering, and for the students at universities in Liverpool, Manchester, Leeds, Sheffield and Birmingham, to have the opportunity to choose where they work once they graduate. HS2 is a 20-year programme that could transform the skills base of the country. We lament how few young people go into engineering and science. Today more than a quarter of our science, technology, engineering and maths graduates go on to take non-engineering jobs. The project will be beacon for any young person looking to the future and deciding what to study. Through building HS2 we have a golden opportunity to expand greatly an engineering skills base that for years we thought could ebb away entirely.

Building lots of railways will encourage lots of people into studying how to build railways. And I can see that as a valid and unsurprising argument as well.

But when we put all three of the points together we get something rather different. We should build lots of these infrastructure projects because we're getting better at doing so, even though hte projects themselves are of no value, in order that we will encourage the next generation to train as people who can build infrastructure projects.

At which point presumably we'd have to continue subsidising infrastructure problems that aren't worth building in order to keep these newly minted engineers employed. Becasue, you know, we're really rather good at building things that don't make sense to build.

It's really not the most convincing of arguments when taken in the round, in the whole, is it? Indeed, I rather get the feeling that we'd all be made richer by people training to make and build the goods and services that are worth more than their production cost rather than those that are worth less.

Chart of the week: US durable goods orders continue to trend up

Summary: Signs that the US economy will remain weak in H2 2013 are multiplying

What the chart shows: The chart shows the level of orders for US for and shipments of durable goods (ie, manufactured goods intended to last for some years) excluding defence and transport

Why is the chart important: The Federal Reserve has made it clear that it intends to start the process of tapering – reducing – its quantitative easing sometime this fall – most likely in September. This is a sign that the Fed believes that the US economy has now gained enough traction. While most likely a correct assumption, there are also an increasing number of signs that growth during the second half of 2013 will remain below trend (estimated at 2-2½%). One of these is the weakness in durable goods orders, even when excluding the volatile defence and transport data. Both orders and shipments (the data used for GDP calculations is based on shipments, not orders) are barely above their levels when the Great Recession began. This confirms other data, including business surveys, which point to weak, although still positive, corporate activity – and hence output growth.

Should we abolish prisons?

Imprisonment is the archetypal restriction on liberty, the paradigm case. Liberty is such an important constituent of individuals' lives that we need exceedingly powerful reasons to throw people in prisons, even if all they did was restrict liberty, like the village in the TV series The Prisoner. But it's increasingly obvious that prisoners are not just unfree, but systematically brutalised in the most shocking ways, as illustrated in this barnstorming call to arms from Christopher Glazek in nplusone magazine:

America’s prison system is a moral catastrophe. The eerie sense of security that prevails on the streets of lower Manhattan obscures, and depends upon, a system of state-sponsored suffering as vicious and widespread as any in human history. Dismantling the system of American gulags, and holding accountable those responsible for their operation, presents the most urgent humanitarian imperative of our time.

The numbers, on prison rape particularly, are truly disturbing:

In January, prodded in part by outrage over a series of articles in the New York Review of Books, the Justice Department finally released an estimate of the prevalence of sexual abuse in penitentiaries. The reliance on filed complaints appeared to understate the problem. For 2008, for example, the government had previously tallied 935 confirmed instances of sexual abuse. After asking around, and performing some calculations, the Justice Department came up with a new number: 216,000. That’s 216,000 victims, not instances. These victims are often assaulted multiple times over the course of the year. The Justice Department now seems to be saying that prison rape accounted for the majority of all rapes committed in the US in 2008, likely making the United States the first country in the history of the world to count more rapes for men than for women.

It is a radical piece, arguing for the complete abolition of prisons:

If, in the popular imagination, the primary purpose of prisons is to keep us safe from (the vanishingly small number of) people like Charles Manson, then we should simply kill Charles Manson. Prison abolitionists should be ready to advocate a massive expansion of the death penalty if that’s what it takes to move the discussion forward. A prisonless society where murderers were systematically executed and rapists were automatically castrated wouldn’t be the most humane society imaginable, but it would be light-years ahead of the status quo. (Interestingly, unlike rape, homicide has one of the lowest recidivism rates of any crime—you can only murder your wife once—suggesting that death row inmates may pose less of a security risk than other categories of offenders.)

Obviously his article is focused on the USA, and uses US statistics—typically the UK system is seen as far less brutal, perhaps because we do not have the deep-seated racial angle seen in the US, and/or because our drug laws are enforced in a slightly less draconian manner. Having said that, according to the Howard League for Penal Reform's new Commission on Sex in Prison the data isn't widely available to make that sort of judgement.

But even if the UK is much better than the US, and even if we don't want to go the whole way to abolishing prisons, the matter is clearly of huge significance, but at the same time bizarrely underreported by most sources, despite the fact that around the world millions of people are in prison (e.g. in the USA, the prison population is bigger than any city except New York, Los Angeles or Chicago). Surely there must be a better way to deal with crime than forcing 15-year old petty thieves together with violent gangs who repeatedly rape them until they kill themselves?

Led by Donkeys

By 2014, the Financial Ombudsman Service is expected to have grown its headcount 20 times since it was inaugurated 10 years ago with 200-300 people. The FOS is merely responding to the level of complaints and is not to blame. The chief executives of our financial institutions, notably the banks, are. Their leadership is reminiscent of that by our generals in WW1. It is a strange way to celebrate that centenary.

In 1914, Britain was a, maybe the, global military power although Germany, since Bismark, had developed superior land forces. Nevertheless, complacency was rife, Britain ruled the empire and the war would be over by Christmas. In the event it lasted four years and needed US intervention, principally because our generals refused to recognise, still less learn from, their mistakes.

Today the City is a, maybe the, leading global financial centre, although New York has developed strongly.The battlefield now is the financial services marketplace.

In any trade and industry, consumer complaints are an important performance measure. Most companies try to ensure that consumer experience is positive, complaints are few and those that do arise, are dealt with by the companies themselves.

In the year to March 2013, the FOS received over 2 million initial enquiries and complaints from consumers of which half a million turned into formal disputes, an increase of 92% on the previous year. Sixty-two per cent of those were with just four banking groups. On average, FOS found for the consumer on about 50% of occasions, and just 20% for building societies. For the four large banks, however, they found for the consumer 80% of the time.

Do these four CEOs even recognise, still less learn from, these mistakes? It would appear not.  The causes of the complaints may be some years back but that is not the point: it would be quicker, cheaper and better business to resolve today’s complaints internally today. Marketing academics have long established that consumers whose complaints are well handled become more loyal whereas those who do not receive satisfaction become more dissident.

Compare FOS with the Advertising Standards Authority, not a direct match of course, but relevant. According to the 2012 Report, across all consumer markets the ASA only received 32,000 complaints about 19,000 advertisements and promotions, 94% fewer than the FOS. Bear in mind that these are direct, not filtered by the brand companies dealing with any themselves.  Of these only 11.5% were decided in favour of the consumer, compared with 50% on financial marketing and 80% against the big four banks.

On three times (101,000) the occasions, the ASA was spending its time helping the advertisers and promoters prevent complaints. FOS has no wish to bash banks and would much rather be helping them to install best practice in dealing with complaints and, better still, helping banks screen their new offers to ensure they do not give rise to legitimate complaints in the first place.

Unfortunately, like WW1 generals, the four big bank CEOs seem reluctant to learn anything.