Often enough free ain't free, Emily in Paris edition

Amazingly the real Paris isn’t like Emily in Paris. Apartments are rather smaller for example - as anyone who has ever tried to live that artistic life in the garret will recall. As the French themselves insist interacting with Parisians can have its downside too. But it’s this part of the description that interests us:

With Emily’s fourth season approaching I’d suggest another kind of escapist speciality tour: one that introduces foreigners to France’s free preschools; its practically free universities; and its universal healthcare.

Things that are not free to produce and or provide turn out not to be free.

The tax wedge is the gap between what your employer tries to pay you and what you get in the palm of your hand. For France this is 47% of your wages. For the US this is 30% of your wages. As it happens - and they don’t need to exactly match up - this is approximately the difference between how much of GDP flows through government in the two polities.

17% of all economic activity is flowing to pay for those “free” things. Which isn’t a definition of free that we think is useful. In fact, we think it’s downright misleading and therefore dangerous.

Things that cost to provide are never going to be free - it’s always who delivers them and how are they paid that is the question.

We shouldn't have Net Zero in the first place

Matthew Parris gets close to the right question:

We’re no nearer the truth of net zero’s costs

But it’s still not the right question. For, “We’re going to have Net Zero now, what does it cost?” is the wrong query. The correct question is here’s the cost now, how much - or how close to - net zero can we get for that?

The base point here has an elegant simplicity. There are costs to allowing climate change to happen. There are costs to stopping climate change from happening. Our goal is the maximisation of human utility over time. Therefore we wish to have the minimal - ie, utility maximising - amount of costs. But, here’s the tricky bit, the minimal aggregate of both sets of costs, those of mitigating climate change and those also of suffering it.

So far everyone should be agreeing. Those who insist there is no climate change and therefore no costs to be carried from it, those also who insist there is, that’s it’s near terminal for the species therefore we should be willing to bear near any burden. Everyone’s base calculation should be the same - what’s the blend of policy to mitigate plus costs of allowing to happen that is utility maximising? Then that’s what we should do.

This is not an oddity by the way, it’s the logical argument at the heart of the Stern Review. This is entirely and wholly mainstream.

Therefore the question “What’s the cost of the target we’ve decided upon?” is logically the wrong question. For the correct one is “What is the cost of not mitigating? Therefore we’ll spend up to that amount to mitigate.”

That is, the cost of what we’re going to do is the first thing to work out. Because that then determines what we do do. We have, in fact, policy about climate change determined by people asking entirely the wrong thing. Failing to grasp even the basics of the logic of the subject.

But then that’s government for us, eh?

The joyousness of George Monbiot's latest squinny

George has discovered another thing that is murdering us all in our beds as we live ever longer lives in ever better health. Now it’s ammonia:

Many rural people will be surprised to see how polluted their air is, but that’s because the media seldom mention the major source of these particles: ammonia from farms. A study by researchers at University College London found that even in cities, ammonia from farms produces more particulate pollution than the cities themselves do. Farm ammonia contributes 25% of the PM2.5s in London, 32% in Birmingham and 38% in Leicester, while these cities generate from 13-24% of their own PM2.5 pollution (the rest blows in from mainland Europe or comes from construction and road traffic outside the city, shipping emissions and dust from distant deserts).

Well, yes, although the paper we’ve found indicates that farms and ammonia aren’t the source of the particles, they are what allow the particles to form out of dust and so on. But OK, let’s run with George.

It is true that very few areas of the world meet the standards for non-pollution:

We explore if this guideline is attainable across different regions of the world using a series of model sensitivity simulations for 2019. Our results indicate that >90% of the global population is exposed to PM2.5 concentrations that exceed the 5 μg m–3 guideline and that only a few sparsely populated regions (largely in boreal North America and Asia) experience annual average concentrations of <5 μg m–3. We find that even under an extreme abatement scenario, with no anthropogenic emissions, more than half of the world’s population would still experience annual PM2.5 exposures above the 5 μg m–3 guideline (including >70% and >60% of the African and Asian populations, respectively), largely due to fires and natural dust.

That is, the PMI 2.5 limit that WHO currently insists upon is something that’s simply not achievable in a world which includes weathering - dust that is. As to why we’ve a limit so nonsensical that’s just because WHO halved the limits recently.

Yes, we do in fact mean this. The current guidelines, the ones that lead to those stories about 98% of Europeans being killed by air pollution, are based upon a standard that is not achievable even if there were no humans at all to produce pollution. We would suggest these standards are perhaps a little too strict. As in, ludicrous.

At which point the most obvious point to make is that the ULEZ - or any more of them - is clearly nonsensical. The pollution isn’t caused by the vehicles so limiting vehicles won’t change the pollution. And don’t forget that our proof here is direct from the pen of George Monbiot.

We can, and should, go further though. As George says, if the pollution comes from both fertiliser (ammonium nitrate, that artificial stuff that keeps us alive by feeding us) and also from animal dung then we’ll have to stop using both. That means, of course, no meat. But that also has a further effect. For if we can’t use the usual fertiliser, and also we can’t use animal dung because we haven’t got any, then we’re going to have to draw straws for the 90% of humanity who get to starve to death.

Oh, and we’ll also have to kill off that rewilding idea because we’re going to have to use absolutely every scrap of land to feed the 800 million of us left after that cull. Because if we’ve not got fertiliser of any type then that’s just the amount of land we’re going to have to use - all of it.

At which point perhaps it might be possible to inject some sense into the conversation. As always, everything is a series of trade offs. So, on the one hand we’ve air pollution standards the same as we had before Sept 2021. On the other hand, trying to meet this new standard, the death of 90% of humanity, the wiping out of every piece of nature that’s not a food crop and even then we still cannot meet the standard because meteorology and geology - that dust.

We suggest - just as a proposal you understand, a subject for discussion - putting the WHO back in its box and firing up the barbie for a steak. You all will be driving around to partake, yes?

Recycling should be a one bin, not seven, operation - anything else is just rubbish

We now have the Prime Minister stating that not everyone will be forced to have seven recycling bins, at least not immediately. At which point some are telling us that this was never going to happen at all. Ah, but yes, it was, as Tom Forth points out. It’s right there in the law.

To be extreme and absurd about it, think on what this means for the country building the smallest new housing in Europe. At 76 m2. If we think of a metre as the space for a bin (that’s the absurd bit) we’re trying to insist that 10% of the rabbit hutch be given over the recycling bins. And as modern planning permission doesn’t allow anyone to have a garden any more (that’s the extreme hyperbole bit) then that seems more than a bit of an imposition.

But as we’ve pointed out before about the seven bins, it’s possible to be entirely reasonable about this. Given that all recycling systems require subsidy they don’t, in fact, save any economic resources, rather they expend them. So why are we doing that? And that’s before we even think about the time required for each household to sort and collect in the right manner.

We should, instead, have the one simple collection method from the one single bin. Which is then processed centrally. Let’s take advantage of economies of scale after all. That which is valuable is extracted, that which is not gets burnt or landfilled.

Do note that we’ve nothing against recycling - one of us lived off scrap metal recycling for years, we can’t be against economic recycling. But we do insist that we should stop doing the recycling that loses money and costs resources. After all, isn’t that the point? To save economic resources by recycling? So let’s do that then.

One bin, one factory, only recycle what makes money. We all know this makes sense so why aren’t we doing it?

A new word for an old idea

The new word is fluxophobic, meaning fearful of change. It describes those who want the world to stay as it is now, and who think every change is to be opposed and avoided. This is for people who think every habitat should be preserved as it is now, or perhaps even restored to what it was when they were younger, with any changes reversed.

Every species must be preserved as it exists now, with no space left for new species to evolve and replace existing ones. High Streets must remain crowded with small shops specializing in different things. Places where bats nest must be kept as is, rather than encouraging the bats to nest elsewhere.

New building is opposed because it involves change. The demolition of transformation of old buildings is similarly opposed for the same reason. Agriculture must be carried out in traditional ways, and innovations are to be deplored, especially those that involve “interfering with nature.”

Are fluxophobes conservative? They are conservative with a small “c,” denoting the character trait that wants things to stay the same. But they are not in the Conservative political tradition that accepts change, but wants it to be spontaneous, rather than imposed from some preconceived plan of what some people think society ought to be like. Conservatism (with a capital “C”) wants change to come from below, rather than being imposed from above.

The real world is characterized by change. It changes from moment to moment as well as from year to year. We step and do not step into the same river, said Heraclitus, for new waters flow ever about us. The world is in flux, not in stasis, no matter how much those fearful of change deplore this.

Most people welcome economic growth because it increases the prosperity that will enable us to do more of the things we want to do. Yet economic growth necessarily involves change. It comes about as new products and processes increase productivity. It necessarily involves displacement, as some established companies are elbowed aside by newcomers. It involves employment churn as some job are lost and new ones take their place.

The fluxophobe is distressed by the changes that economic growth entails. Indeed, some of them oppose it, urging us to seek instead a more settled world in which people are content with their lot. Adam Smith did not agree with them. He spoke of “the uniform, constant, and uninterrupted effort of every man to better his condition,” believing aspiration to be part of what it is to be human. It seems to be human nature to seek a better life, and change is essential to that.

Fluxophobia is less common among young people than it is in the elderly. The young are generally more flexible and more adaptable to change, and they welcome the opportunities it brings with it. Many of the elderly are more set in their ways, and unsettled by the loss of tranquility that changes involve.

The Agricultural and Industrial Revolutions unleashed the idea of improvement into the world, and set in motion a period of rapid change that still continues. They set humanity on an uphill course in which change brought betterment, both in living standards and in life’s opportunities. Fluxophobia has its hold on some people, but ultimately it means stagnation rather than improvement.

The economics of climate change

Apparently we’re to have less Net Zero. Or later. Or something at least:

Rishi Sunak is facing a growing Tory backlash over plans to water down his key net zero policies, with MPs saying it would be “the greatest mistake of his premiership”.

Bans on petrol cars and oil boilers in the next decade are among the green pledges that could be loosened under the Prime Minister’s plan to meet the 2050 net zero target in a “better, more proportionate way”.

Ahead of a major speech this week, he admitted that the Government has “not been honest about costs and trade-offs” of net zero.

As the actual economic report - that Stern Review - says we shouldn’t have an emissions target anyway. As the Nobel Laureate on the subject points out, Bill Nordhaus, we shouldn’t have an emissions target. Because that’s the wrong way to incentivise the innovation necessary to gain less climate change. We need to use prices and the market, not bureaucratic dictat.

But OK, everyone’s decided, wrongly, to use a target instead. As we’ve pointed out before, they’re still getting it wrong even if we allow them that pass.

For the economics here is terribly simple. There are costs of allowing climate change to happen. There are costs of stopping climate change happening. The costs we don’t have to carry by not stopping it are therefore benefits of allowing climate change to happen. Equally, a benefit of stopping climate change is not having to bear the costs of climate change happening.

This is obvious. So is it also obvious that there’s a fairly delicate dance between those two sets of costs and benefits. We wish to optimise the outcome, maximise human utility over time. That means bearing the least cost we possibly can while gaining the largest benefits possible. Again, all entirely obvious.

That delicate dance then changes when the costs of action change relative to the costs of inaction. We’re just finding out that offshore wind power is three to five times more expensive than we were told. So, as we’ve noted, we desire less wind power in our mix.

But we’re also now being told the true costs of everything planned in emissions reduction. Those costs are higher than we had been led to expect. Therefore - and entirely rationally - we should be agreeing to have more climate change.

Prices have changed to the correct answer is different. Anyone not arguing for less climate mitigation in the face of rising prices is therefore wrong.

Greenpeace proves roads are better than trains

We must say we didn’t expect Greenpeace, of all people, to make this proof. But they have done.

European governments have “systematically” shrunk their railways and starved them of funding while pouring money into expanding their road network, a report has found.

The length of motorways in Europe grew 60% between 1995 and 2020 while railways shrank 6.5%, according to research from the German thinktanks Wuppertal Institute and T3 Transportation. For every €1 governments spent building railways, they spent €1.6 building roads.

Well, OK, we’re happy to take their word for that.

The fun part is when we get to Figure 3.1 on page 14 of the actual report. Which tells us that 80,000 km (measured by Mk I Eyeball method) of motorways provides 5000 billion passenger km of travel while 230,000 km of rail lines provides 500 billion passenger km. They don’t spell out these numbers - not that we can see - so you’ll have to put up with our estimations off the chart.

Clearly, road vastly outperforms rail in gaining what is actually desired from either system - the ability of a person to travel some number of passenger km. Recall, the aim of any economic system or subset of one is the output to be gained from it.

Given this vast outperformance of roads as against rail it’s possible to therefore conclude that governments vastly overspend upon rail infrastructure. We seem to gain 25 passenger km from every km of road as against 1 from every 1 km of rail. Investing only 60% more in roads is thus so much of a waste of money that it becomes a dereliction of duty to be spending upon rail.

We’re not sure that we would go entirely that far but it is the correct conclusion to draw from the information as presented by Greenpeace.

As with their earlier insistence that airplanes were 30 times better than trains.

Given their known predelictions we do think that we should accept this evidence too. As Greenpeace says, ‘planes for long distance, cars for the rest and stop wasting money on rail. After all, given their predelictions if it was possible to come to a different conclusion then they would, wouldn’t they?

Mazzonomics

We have another of those attempts from Mariana Mazzucato to redefine economics for our age:

Instead of seeing spending on education, school meals and other priorities – such as tackling the climate emergency, health crises or the digital divide – as an expense, it should be recognised as an investment. And one that can drive innovation.

Well, yes, except investment is an expense. Both current spending and investment are expenses. They are money out, being spent upon things - or if we prefer, resources being diverted to do things - which cannot then be spent on something else. They’re expenses.

This doesn’t then give free ride to investment as not being an expense. Sure, it might be a better thing to do than current spending. But that then depends upon what do we gain in the future from investing now? It is the output of the expense, the return on it, that matters.

Free school meals for all could be an excellent investment, one that makes the economy grow in the future. It could be a terrible one, one that makes it shrink. But whichever of those it proves to be it’s still an expense right now.

Investment is an expense and don’t let anyone tell you different - not even a fashionable professor.

Simplifying the UK tax system

Nigel Lawson left us with the memory of a Chancellor, one of the greatest of all time, who not only cut taxes, but simplified them in every budget. There are lessons to be learned today from his record.

One of the most disturbing features of the 2022 mini-budget was the announcement that the Office of Tax Simplification (OTS) would be abolished and replaced with a general mandate to HM Treasury and HM Revenue and Customs to focus on simplifying the tax code. A “general mandate” is meaningless unless there is a policy or series of policies with a team dedicated to implementing them. There is no such commitment within the Treasury and HMRC.

Simplifying the UK tax system is a complex and challenging task that would require significant political will and resources. Nonetheless, there are some initiatives on how the tax system might be simplified in key areas.

One option to simplify the income tax system would be to merge income tax and national insurance into a single tax, levied at the same rate and with the same threshold. This would remove some of the confusion around the different thresholds and rates for the two taxes and make the system easier to understand. The NI would simply be incorporated into current income tax, and if the misnamed “employer contribution” were to be retained, it could be done so as a payroll tax, which is what it is.

Another approach would be to simplify the income tax system by reducing the number of tax rates and thresholds. This could involve introducing a flat rate of tax, or reducing the number of income tax bands to perhaps just two, just as Nigel Lawson did. This would make it easier for people to understand how much tax they need to pay and reduce the administrative burden on HMRC.

The Treasury and HMRC will oppose this simplification because it would make more evident the level of tax that people are actually paying. The current complexity and confusion serve to hide that true level, and minimize the resentment that would be aroused if it were known. Nonetheless, it is a simplification that is long overdue.

Simplifying business taxes could involve reducing the number of taxes that businesses need to pay, as well as streamlining the tax rules and regulations that apply to businesses. This could involve simplifying the rules around capital allowances and other deductions that businesses can claim to reduce their tax bill. Ideally, full expensing would be permanent to encourage long-term investment. And we could thereby reduce the number of tax reliefs and exemptions that are available to businesses, which can be complicated and difficult to navigate.

If inheritance tax is not abolished, it could certainly be simplified. One option would be to greatly raise the threshold at which the tax is payable, meaning that fewer people would need to pay inheritance tax. It is the UK’s most unpopular tax because it is levied on savings that have been taxed as they were earned. A higher threshold would reduce the need for complex exemptions and allowances.

The rules on pensions are unnecessarily complex because they are based on a flawed system. Pensions can be taxed (T) or exempt (E) when payments into them are made, when they grow in funds, or when they are withdrawn in retirement. Currently the system is EET, allowing tax relief on in-payments, but taxing funds when they are withdrawn. This sets up a hugely complicated set of rules as to how much qualifies for tax relief. The system should be changed to TEE, so that payments into pension funds attract no tax relief, but no tax is levied thereafter on growth within the fund or subsequent withdrawals. This would not only simplify; it would be a massive boost for future investment.

Nigel Lawson was not only the great tax cutter, he was also the great tax simplifier. The time for revisiting his legacy is long overdue. Taxes should be simple and transparent, and there are huge savings to be achieved by making them so.

There're populists and then there are populists

Torsten Bell tells us that populists are bad, M’Kay?

Silvio Berlusconi may be dead, but Giorgia Meloni is running the show in Italy. Donald Trump wants back into the White House (it’s cosier than jail), and are we really confident that arch-centrist Emmanuel Macron in France won’t be followed by Marine Le Pen? Even the pope is worried about a libertarian former sex-coach taking power in Argentina.

I raise this because it should encourage anti-populists to focus on addressing the bad economic outcomes that help drive populism. If you need further encouragement, it should come from recognising the scale of bad economic outcomes that follow populists actually coming to power.

Those are all rightish, or at least arguably conservative, type populists. And while it’s easy enough to disagree with some or all of the things they do/would like to do we’re not sure that economic disaster can quite be pinned on any of them. So we thought we’d have a look at the source here. Which is this paper:

A widespread academic view is that populist leaders are bad for the economy and “self-destruct” quickly. Influential work by Sachs (1989) and Dornbusch and Edwards (1991) on Latin American populism in the 1960s, 1970s, and 1980s identified a “populist cycle.” Populist leaders generate a short-lived boom using expansionary fiscal policy that ultimately ends in an economic and political crisis.

Rudi Dornbusch writing a paper on right wing populists sounds a bit odd to us so we looked at that paper too. To find that his two named examples were Garcia in Peru and Allende in Chile. So not really noting right wing, or conservative, at all.

The middle paper, Bell’s reference, actually talks of economic populism as being the thing that goes wrong. Also known as spending all the money in one fell swoop because it’s gonna be great, this new society with its new economics. So, Chavez/Maduro, Mugabe, and so on.

Or, if we were to survey recent British politics, Jeremy Corbyn and his Magic Money Tree (courtesy Richard J Murphy). That’s the sort of populism that ordains economic disaster.

The researchers find that having a populist leader hits a country’s GDP per capita and living standards by about 10% over 15 years as the economy turns inward, institutions are undermined and risks are taken with macroeconomic policy.

Well, yes, it’s a good warning. But possibly a good idea to be a little more specific over what is being warned about? It’s not actually populism at all, it’s fiscal incontinence.