Just wait until those future Net Zero pledges come in....

We think we can say, without being contradicted, that the varied energy plans leading to some hopeful Net Zero future have not, not exactly, turned out as most would wish. As, perhaps more controversially, we’ve been saying for many years now the heart of the problem is people trying to plan things. Exactly as the Stern Review said not to of course.

But within those plans has been a further grand mistake. There has been a lot of “We’ll not do this” and “We’ll ban that”, Fracking, coal, the bumbling over nuclear has been akin to a ban and so on. When the concentration should have been on making the mooted replacements so wondrously cheap that everyone switched to them by choice.

Or, as we’ve been known to say, create that better alternative and watch in wonder as people use it. Rather than banning the extant thing that works and hope that she’ll be right.

As we can see right now, she’ll not be right that way. We’ve banned extracting the domestic gas we have even while we have an electricity system - because of unreliables and no, more solar, more windmills, does not solve this problem - that depends upon gas. We’ve bumbled to closing most of the nuclear fleet without replacing it. We’ve banned the use of the coal the island floats upon. And it’s really, really, not working out right.

Which is something to worry about really. We are where we are of course but the fools have more of this in store for us. Take, just as one, the example of the ban on petrol and diesel cars in 2030. This is again to make the mistake - to ban the old and workable instead of developing the new and better and gazing in wonder at the voluntary switch. Given the time HS2 - which is itself a boondoggle but…. - is taking to swing into action we’re not going to have a go everywherre and everywhen public transport system by then. It’s already impossible to build anything in West London given the electricity grid constraints. The electric vehicle revolution just isn’t going to be ready by then. But we’re still to ban that old and workable without having either the efficient replacement nor the ability to use the inefficient one effectively.

This is not - as that Stern Review, Bill Nordhaus’ Nobel and just plain good common sense insist - the way to run a country. But, and aren’t we the lucky ones, that is the way the country’s being run. Ban what works and hope just isn’t the right way around - invent and perfect the new and leave markets be instead. Prompt with prices if you must but given what’s happening right now who is looking forward to more of these plans?

The Scottish Parliament is asking the wrong questions about ferry provision

The Scottish Parliament is conducting what it calls a ‘major inquiry into current and future ferry provision in Scotland’. Yet the questions it poses to respondents suggest that the future will look very much like the past — an under-capitalised and over-subsidised monopoly operator managed by quangos a hundred and more miles away in Holyrood.

As an economist, and one who spends much of the year on the Isle of Arran, it’s obvious to me that to have any future at all, ferry operations must be reliable. If, like today, they are not, vital island industries such as tourism and Scotch whisky will suffer, investment in businesses and infrastructure will decline, capital will be written off, and the islands will gradually depopulate —modern Clearances driven not by landlords but by politicians. And ferries without customers won’t exactly have a future.

Spare capacity, in both vessels and harbours, is a major part of reliability. Services must continue to operate despite disruptions such as breakdowns, accidents, annual or unexpected surges in demand, and adverse weather conditions. But the current CalMac fleet is among the oldest and least reliable in Europe. Other operators, for example, run ferries with multiple engines so that vessels are still able to run on one and rotate others for maintenance. They design their vessels and ports to be generally interoperable, so that when bad weather, breakdowns, accidents or other disruptions occur, nearby ports are easily accessible, and vessels can be diverted from one route to another. They also maintain spare capacity so that gaps in the service, and annual or unexpected surges in demand, can be accommodated. Even with the £1bn promised for new vessels (if it ever appears), CalMac will still lack such essential spare capacity.

Even the layout of the larger CalMac ferries shocks an economist, with almost half the main decks devoted to cafes, restaurants and bars — space that cannot be repurposed in the event that extra passenger or car capacity is needed (say, when island festivals or Highland Games are on). Continental ferries instead have bars from which passengers collect food and drink, consuming it back in their seats, maximising flexibility.

Future-proof ferry services must be able to evolve and adapt to changing demand. Just as natural evolution rests on their being biodiversity, so we need a diversity of operators if ferries are to adapt and evolve. Or at least the threat of other operators coming in and taking business off the incumbent by serving customers better — what economists call a contestable market. Today, though, we have one operator, supported by state subsidies, making it impossible for any other potential providers to get a look in.

Monopolists and governments, of course, like things to be big. They talk about ‘economies of scale’ and bring on bigger and bigger vessels. But real economists know that there are diseconomies of scale too. Ever-larger vessels require one-off design, construction methods and technologies, rather than mass produced ones. Hence all the problems with the massive maritime monsters so far behind schedule and above budget in Ferguson’s shipyard. With smaller, more frequent ferries, the occasional missed or delayed departure is little problem; with gigantic, infrequent vessels, it is a huge nightmare. Just the sort of thing to put off customers like tourists, whose travel decisions are made on the margin, but who are vital to the island economies.

The Road Equivalent Tariff (RET) system has further stifled any prospect of innovative new service operators coming in. The subsidy goes to solely to CalMac, which naturally fights to stop anyone else getting it. And by ignoring the realities of geography, the subsidy provides no incentive for the incumbent to invest in new ways to deal with these realities — essential, again, if the ferries are to have any future at all.

Whatever the arguments for it, RET has other damaging results too. Below-cost pricing of vehicles brings more large vehicles (such as campervans), onto inadequate island roads; already loaded with mainland provisions, they make local shops unsustainable. As do islanders, for whom it is now cheap to take the car over to the mainland and load up.

A ferry system with a future would charge commercial rates, bringing cash into ferry services and making customer demand, not bureaucratic decisions, drive development. If subsidies are thought desirable, they should be paid to the people who need them, not to service providers. And why should the populations of inland areas pay higher taxes for ferries that they might never use anyway? But then, if we did have a diversity of operators, it is likely that innovators would develop pricing structures (such as off-peak concessions for islanders, hospital patients or pensions) that would benefit deserving groups anyway.

Economists hate monopolies, and state monopolies are even less customer-aware than private ones. Scotland’s ferries will only have a future if there is an open, contestable market in vessels and ports. Only that will systematically drive innovation, progress and the evolution of services to meet changing circumstances. Right now, we are doing everything to kill off that future.

Invert the argument to understand it

It can be useful to invert an argument to examine it for holes. Here we’ve a critique of supply side economics. Which could - could - be usefully true and could also be simply a trotting out of well worn cliches. To test, invert and see if it makes sense:

From this, much else follows. Taxation (especially on the wealthy) comes to appear like an obstacle to innovation and productivity, seeing as it reduces the incentive of rich people and big businesses to put their money to work. The welfare state is accused of fostering “dependency”, reducing the incentive for people to go to work and take responsibility for themselves and their families. Above a certain level, income tax makes it pointless for workers to increase their hours or efforts, seeing as they won’t receive the full rewards. Regulation and “red tape” dissuade entrepreneurs from setting up businesses in the first place. By devaluing people’s savings, inflation punishes people for their success and reduces confidence in the system overall.

But we know that taxation - at some rate and level - reduces incentives. We know that from the taxation of the poor - that taper rate at the intersection of tax starting and benefits stopping is widely agreed to be too high to maximise incentives. Which also, neatly, disposes of that second assertion there.

Regulation which makes it more costly to innovate - or even do something - does indeed reduce innovation, or doing something. Humans do less of more expensive things, more of cheaper, that’s just how the species rolls. Inflation doesn’t devalue savings?

The inverse is ridiculous - therefore the original declaration itself is too.

There are still interesting things to say about supply side economics, of course. Even we wouldn’t say that it’s everything although we’d insist that it’s a necessary precondition for success, even if not a sufficient one.

But the implications are moral as much as economic, and this is where supply-siders encounter a paradox. On the one hand, this ideology assumes the existence of some invisible army of entrepreneurs and grafters, bubbling with ideas and determination, who are being restrained by socialists and regulators. This accounts for the bold patriotic optimism of neo-Thatcherites such as Truss. On the other, it is scornful about the population as it actually presents itself, consisting of lazy, badly educated petty criminals, with no capacity for delayed gratification or a hard day’s work. Sometimes, it is a mixture of the two: a society of people who want all of the pleasures of capitalism, with none of the pain.

No, that’s not in fact the supply side argument at all. Rather, high taxation reduces the incentives to do something, high welfare reduces the incentives to do something, regulation increases the price of doing something. Therefore, a high welfare, high taxation, highly regulated economy will do less.

Nothing moral about it at all - it’s just an observation. Raise the costs and lower the benefits of doing something and less will be done. It’s not a difficult argument to follow, is it?

William Davies is a sociologist and political economist.

Ah, sociologist. They always do have a certain difficulty following economic arguments, don’t they?

No, we don't want national IP rules

A certain missing of the point of having markets and differences here:

The rules for academic spin-offs must change to inspire a British Google

We’re not in fact interested in there being a British Google in the first place. The value comes from being able to use, not from having created. So, where something is created matters not - it’s where it’s possible to use. But leave that obvious point aside.

In the UK, universities are free to set their own rules for what happens when a professor starts a company. The rules are administered by the TTO (Technology Transfer Office), three letters that, depending on the university, can strike fear into the heart of an enterprising academic.

A recent report from the Royal Academy of Engineers showed that universities are taking anywhere between zero and 60 per cent.

We agree that there are likely to be more spin offs where the academics keep more of the loot. But that’s not quite the point here.

But we need a national IP policy to allow universities to fulfil this potential, and to make sure that the British Google is as likely to come from Leeds as Cambridge.

No. For this is to miss what having different policies - we could even say a market in policies - does for us. Different people try different things, we see that some work and some don’t. People, logically enough, then do more of what works and less of what doesn’t.

A national policy on anything kills off that process.

The point being that yes, we do need the idiots doing the wrong thing in order to show what is the right. Leave it be - because exactly that failure of bad policy is a self-solving problem in a marketplace.

Working hours are a matter for private companies

South Cambridgeshire Council (it had to be the other-worldly types) plans to be the first local authority in the UK to establish a four-day working week for its staff. Local ratepayers are hardly surprised. As an economist, however, I am both surprised and disappointed.

A six-month experiment with the four-day working week (led, of course, by Oxbridge academics) began in June. It covers only 3,300 employees in 70, mostly smaller, companies, and it is scheduled to run until the end of December. Many of those companies say they won’t be continuing the change after that: with people working different days, they are struggling with rotas and team management, and they realise that a four-day week suits some workers, but not others.

It is odd, therefore, that a large local authority should plan a permanent move to the idea, before even this slim experimental evidence is in. In Sweden, a reduction in working hours from 40 to 30 proved too costly to continue, which France discovered that four-days-a-week workers put in the same hours as before — but it cost more, since more of those hours were on overtime rates. True, there was the same boost to worker moral that has been found in most such experiments. But it was only temporary. As soon as people get used to the new hours, they seem no happier than they were before. The UK already has above-average job satisfaction, so it’s hard to justify changing things here.

Proponents say that four-day-weeks mean less employee absence, burnout and tiredness, though if people are working longer on they days they do work, maybe that will prove temporary too. And proponents say that a four-day week allows employees more flexibility: but flexible working and four-day working are not the same thing. 

Some jobs require a seven-day presence (in the case of councils, social work, perhaps) and other people (like Cambridge ratepayers) aren’t on four-day weeks. And while advocates say that four-day working brings a rise in productivity, you need a huge rise in productivity to maintain the same output. Again, we will see whether the effect lasts.

Critics argue that four-day weeks will be fine for better-paid, salaried workers, but a disappointment to those paid by the hour — potentially making inequality higher; and some workers, such as older employees, may struggle with the greater intensity of work demanded on the four days they do work. Additionally, the UK labour market is already tight, so it seems short-sighted to tighten it even further by reducing working hours.

It's interesting that worldwide, four-day working has expanded fastest in the food and drink and other retail sectors, where it might well make sense for workers in those sectors, who are often young and not looking for full-time work. The other sector where it has risen fastest are government, including education and utilities. That might be no surprise to taxpayers, who wonder if they are getting much value even out of five-day working. And anyway, should working hours not be a choice, negotiated between individual workers and employers, rather than something imposed by monopolistic state institutions?

Déjà vu all over again

From time to time, ministers decide there is too much government, and too many civil servants and costing too much. Civil servants are not allowed to publicise their opinions but, if they did, they would suggest, respectfully of course, that government does indeed need improving but the problem lies with the ministers who are wholly untrained for their roles and do not stay in post long enough to learn them. They do not really know what they want, what is achievable or how to get it. Most could not run a bath, never mind the country.

This quote from the Civil Service Commission may ring a bell: “About 380,000 people work for the UK’s Civil Service. However, this number is expected to drop in the near future as a result of the Government’s effort to reduce public spending. But besides reduction of the expenses through smaller size, the Civil Service reform also foresees far reaching changes of its structure and organisation in order to make it more efficient yet remain one of the nation’s best employers.” The date? 2012. The number of civil servants eight years later? 456,410 and it has grown since. The last government announced a cull to pre-Brexit levels, namely by 20%, or even 40% in some departments, by 2025. The total reduction would number 91,000. The civil service unions took a dim view of that and muttered about cuts to public services and strike action. A Times readership poll of 10th June found 55% of its readers in favour of the cuts and 45% against.

Whilst there are indeed an excessive number of civil servants, the lack of ministerial competence, or perhaps training, is just as big an issue. Future chiefs of the armed forces attend Staff College, or the equivalent, to prepare them. A new minister, by contrast, arrives at his desk with no training whatever. There is no college for future ministers but there should be. Their senior colleagues may give them a few tips but they have never been trained either. How many can explain the difference between an executive agency and a non-departmental public body (NDPB)? Or know that NDPB employees are not civil servants at all? Realism should be top of the syllabus for this ministerial college. According to its 2021/22 annual plan, HM Treasury’s three priority outcomes were:

“1. Place the public finances on a sustainable footing by controlling public spending and designing sustainable taxes;

2. Level up the economy, ensuring strong employment and increase productivity across the regions and nations of the UK; and

3. Ensure the stability of the macroeconomic environment and financial system.” [5]

They are ludicrous because they are unquantified, too broad and beyond the remit of the Treasury. How, exactly, are their desk-bound 2,042 staff (2021/22 annual report Figure 1B) going to increase productivity UK-wide?

Each government department’s annual plan should have realistic, achievable and quantified targets and be discussed with the relevant select committee before the year begins. Before the summer break the following year, the department’s annual report should be reviewed at a meeting of the relevant ministers and select committee. Performance should be compared with plan and prior year.

Second on the syllabus should be arithmetic. It is astonishing that the Cabinet Office does not know how many it employs: recent estimates vary from roughly 2,000 to just under 13,000.[6] And the new Chancellor of the Exchequer, when Business Secretary, had plans for energy that, concerningly, did not add up.

Third on the list should be staff alignment with objectives. Executive agencies exist to deliver policies, leaving policy-making and legislative matters to the departmental central core. NDPBs have the ambiguous status of being independent and not independent at the same time. They should be converted to executive agencies if their objectives are essential and closed if not. The importance of assigning the relevant teams to executive agencies, whatever the contrary advice of civil servants, is that it greatly enhances of delivering the objectives.

In short, reducing the size of the civil service whilst improving the quality should be accompanied by formal training for would-be ministers in how government works now and how it should work in the future.

We tend not to believe in grand theories

And yet there’s the beginnings of an interesting idea here:

I can’t help thinking that we have undergone a reverse transformation in cultural attitudes over the past generation or two, and the past couple of decades in particular. We live in a society where the political virtues of long-term planning and strategic patience have been replaced by an obsession with the here and now.

We tend not to think that the long term is a political virtue. We think that’s a failure in fact. For:

When the lights go off this winter, it will finally dawn on everybody that neglecting our energy requirements for the best part of three decades was probably a tad unwise, all things considered. You can put it down to the short-termism of our political system, or just to immense and consuming stupidity on the part of successive governments. Either way, because the need for a few dozen nuke plants did not seem imminently pressing in 2001, say, nobody was minded to order them to be built.

We could call into evidence Nick Clegg’s comment in 2010 that there’s no point in new nuclear as it won’t come online until 2021, 2022 or so.

Or, we could look at water systems, Jackson Mississippi:

“The nature of local politics is that city governments will tend to neglect utilities until they break because they’re literally buried,” he said. “One of the things that is a perennial challenge for governments that operate water systems is that the quality of the water system is very hard for people to observe. But the price is very easy for them to observe.”

We could even connect that to why the British water systems were taken out of direct government control. Because while government could, in theory, allocate the societally optimal amount of capital to their maintenance and upgrade, they didn’t. There was a vast backlog of repair to be done and looking forward vast bills for the desired rising standards. Government simply wouldn’t allocate that money - paying off the diversity advisors was always more important.

Government simply isn’t good at long term decisions because politics gets in the way. The only proof of that contention we need is that capital investment in the water system rose after privatisation. If government had previously been allocating the optimal amount then that could not have been the result now, could it?

We are willing to listen to the Stern analysis of discount rates. Market interest rates leading to effects many decades out carrying near to no weight in current decision making. But the solution that therefore government should be making those long term decisions seems suspect to us. For as the evidence before us insists, the government - driven as it is by politics - decision making horizon is even shorter.

Don’t forget, the Coalition seemed to think that a decade was beyond its planning horizon, as per N. Clegg. While the longest planning horizons on the planet seem to be in the large mining and fossil fuel companies - they’re regularly looking at projects with 30 and 50 year lifespans.

So, why has society become more short termist, why do we have supposedly strategic decisions made on those short term grounds? Because the political horizon is always the next election, even if that. So, the more that long term, that planning of the future, is devolved to politics the shorter term the horizons becomes.

As we say we’re usually not entirely convinced by grand theories but this one does seem to explain the world around us and also accord with Occam’s Shaving Kit as a method of analysis. Politicians are short term beings therefore decisions made by politics will be short term.

That also then provides our policy solution. Stop the government from making the plans and return them to those entities with the longest planning horizons of all human institutions. The players in the markets. Something which has one grand virtue. If market players get it wrong then they lose all their money - at least eventually. Until we institute a system of stealing back political pensions we’re not going to gain that similar long term feedback mechanism, are we?

Folk don't value things that don't have a value to them

A little bit of basic human nature here. We - or perhaps the greener type of environmentalists - can squeak all we like that the rainforests are unpriceable, beyond mere monetary value, priceless in fact. That it’s not in fact us either living in them, chopping them down or not doing so means that our evaluations of their worth are meaningless.

It’s whatever value is ascribed to them by those interacting with them that matters. And if, just as an example, you are trying to live on $600 a year’s worth of consumption - about right for much of central Africa - then clearing that next acre of forest for a few crops of maize looks worth doing, whatever the effects upon water levels in New York harbour next century.

To stop the clearance, to preserve that priceless forest, it’s necessary for that acre to be worth more as forest than maize. And worth it to the individual standing there about to make that decision to slash and burn or not. On the entirely logical grounds that the slash and burn decision is being made by that individual thus it’s the incentives faced by that individual that determine which way the decision goes.

The president passed tough pro-environment legislation, jailed ivory smugglers, kicked out illegal loggers but, crucially, also allowed businesses land for sustainable activities, including palm oil production and legal logging as long as processing was done in the country. This attracted criticism from the purists who want no interference with nature.

“To save the forest, you have to be able to exploit the forest,” White, now 57, said. “We have to encourage the private sector, only by giving the forest value will people then ‘value’ it. It is all about management.”

Yes, obviously.

This idea that we need to value, in monetary terms, the environment around us is not some excresence of late stage capitalism nor an irruption of neoliberalism. It’s a simple observation of human nature. The money is just the method of counting, the underlying point is that people will do what benefits them, in their view. So, to preserve that environment it needs to be worth more to those there, at that time and place, than not.

Forests will be preserved where they’re worth more to the local peasantry than a few years of runty corn. Which means that late stage capitalism, all that irrupting neoliberalism, of course. For that’s the way that forests to gawp at are worth more - because everyone’s off doing indoor work, no heavy lifting - than a subsistence diet for a family.

It’s not because capitalism that we put a money value on the environment, it’s that putting that value upon it provides the justification for the economic development which capitalism - uniquely - brings about.

The UK already doesn't subsidise fossil fuels

We will, as sure as eggs is eggs, have someone popping up to shriek that Britain must stop subsidising fossil fuel consumption:

Global fossil fuel subsidies almost doubled in 2021, analysis finds

Support amid huge industry profits is a ‘roadblock’ to tackling climate crisis, says International Energy Agency

It is, quite obviously, an odd thing to do, subsidise fossil fuel usage if you’re trying to reduce fossil fuel usage. So, we shouldn’t be doing that, equally obviously.

Global public subsidies for fossil fuels almost doubled to $700bn in 2021, analysis has shown, representing a “roadblock” to tackling the climate crisis.

Despite the huge profits of fossil fuel companies, the subsidies soared as governments sought to shield citizens from surging energy prices as the global economy rebounded from the Covid-19 pandemic.

Most of the subsidies were used to reduce the price paid by consumers.

It’s that last sentence which is important here.

We’ve had, as a major theme here for many years, an insistence that how you count what you count matters. Further, to understand what is being counted you’ve got to delve into the details - otherwise you’ll be making all sorts of idiot errors.

There are two - both arguable in themselves, but very different - ways of counting fossil fuel subsidies. One is the one that gives us that $6 trillion number sometimes bandied about. That is totted up by deciding what should be the correct level of taxation to start with. So, the externalities of fossil fuel use - CO2 emissions, particularate emissions, congestion, accidents, the kitchen sink - and claim as a subsidy any price that doesn’t include all of those. Britain, amazingly, does charge near exactly the right amount for all of those on regular petrol and diesel. Further, if there’s a VAT then energy must pay the full whack of VAT. This makes the 5% domestic energy rate a subsidy in this sense.

Well, OK, it’s arguable but that’s what the measure is.

Then there’s this method of counting here, which gives us this $700 billion. That’s direct subsidies to consumption. Not variances from some theoretically pure system of taxation but actual cash handed out to make energy cheaper for consumers (whether domestic or industrial). Britain does not do any of that.

We can track that from the press release, the website, the database and then the country report.

So, we’re going to have the usual talking heads popping up to insist that this $700 billion number proves that Britain must stop subsidising fossil fuels. By their comments ye shall know them - those saying such will be ignorant. Because by this measure, this $700 billion, Britain already does not subsidise fossil fuels. We’ve already stopped doing it.

Should'a gone fracking

We tend to disagree with Michael Marmot, even in his uses of the words “and” and “the”. He has a new report out today which needs to be addressed though:

Both “cold” and “poor” will contribute to worse health and greater health inequalities. It is a humanitarian crisis. One that will not be solved by tax cuts or removing levies that favour green energy, as seems to be the “solution” proposed by our likely next prime minister. We need to act on the immediate crisis, but we also need to ask how we got here, and what to do to solve the problem of fuel poverty, and its effects on health inequalities, in the longer term.

Well, yes, that seems to be something that could be addressed by having cheap energy.

Economists from Paul Krugman to Paul Johnson to Torsten Bell have solutions, going beyond conventional economics, of what we need to do to fix this winter’s looming crisis. Now, though, is also the time to deal with the longer-term problems that led us here in the first place.

That also seems a reasonable enough goal. Just what is to be done?

Households in Britain will see their spending power cut by an average £3,000 by the end of next year unless the new government acts to counter the biggest drop in living standards in at least a century, research has indicated.

Adding to pressure on Boris Johnson’s successor as prime minister to tackle a worsening cost of living crisis, the Resolution Foundation thinktank said soaring energy bills would cut household incomes by 10% and push an extra 3 million people into poverty.

Household spending power isn’t to be cut by such numbers at all. Rather, it’s to be diverted, to pay for fuel not other things. But the same solution suggests itself - if energy were cheap then we’d not have this problem.

So, where is energy cheap and they don’t have this problem? That would be the United States of course. And what’s the big difference in energy policy between the US and the pair of the UK and continental Europe? The existence or not of fracking, equally of course.

So, we solve the problem of the poor and huddled masses by doing as the US - or, as we’ve been saying these years, Should’a Gone Fracking.