Clean energy

Environmentalism has a bad rap. It’s associated with hippies in hemp shirts, with pungently medicinal smelling beard wax and salt in place of deodorant. The reality is that a shift to clean energy helps everyone. It will improve living conditions, drive down prices and free up human capital for choice-creating innovation. And the shift does not need to be subsidised or blackmailed into existence, it is coming. It makes sense both to the markets, and to the people who make them up and want to see the coral reefs survive. Oil and gas get more expensive as they get more scarce, and as finite resources they are getting more scare, this makes the opportunity cost of prioritizing finite resources over clean energy greater. Geopolitically, many oil and gas resources are held by volatile state powers such as Russia and Saudi Arabia, meaning they are subject to price fluctuation and the stable prices of clean energy are more appealing to risk averse markets. As well as solely economic reasons, there are a lot of rich people like Bill Gates and Elon Musk who value a continually healthy planet and fund research into things that preserve this.

After initial research costs, clean energy is astronomically cheaper than the dirty energy of old. It can be largely automated, no permits are needed to dig for it, and even a judge on their first case wouldn’t award a payout to a solar worker claiming black lung. These reductions in costs can be passed on to consumers, in the form not only of cheaper energy for the home, but of cheaper consumer goods created using clean energy, and cheaper services provided in energy intensive places like office buildings and sports facilities.

Secondly, many public pressures to resist international trade are reduced, freeing up cross border trade. Agreements like the Paris Accords, which instruct members to sanction heavy polluters are a tricky issue, with politicians often made to demand lower emissions and less industry on threat of losing valuable, earth conscious voting blocs. If China and India moved to cleaner energy, such as solar panels which could generate plenty affixed to the roof of a Mumbai factory, these pressures would be reduced. This would allow greater free trade with these countries and their cheap, loose labour markets, and this would push down the prices of many goods for consumers as well as offering a wider range.

Finally, in a long-term point, human capital would expand. Pollution is not only bad for your lungs, it’s bad for your brain. Many pollutants inhibit the development of brain tissue, making people exposed to it in infancy less intelligent and capable of innovation. Additionally, a lot of intelligent, qualified people are tied up in projects such as making mines safe, or flood defences from global warming, or trying to develop mouth guards that prevent carcinogenic particles entering the human body. A move to clean energy could free up this human capital, and allow more to be created, which facilitates greater innovation and development. Pollution could be stopping us from perfecting self-driving cars and space travel, if that’s not a reason to curb it, nothing is. 

When did social mobility become the only aim of the education system?

We can imagine that social mobility might be one of the things that you think about concerning a school system. But to set it as the one and only over-riding measure seems to us to be going very much too far:

Heads are being urged to "vigorously" oppose the expansion of grammar schools in England.

The National Association of Head Teachers will debate calls to reject a new wave of grammars in the absence of evidence that it aids social mobility.

If grammars can only exist if they aid social mobility then that is indeed insisting that social mobility is the only measure of the design of the education system. Which does look like, to us, an error.

It's entirely true that there's not a great deal of social mobility around. But as Greg Clark has shown, that's also true in places like Sweden that don't have grammars. And there's also that long insisted upon point that grammars increase social mobility by providing the bright from any background with an academic education.

But we would still insist that the basic contention here is wrong. It cannot be true that social mobility or its furtherance is the only measure of a school system. We really do think that we want to consider other matters too, like the costs of the system, what it's teaching perhaps, possibly even whether the system is teaching anyone anything at all. That last being something we're really not all that sure about for at least some British schools.

E-Commerce and the end of market failure

The invisible hand is shaky, sometimes it drops things. Many people would accept this as collateral damage, no system will always work perfectly, but instead it is used as the justification by most major world governments to regulate and take control of industries much more efficient under market forces. The rise of e-commerce is a handy wrist brace for the invisible hand, it helps prevent broken plates and gives states fewer chances to step in. This happens in myriad ways, but I’ll explain three- the magic number.

The first market failure it all but eliminates is asymmetric information. If you go to your local independent technology store, you don’t know anything about what you’re buying. You don’t know if the Apple Macs are real, if the chip and pin machine will steal your details, if the product you buy will even work or if anybody will give you money back when they break. But if you go to an online independent technology store, all this is available in a few short clicks. Google marks trusted shops for you, it tells you your details are safe, plenty reviews give you the quality of the product and typing the name of the store followed by “scam” will give you hundreds of reports from ad-funded consumer watchdogs. Of course, a store could theoretically build up months and months of good reputation just to rip you, dear reader, off, but that is in nobodies interest. Your bad review will mar them forever, and they need your business when you come in for your next generation computer in a year or two.

“But what about monopolies?” I hear you cry, “Can’t monopolies still exercise monopoly power over consumers?”, and your complaints are heard. By and large, no, they can’t. E-commerce cuts away the vast majority of barriers to entry for new firms. No bricks and mortar store, easy outsourcing and a range of competitively priced graphic designers brings start-up costs down to mere hundreds rather than thousands. If a company is using its monopoly power to make abnormal profit, a second firm can step in and do the same thing a few pounds cheaper. This keeps prices down for consumers without ill-thought-through government determined price ceilings or cronyist subsidies. Of course, natural monopolies such as oil and gas remain, but that is a tiny proportion of the monopolies consumers must deal with on a daily basis.

Finally, e-commerce just gives far more choice to consumers. Take the example of a t-shirt, it is now far easier for me to signal my preferences of what I want in a t-shirt. If I want one for cheap, I use a Chinese importer, if I want a brand name, I go to that brand’s website, if I want to annoyingly virtue signal to everyone around me, I buy a The Future Is Female shirt from a small business operating on Ebay, Etsy or some other hosting site. Not only does this give consumers more choice, but the ease with which preferences can be compiled into metadata and distributed makes it far easier for the market to respond to consumer demand.

E-commerce is letting loose the invisible hand from the shackles of government intervention, and curing it’s carpel tunnel in the process. 

We can't help but note that there's something wrong with this headline

Vaginal mesh left me in agony. When will women’s health be taken seriously?

This is rather a subject do jour at present and the problem is indeed real:

In the 21st century it is hard to imagine women being maimed in a surgery with risks that they are not being properly warned about.

This, however, is the reality of vaginal mesh. A net-like implant, it is used to treat incontinence or prolapse, conditions that have often, but not always, been caused by childbirth. Between 2006 and 2016, more than 92,000 women in England have been treated with a polypropylene surgical material that is either inserted as a mesh patch or a vaginal tape, known as TVT, TVTO and TOT.

There are indeed risks  and it's not for us to decide whether they are worth it or not. We also have no opinion on whether this specific treatment is good, as good as can be, or even acceptable.

However, we would rather like to insist that if someone has designed a treatment specifically to treat a common enough complaint in women, if that treatment is generally available at no marginal cost to he recipient, then we do rather think that both people and the system are taking women's health seriously.

That is, the very existence of vaginal mesh treatment is evidence of being serious. 

Recruitment, resources and reach are in town.

Education is necessary, expensive and regularly a state run monopoly. Education is necessary, both to improve the lives of individuals, and to increase the productive potential of the economy. This will not change, but technology is making the other descriptors obsolete. Private education is now available in some countries for a dollar a day, and the rate of private schooling in the developing world is rapidly increasing. There are three main drivers for this, move over reading ‘riting and ‘rithmetic; recruitment, resources and reach are in town.

One of the hardest things in any school system is to find people to do the schooling. Education is a hard job, it involves both people skills and intellectual skills, many degrees required for teaching could earn more money elsewhere, and standards for teaching are rigorous. Technology blows these problems away. Firstly, and most simply, it’s far easier to hire a teacher when you can post an advert online for free rather than putting costly adverts in every classified page you can find. Secondly, in countries with few formal licencing programmes for teaching, online tests and interviews make it easier and cheaper to weed out the underqualified and inept. Finally, and most importantly, in many cases teachers are no longer required to even understand the subject they’re teaching. As pioneered by Bridge International Academies, it is possible to mass produce lesson plans, and simply hand them to teachers as scripts to read. Of course, some knowledge helps, and this probably only works for primary education, but a good primary education allows much easier learning in later life and is immeasurably important for the individuals’ development.

Secondly, we have resources. Textbooks are expensive, and it makes sense that they are. They benefit from almost no economies of scale, occupying tiny markets. A business studies textbook cannot be used for economics, an American textbook cannot be used in Australia, an AQA textbook cannot be used for an Edexcel course. Textbooks have incredibly short runs, needing frequent revisions, and must be printed in colour so that charts and colour coded diagrams make sense. The ability to distribute a textbook as a PDF takes away the need to print it, the ability to constantly update an online textbook means no regular reprints and chain private schools offering their own qualifications, or internationally recognized qualifications, means textbooks access a larger market and can thus be sold cheaper while still making a healthy profit. The ability to constantly update a textbook is also invaluable for subjects with current events components, like economics or international relations.

Finally, reach. Many people worldwide who do not have access to education do not lack it because they are poor, they lack it because there is no demand for a local school if there’s only three children in walking distance, and because the costs to open one would be astronomical. The use of online tuition, offered by many universities and academies internationally, and online formal and informal short courses such as the ones available on FutureLearn allow these people to gain useful skills that increase the productive capacity of the worldwide economy.

Technology is the best thing not only for individual students, but for every world economy and for humanity as a whole. It’s influence in education should be welcomed with open arms.

The gross sexism of the tech industry

No doubt we shall hear much of this report. How women, LGBT and other minorities have a terribly hard time in the tech industry:

Sexual harassment, bullying and racist stereotyping are common in the technology industry, creating a culture that drives underrepresented employees out of their jobs, new research has found.

One in 10 women in tech experience unwanted sexual attention, and nearly one in four people of color face stereotyping, according to the Kapor Center for Social Impact and Harris Poll, which surveyed more than 2,000 people who left tech jobs in the last three years.

The solution is therefore:

The report suggested that strong diversity and inclusion initiatives, such as explicit diversity goals, unconscious bias trainings, employee resource groups and bonuses for referrals of diverse candidates, can significantly improve retention.

We didn't expect anything else from a project being run by Ellen Pao to be honest.

We don't really believe one conclusion:

Workplace culture drives turnover, significantly affecting the retention of underrepresented groups, and costing the industry more than $16 billion each year.

For we are aware of Gary Becker's analysis in this area. In a market system such costs will be competed away. Those excellent, for of course they are all indeed excellent, employees discriminated against are a profit opportunity for someone who does not so discriminate. Thus someone should be making a fortune out of the discriminatory behaviour. As has happened in the past, Dame Steve Shirley. The absence of the reaction tells us that there is something wrong with the initial diagnosis. 

Another, and not wholly consistent we agree, way of looking at the point is why is anyone surprised? We've all been making jokes about the social inadequacy of the nerds for centuries. We're now in a technological time when nerdity is a highly valued attribute. Why is anyone surprised that when we collect all of the uber-nerds from around the world we end up with organisations which lack a certain politesse?

Imagine, security guards get paid less than professors

This is one of the less wildly unfair things that happens we think. That security guards get paid less than professors:

In many ways, this is a great place to work – the students and staff are friendly, and I love my job. Yet there is a subtle apartheid at work that divides the staff and discriminates against myself and my colleagues, despite our longevity of service.

In my opinion that discrimination stems from the practice of outsourcing. Academics and administrators work directly for the University of London, which offers holidays, sick pay, a substantial employer contribution to a good pension and an incremental salary scale.

By contrast, security officers, cleaners, porters and caterers do not – we have worked for a series of companies contracted by the university to provide these services. As you can imagine, these companies provide the vast majority of their employees with the legal minimum in terms of working conditions and benefits.

It was Adam Smith who pointed out that there's rather more to compensation than just the wages. There's how fun the work i#s to do, how difficult and so on. These days we'd add in those pensions, sick pay and all the rest. They're things which cost employers money. Thus they're part of compensation, if not wages directly:

Second, we demanded the same rights as our directly employed University of London colleagues – equality of sick pay, holidays and pensions, as part of the 3 Cosas Campaign.

They really are demanding greater equality of pay between security guards and professors.

It's even possible that they're right, that there should be greater such equality. But we should also be clear that this is the demand. For only when we recognise the insistence for what it is can we construct the appropriate answer.

The nature of morality

On this day, in 1759, the Scottish philosopher Adam Smith published The Theory Of Moral Sentiments. He may be less well known for this book than for his pathbreaking 1776 economics text, The Wealth Of Nations—but it was Moral Sentiments that made his fame and fortune. 

Thinkers at the time were struggling to discover how we can separate right and wrong. Some thought that religious texts were the authority on how we should act, and that religious leaders could authoritatively interpret those texts in cases of doubt. Others of a more practical bent suggested that we had a ‘moral sense’ by which we could detect right and wrong, much as we could sense light and dark or rough and smooth. Some argued that we could reason out which actions were moral or immoral. But no explanation was found entirely convincing.

Smith’s Moral Sentiments was a real scientific breakthrough. It showed that our moral ideas and actions are a product of our nature as social creatures. Social psychology was a better guide to moral action than books, authorities or reason. We applaud actions that help our society to survive, and rules (like prudence and justice) which it could not survive without.

Though we are mainly interested in our own welfare, we have an empathy (Smith called it sympathy) for others. We we feel their emotions of joy or grief, and we want them to empathise with us too, by acting in ways that help and please them. We are struck by conscience when we distress someone. So we curb our own emotions and self-interest in order to live more harmoniously with others. 

Morality is not something we have to calculate, it is something we feel. Those feelings are part of our very nature, and exist because they benefit both us and others. Writing exactly a hundred years before Darwin’s 1859 Origin Of Species, Smith had no theory of evolution by which to explain this fortunate situation. He could put it down only to providence—it was almost as if we were guided by an invisible hand.

But Smith knew that, for society to survive, there must be rules of justice to prevent individuals harming each other. It was also important to reward beneficial actions and punish harmful ones. And in the process of making judgements on countless numbers of actions, we gradually formulate rules of conduct. Then we do not even have to think about what to do: we have inbuilt moral standards to guide us.

Though we are free to act as we please, our natural empathy for others, and others’ opinions on our actions, serve to moderate our behaviour. But we still need a certain strength of character to restrain ourselves in the ways that an impartial spectator would approve of. 

The truly virtuous person, therefore, embodies the qualities of prudence, justice, beneficence and self-commandPrudence moderates the individual’s excesses and so is important for society. Justice limits the harm we do to others and is essential for the continuation of social life. Beneficence improves social life by prompting us to promote the happiness of others: beneficent action cannot be demanded from anyone, but it is appreciated and praised when given. Self-command moderates our passions and reins in our destructive actions.

Freedom and human nature, Smith concludes, are therefore a surer guide to the creation and preservation of a harmonious, functioning society than the supposed authority of ancient books, the imagination of visionaries, or the over-vaunted reason of philosophers.

Frank Field seems to want a National Lunch Service

This all sounds rather Maoist to us. The children of the nation should be fed in communal canteens on the basis that their parents just can't get this right

Up to 3 million children risk going hungry during the school holidays, leaving them vulnerable to malnutrition and undermining their education and life chances, a cross-party group of MPs and peers has warned.

Its report cited evidence of children existing on holiday diets of crisps, hungry youngsters unable to take part in a football tournament because “their bodies simply gave up”, and others surviving on stodgy, unhealthy diets “bought to fill hungry stomachs”.

The report said those at risk of hunger over the summer include more than 1 million children who receive free school meals during term time, and 2 million more with working parents who are still in poverty.

There's more background here. And the evidence presented is shockingly thin. It is, quite literally, that 1 million get free school lunches so clearly they're at risk of hunger when there are no free school lunches.

The call is thus for some replacement system of getting a free lunch to such children. Which is to violate one of the basics of subsidy, we don't and should not subsidise things, we should subsidise people. As, in fact, we do with the free school lunches. The kids are going to be there, they need to eat, so there is provision for lunch. That's paid for, of course. But then some are too poor to pay, so they get free provision. We're not subsidising the existence of lunch, we're subsidising some people to gain access to what is produced.

This is an excellent general rule about subsidy. The answer therefore being that if children, or their families, are too poor to have lunch is for them to have more money so they can buy lunch. Not to have a system trying to provide them with lunch.

However, the report also manages to wildly miss the import of their own evidence. They tell us that the potion of household income spent on food dropped over the decades: 

The proportion of household income spent on food and non-alcoholic drink decreased from 33.3% in 1953 to 16% in 2003. 

Then that:

The proportion of household income spent on food and non-alcoholic drink also in 2003 increased from 16% to 17% in 2011 (this includes a decrease by 1 percentage point to 15% in 2005 before increasing again in 2006).

We're twice as food rich as our grandparents were and this is evidence that we need a National Lunch Service? That the government must build a new system to feed the kiddies?

We think we'll file this under "politicians desperately thrashing around to appear relevant to some issue in the headlines."

Capping energy prices? Still a bad idea

Freezing energy prices was a very bad idea when Ed Miliband proposed it. Yet two years after the electorate rejected it Theresa May is putting forward the same idea and rebranding it a 'cap'. The facts on the ground haven't changed, yet just like workers on boards and the living wage, Red Ed's Zombie Policies are on the march. 

In a complex market with low rates of switching and an apparent oligopoly in the Big Six, capping the expensive Standard Variable Tariffs that the vast majority of bill payers are on might seem like common sense. But it's a bad idea for two main reasons.

First, the Prime Minister is justifying her intervention into the energy market on the grounds that the market isn't functioning properly and that her cap would save bill payers around £100 a year. Britain used an incredibly competitive energy market with the highest rates of active customer switching in Europe, but since 2009 well-intentioned regulators have implemented rules that have lead to a nearly 50% fall in switching rates. Keep in mind that this happened in the era of CompareTheMarket.com and GoCompare spending massive money on advertising the benefits of switching. Suppliers used to have a great deal of freedom to offer better deals to customers with different suppliers creating an incentive for customers to frequently switch providers. OfGem's regulations impeded them from doing this, reducing flexibility and innovation.

In a scathing op-ed for The Telegraph (paywalled), five ex-regulators set out the OfGem regulations that undermined competition in the market:

Ofgem’s 2008 probe found “unfair price differentials” totalling £500m. Ofgem introduced a non-discrimination condition. The price differentials disappeared – but by increases in the lower prices, not reductions in the higher ones.

Ofgem also imposed strict constraints on direct marketing, including doorstep selling. Because of both policies, customers engaged less in the market – particularly poorer customers. The customer switching rate halved.

Suppliers competed by introducing new tariffs. Ofgem argued that these baffled customers. In 2012 Ofgem introduced a “simple tariffs” policy that limited the number and variety of tariffs. This did not assuage public concern, or restore the previous customer switching rate.

When the Competitions and Markets Authority (CMA) looked at the problem in 2016 they proposed lifting many of the restrictions imposed by OfGem. 

Theresa May's plan is to cap the Standard Variable Tariff (SVT) that most bill payers are on. It's true that the gaps between the best deals and the SVT can be as much as £200.

Theresa May might believe that price discrimination is unfair. Why should ordinary 'loyal' (lazy) customers pay more? But capping the Standard Variable Tariffs will only reduce competition. With a price cap customers will have little incentive to switch between suppliers. Suppliers may then see little point in offering better deals for switching, so while passive consumers may see their bills fall, the consumers who keep the Big Six honest will see their bills rise.

Regulation often begets regulation. By reducing competition between energy suppliers, we should expect even greater opportunities for suppliers to collect monopoly rents. This paradoxically pushes prices up and leads to further calls for price controls to curb supplier profits.

That brings us to the second problem with the PM's proposal. Profits incentivise investment; if you cap prices to curb profits you discourage new investment. There's an added cost for suppliers too - uncertainty. Firms lack perfect foresight. They make investments knowing that there might be big downsides if energy prices collapsed for instance but also bigger profits if energy costs increase. If you cap the upside but don't cap the downside, otherwise viable investments will be cut. 

Governments won't stand by while power stations go unbuilt – if a politician can't keep the lights on they'll soon be kicked out of office. That's why I think that warnings of a future of power cuts are overblown. What we'll end up getting instead might be just as bad though; an increasingly centrally planned energy sector where politicians not businesses decide which energy sources and projects are worth investing in.

In many ways this is already the case. As leading energy expert Dieter Helm puts it:

The direction of policy has been increasingly to replace markets and competition with state-backed contracts. Onshore and offshore wind, solar panels, and biomass are all based on government-determined subsidies passed through to electricity customers. The grid charges reflect grid investment partly to support the intermittent renewables on the fringes of the existing systems. Extra capacity is needed to manage the intermittency too. Then there are energy efficiency subsidies, many with a social element. Customers are paying for the roll out of smart metering.

That's without mentioning white elephants like Hinckley Point C where the Government has guaranteed a strike price far beyond what the market would normally bear.  As Sam Bowman has pointed out before "High energy prices are mostly caused by high wholesale prices, and energy firms are not generally more profitable than other large firms". Pushing the energy market on the path towards greater state control will push up wholesale costs as otherwise uneconomic projects will be favoured by bureaucrats who lack the incentives and the knowledge to pick the best projects.

Theresa May should tread carefully. An energy price cap might poll well now, but its consequences will be felt long beyond the electoral cycle.