Agreeing with James Hansen on climate change

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I know, I know, this is near heresy. But James Hansen, one of the more apocalyptic prophets of climate change, has written an open letter to Barack Obama and I find myself agreeing with one of his major points. It has to be said that I disagree on many others: my longstanding view has been that climate change is not an immediate nor a catastrophic problem, it's a chronic one that we can deal with quite easily as long as we give ourselves the requisite decades to a century to do so. This is the part that I do agree with:

A rising price on carbon emissions is the essential underlying support needed to make all other climate policies work. For example, improved building codes are essential, but full enforcement at all construction and operations is impractical. A rising carbon price is the one practical way to obtain compliance with codes designed to increase energy efficiency. A rising carbon price is essential to "decarbonize" the economy, i.e., to move the nation toward the era beyond fossil fuels. The most effective way to achieve this is a carbon tax (on oil, gas, and coal) at the well-head or port of entry. The tax will then appropriately affect all products and activities that use fossil fuels. The public's near-term, mid-term, and long-term lifestyle choices will be affected by knowledge that the carbon tax rate will be rising.....A carbon tax is honest, clear and effective. It will increase energy prices, but low and middle income people, especially, will find ways to reduce carbon emissions so as to come out ahead. The rate of infrastructure replacement, thus economic activity, can be modulated by how fast the carbon tax rate increases. Effects will permeate society....."Cap and trade" generates special interests, lobbyists, and trading schemes, yielding non productive millionaires, all at public expense. The public is fed up with such business.

I've deliberately left out his proposal that the tax should be returned as a dividend, I don't think it's necessary. Reducing other taxes instead would work just as well: the important point would be revenue neutrality.

But this is I think the correct way to go about things. We don't have to ban anything, like planes or runways, we don't need a "fundamental change in the structure of our society", we don't need to cripple the economy and we certainly don't need vast amounts of central planning. We just need to incorporate the externalities of carbon emissions into the market. Cap and trade does that with too much politics involved so a carbon tax (or as it is called, a Pigou Tax) looks better to me.

Now all we need is to work out what that carbon tax should be? The logic of Pigou taxation is that the tax should equal the harm being done. We have our number for the harm from the Stern Review, that $85 a tonne CO2. Or as Defra (the number is different but the same for technical reasons) has it, around £30 per tonne CO2. Given our total emissions of some 500 million tonnes a year from these islands that means a tax burden of some £15 billion a year and reasonable estimates are that we already pay that amount in emissions taxation.

See, I told you we could deal with this quite easily for we already do have the appropriate tax levels. Problem solved.

Political highs and lows

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The BBC has released a video of the ‘Political Highs and Lows of 2008’. It features a host of BBC political commentators, as well as Esther Rantzen saying she would like to see Cameron become “older" and more “stalwart" over time (I’m not quite sure where she came from).

The consensus seems to be that the financial crisis has improved Gordon’s popularity, even to the point that Labour has a realistic chance of victory in the next election. It is interesting to see how poll results show the public as being unable to look to the long term, and to observe how fickle they have become. Despite many people blaming the government for the financial crisis and subsequent economic downturn, they are quick to forget this once they see Gordon Brown splashing billions of our pounds around. At least he’s doing something, they think, so we might as well let him carry on.

The worrying thing is, Brown's gesture politics could just work. There is a long list of examples where this type of tokenism has been believed and the government has come out relatively unscathed, or even benefited. To take a couple of recent examples: the recent reduction in VAT will have almost no impact on consumption and British troops will only be withdrawn from Iraq so they can go and fight a seemingly un-winnable war in Afghanistan instead.

The trouble is that people rarely look beyond the headlines (why should they, I suppose?), or the past the short-term impact of political decisions. That's why we're likely to see more of this sort of politics in the run-up to a general election, and not less.

On the tenth day of Christmas...

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My true love sent to me: ten lords a-leaping. This probably refers to the Ten Commandments, but lords today aren't exactly leaping to do anything, particularly to reform the House of Lords.

The subject has been talked about for decades. Everyone has agreed that reform is needed, but nobody has ever been able to decide exactly what. The trouble is that the House of Lords has actually worked quite well. It has checked the House of Commons, but not been able to override it. The hereditary peers might have been overwhelmingly old, white, posh, bumbling prats, but in fact the system brought in lots of people you never see among the serried ranks of lawyers and political careerists in the Commons - more young people, more women (until recently), more people of all classes (Lord Nelson was a policeman, I recall), more communists, more libertarians...

Tony Blair took a major step in abolishing the heredities - or most of them: these peers are pretty nifty politicians, having had the gene in their families since Tudor times. But that leaves us with a House of Lords that is appointed. This can be good - non-politicians like the medical pioneer Lord Winston bring enormous depth to the House's discussions. And even ex-politicians can bring a lot of experience. But a House full of the Prime Minister's chums is not a delectable prospect.

Nor is an elected House - it will just fill up with the same political lawyers we have in the Commons. If we're going for elections, it needs to be a completely different system, with different constituencies, and radically different rules. Personally, I'd prefer the first 500 people out of the phone book. Or almost anyone, provided they didn't want to do the job.

Blog Review 828

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A short list (a full one would be much longer) of things which are not economically possible but which are politically so. As long, that is, as we recognise that while the political system may say they can be made possible economics ensures that they cannot be.

Isn't technology wonderful? Making money by giving things away. Creative destruction at its most creative and destructive.

Rural Scotland might not be quite the best place for Britain's first spaceport.

Just as Britain in winter might not be the best place to be relying upon windmills to generate energy.

As ever, there's a very large number of people who don't know how lucky they are.

No we don't face peak uranium. Not now and not for a very long time at least.

And finally, political headlines of last year.

Credit Crunch update: why not go with the form?

Meanwhile (16th December) David Aaronovitch’s aplomb knows no bounds. He wheels out J K Galbraith and Franklin D Roosevelt in support of his contention that history has lessons (really?) and it supports economic intervention (at times like this). Galbraith was the anti-freedom guru who (almost alone) believed the absurd and bogus output statistics of Soviet Russia right through to the mid-eighties, a quarter of a century after they were originally exposed. As for FDR’s recession-busting skills, Aaronovitch tells us that “many credit his New Deal with ending the recession", noting that 3 years after the 1929 crash and before Roosevelt’s accession “almost a quarter of working-age Americans were unemployed". What he didn’t tell us is that this statistic (and many others) barely budged throughout that decade. Indeed pre-Depression prosperity was not reached until after World War II. The evidence that the New Deal prolonged the recession is clear.

Chutzpah indeed! So why not go with the form – which means Ludwig von Mises (who throughout the second half of the 1920s predicted the Great Depression) and the Austrian School. As Mark Thornton writes about the last crash (1999-2002): “Given that the Austrian School is both small in number and marginalised in the profession, their dominance in making predictions seems like an elephant in the soup bowl". The same goes this time round with several Austrians pointing out the unsustainability as early as 2004 (with one such prophet called Alan Greenspan “Mr. Bailout"). Or compare an article written about the same time as Kaletsky’s a year ago “Economic Outlook 2008: Darkening Clouds".

Why should anybody believe anything that these guys write? Certainly Kaletsky (and no doubt Aaronovitch when strolling into economics) is a dyed in the wool Keynesian. The experience of the UK in the 1970s and Japan in the 1990s should have been enough to dismiss Keynes as an illiterate and incoherent charlatan (see also here) in the field of Economics (in fact he was not an economist at all).

I make no apologies for the fact that most of my web links herein are to the Ludwig von Mises Institute. As I have said, study the form. And, perhaps more important still, study the theories.

Terry Arthur is the author of Crap: A Guide to Politics. Buy it here from Amazon.co.uk

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“If it were possible to substitute credit expansion (cheap money) for the accumulation of capital goods by saving, there would not be poverty in the world". (Ludwig von Mises, Planning for Freedom)

At The Times, there are columnists and there are columnists with chutzpah, such as Anatole Kaletsky and David Aaronovitch, both of whom feature quite prominently in my book.

They are still in stonking form. Thus Kaletsky seems to dare you to look back at his previous columns, presumably in the hope that you won’t. On 15th December he tells us that a year ago he wrote repeatedly for a government-led Plan B which “was duly implemented in January and February". Hence in January Kaletsky wrote “I believe that the global credit crisis, far from taking a turn for the worse, is now almost over". His current excuse (15th December) is that the Bush Administration sabotaged Plan B in September. (Surely it should have been all over by then, though.) Three days later he tells us that “bankers and borrowers need cosseting in the soft eiderdown of zero interest rates". Yet only savers (who abstain from consumption for the sake of capital formation) can shorten the recession, caused as always by guess what – cosseting borrowers. Instead Kaletsky accuses savers of refusing to invest in “productive assets". The trouble here is not only that any savers left are dying from years of cosseting borrowers. Productive capital is similarly scarce and will remain so until boom-time malinvestment is cleared and saving is allowed to flourish... [Click 'read more' to continue]

I'd better not go to Gambia...

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In Gambia, two Scottish Christian missionaries have been given a year in prison with hard labour, having sent emails home criticizing the government. Criticizing the government is not, it seems, allowed in Gambia. Well, I think the government of Gambia are complete scumbags, so I guess I should give myself up now.

Gambia at least has a constitution, but it gives most power to its President - retired colonel Yahya Jammeh. It even has elections that border on being fair, which brought the colonel to power in 2006. It may have helped that he had arrested a number of opposition sympathizers and journalists on the grounds that they were plotting a military coup.

A special commission has the power to imprison journalists, print and broadcasting media have to be registerd with the government, and libel and slander, including criticism of the government, of course, is punished with imprisonment. The media prights group Reporters Without Borders reckons that Gambia is a police state which uses murder, death threats, and arrest to curb criticism from journalists.

What always amazes me, when such injustices are exposed, is why we take countries like Gambia, or Zimbabwe, or any of the others, seriously. Most of all, why do we let them strut at the United Nations as if they are on a par with truly democratic nations?

On the ninth day of Christmas...

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My true love sent to me: nine ladies dancing, which probably refers in the song to the nine fruits of the Holy Spirit, which include Love, Joy, Peace, Kindness and so on.

Well, it's a bit early for dancing, or even joy. Believe it or not, but if you live in the United Kingdom you are going to be working for the government every single day between now and 2 June, which is when Tax Freedom Day falls. Roughly 40 percent of what we make and earn is snatched from us by the tax authorities to be spent on things that our governments in London, Holyrood, Cardiff and Belfast think that we should be given.

It's been scientifically calculated that the average Christmas present costs 14 percent more than the recipient thinks it is worth. If you just gave cash instead, then the recipient could buy something they think is worth the money. When you buy something for them, they never think it's quite right, and sometimes they put it in the cupboard and just forget about it. And it's the same with government. They buy services for us which we don't want - usually because they are very ineffectively delivered. If they gave us the cash - or even vouchers - instead, at least we could get value for our money.

And actually, it's worse. The government isn't giving us all these useless present with their money. It's paying for them with our money!

Blog Review 827

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Why those free Wi-Fi citywide programmes never quite did take off. Or, if you prefer, why the government here in the UK doesn't need to build the 100 Mbit broadband network.

Possible paths for the economy for the next 12 months.

Propaganda or just bad reporting? Difficult to tell with the BBC sometimes these days.

So, err, just how has that unionised workforce worked out then?

How technological change changes other things. For example, those perfect pitch machines for singers mean that producers deliberaltey pitch those singers a tad sharp.

Did this actually happen last night? 11:59:60 ?

And finally, well, that's it for the internet, the web and blogging. Someone has finally admitted to being in error in a previous blog post. Nothing will ever be the same again, will it?

Happy New Year!

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A hopeful message

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In response to a blog a wrote a few weeks ago, I was asked, "Does this mean that the competitive free market economy of Adam Smith does not exist in the real world? That it is today a government managed economy through supply side and monetary policies?" It's an interesting question, and it is very easy to get depressed about the state of the world at the moment – but I still don’t know that I'd go that far.

On the one hand, it is probably true that no country in the world has a pure free market economy. In unstable or extremely undeveloped countries, you don't get proper free markets (even in the absence of government intervention) because the institutions needed to support them, like secure property rights and the rule of law, are absent. And when countries do become stable and developed, they almost always end up with governments committed to managing the economy and micromanaging citizens.

So yes, pure free markets (in the theoretical sense) probably do not exist in the real world. What we have instead is varying degrees of state capitalism – the most successful versions being those that maximize individual freedom and allow the greatest degree of competition.

But on the other hand, I don't think we should despair. Maybe there's no free market utopia, and maybe there never will be. But ultimately individual freedom (and, by extension, the free market) will always be more powerful than statism, because it goes with the grain of human nature – people are inherently entrepreneurial, dynamic and individualistic. So while governments will probably never stop trying to manage everything, they're never going to succeed in managing everything either. Indeed, the more complex, diverse and advanced economies become, the harder it will get. There will never be a perfect world, sure, but in the long run liberty has the upper hand.