Why we really should get fracking

An interesting little report from the US. Looking at the full integrated costs (yes, including carbon emissions not made) of the various options for energy capture and or generation. And it looks like wind and solar really just don't cut it:

[A]ssuming reductions in carbon emissions are valued at $50 per metric ton and the price of natural gas is $16 per million Btu or less—nuclear, hydro, and natural gas combined cycle have far more net benefits than either wind or solar. This is the case because solar and wind facilities suffer from a very high capacity cost per megawatt, very low capacity factors and low reliability, which result in low avoided emissions and low avoided energy cost per dollar invested.

It's worth noting that that $16 gas price is well above the current gas price in the UK (around 40p per therm, while $16 equates to perhaps 100p a therm).

So, the really interesting question is how has the UK government managed to do the calculations showing that natural gas isn't the answer? To which the correct response is that they've assumed that natural gas prices are going to rise very strongly in the future. Yea, even if we frack the entire country, for all of that would just be exported anyway. This is, to say the least, an unsupportable assumption.

In the long run the answer is undoubtedly going to include a lot of solar. Prices are still falling at 20% a year and it really doesn't take all that many years for that to have a significant effect. As Bjorn Lomborg pointed out by 2025 we'll all be installing solar purely on price grounds anyway. In the interim gas is still the best answer: so we really should get fracking.

Green belt is the reason for rabbit hutch UK

A Cambridge University study has claimed millions of people are living in homes that are too small for them, and the poorest are being hardest hit, what the academics call 'rabbit hutch' Britain.

The academics at Cambridge should know. It is one of those towns, forty miles from Central London, that is booming as a result of London's suffocating 'green belt'. London house prices have been soaring, and people who work in the capital have been forced to find homes further and further away. They blame foreign property buyers, or even the government's Help to Buy schemes, for the surge in prices. But that is only part of the story. The fact is that London, like many other cities in the UK, is not building enough houses. To meet the demand, the UK would have to build around 260,000 houses each year. Last year, it built just 110,000. And, like the national debt, that deficit has been stoking up housing pressure for at least the last thirty years.

It is near-impossible to build houses to meet that demand hangover. The green belts, announced in the Town and County Planning Act of 1947 and introduced in the early 1950s, were supposed to be slim areas of woodland and farmland surrounding our cities. The idea was to stop 'urban sprawl' and to give city dwellers some nice countryside nearby that they could enjoy. The farmland, however, has become industrial farmland, more like the prairies of the MidWest rather than the bucolic idyll of Olde England, and quite inaccessible to the public. Meanwhile this so-called 'green' belt has been extended further and further as people living in it or near it campaign to stop development near them – which, if successful, means that their home rises in value because of the huge unfulfilled demand. So 73% of Surrey, near London, is now green belt, and the few houses their command huge premium values, as do those in the other Home Counties. In the cities themselves, space has become so valuable that homes have indeed become rabbit hutches.

As Paul Cheshire, Professor of Economic Geography at the London School of Economics (and a recent speaker at the Adam Smith Institute) points out, greenbelts are a form of discriminatory zoning. They deliver no real benefit to a poor child in Haringey, five miles away from the green belt. But they do deliver benefit to the stockbroker-belt residents, keeping the urban unwashed and their housing out of their backyard.

The Adam Smith Institute has suggested that 800,000 new homes could be built around the capital by shaving just half a mile off each boundary of the London green belt. Politically, of course, that is difficult. Every homeowner in London, and particularly those around the green belt, have an interest in keeping the supply restricted. Cheshire has another suggestion. Because of the green belt restrictions, if you can get planning permission on a piece of land, its value soars. Cheshire would simply say that when that premium reaches a certain level, it is obvious that the market is telling you something. And where the premium is highest, that is where we should release land for new building.

Throw open our borders and liberalize Immigration policy

Tom won second place in the Adam Smith Institute’s 'Young Writer on Liberty' competition. The theme of the competition was '3 Policy Choices to make the UK a Freer Country', and the following is one of Tom's policy suggestions. 

Current immigration policy is scandalous and highly damaging to the economy.  By trying to limit the number of migrants severely, we are missing out on high calibre academics, scientists and engineers.  Perhaps the government could simply increase its target for immigration or ‘auction’ visas.  These changes would be an improvement, but they don’t go nearly far enough.

If we really want an immigration policy that maximises freedom, income and happiness, then the best immigration policy is to not have on at all.  Paradoxical?  I’ll explain.  The UK should operate acompletely free, open-door immigration policy.  If it sounds radical, that’s because it is.  Political rhetoric would have you believe that immigration is wholly bad; they take our jobs, lower our wages and steal from the public purse.  Nothing could be further from the truth.  Firstly, immigrants create jobs as well as filling them, by demanding goods and services.  The pool of jobs is not fixed.  The overall number of jobs in the economy increases due to immigration.  Secondly, migrants don’t lower wages, studies have shown that they increase wages on average.  Lastly, they contribute to, not steal from, the public purse.  The IFS found that while we native Brits only pay 0.8 times as much in tax as we receive from the government, migrants in fact pay in 1.4 times as much.  They are funding our benefits, not the other way around!

So, the political rhetoric on immigration is misleading.  But would a completely open immigration policy really lead to significant economic benefits?  Well, yes.  Emphatically, unequivocally yes!  Professor Lant Pritchett found that just a 3% rise in the developed world’s labour force through migration would lead to benefits larger than those from the elimination of trade barriers.  Think what a completely open door immigration policy could achieve!  Indeed, estimates about the effects of completely open migration suggest global GDP could rise, roughly, by between 70% to 150%!

Of course, migrants benefit society culturally too.  Cuisine, art, music, culture; they are all enhanced by migrants.  I for one would be much poorer culturally if I couldn’t get an Indian takeaway on a Saturday night!

Migrants bring huge economic benefits, and enhance our culture too, making the UK a more interesting place to work, rest and play. Evidently, if we want to make society freer, happier and richer, a completely open immigration policy is the way to go.

The only problem with Lord Saatchi's new tax proposal is that it's not adventurous enough

Lord Saatchi has come up with an excellent idea to change and improve the tax system. Let's do away with corporation and capital gains taxes with regard to small companies. The only problem with the idea is that it's just not adventurous enough.

In a report to celebrate the 40th anniversary of the think-tank, which was founded by Baroness Thatcher, the CPS calls on the Government to stop imposing corporation tax on firms with fewer than 50 employees. Capital gains tax should also be abolished for all investors in small companies, the report states. Lord Saatchi writes that the policy would show “how the awesome power of taxation can be used to the benefit of everyone”.

He makes the correct and obvious points that small companies are just about the only creators of new jobs in the private sector and that this would do much to increase their creation. The obvious side effect of that being that fuller employment will lead to higher wages: as long as they're being earned something we all generally regard as being a good thing.

But as we say this isn't quite adventurous enough. For optimal taxation theory tells us that we shouldn't be taxing corporations nor the returns to capital at all. For such taxes have higher deadweight costs than the taxation of incomes, which is again higher than taxing consumption which is again worse in its effects than repeated taxation of property. We should thus, in order to have the least lost economic activity from whatever level of taxation we desire to have, abolish corporation and capital gains tax in their entirety and replace the revenue with something like a land value tax.

Yes, it would produce political caterwauling but it would be the most efficient method of gathering tax revenue.

On a related point one way of looking at Piketty's magnum opus is that it's an attempt at a refutation of that optimal taxation theory. Everyone does agree (OK, some economists you have to press on the issue but it is agreed to in the end) that the deadweight costs are higher and that thus such capital and corporate taxation is inefficient. And that abolishing them and moving to other revenue sources would make us all richer. But there's an awful lot of people who just wouldn't be happy with such a system. So, they're looking for some other reason, other than efficiency, to insist on retaining such taxes. And inequality seems to be the current one they're trying out. It's not an argument that really works though.

How we can create a Capitalist society, and make it popular

Marcus was awarded joint third place in the Adam Smith Institute’s 'Young Writer on Liberty' competition. The subject for this competition was '3 Policy Choices to make the UK a Freer Country', and the following is one of Marcus' suggestions. 

The welfare state combines a seemingly improbable dichotomy: that it is both too expensive, and too mean in its provision. Across Europe, the social state began with the creation of state pensions, and in order to break the hold of welfare collectivism, the state pension must be the first area to face radical reform.

Instinctively, even many liberals will be suspicious of the ideas of private provision and unregulated society. The inculcation of collectivism and a suspicion of human nature drives many people to oppose the development of natural remedies to social ills. We imagine all too easily that without the abstract of society to impose solutions on us, the problems of disease, want and idleness will go unabated.  In order to reverse this perception, the market must be seen to work for all people, and at all levels of income. In a liberal society, the refrain must be ‘Everyone a capitalist’. I believe that the prospect of a property owning democracy and a comfortable old age is only possible if private pensions become available for all.

Instead of hand to mouth, pension income would be derived from years of saving and investment. The tax of national insurance would be abolished in favour of routine contributions to a savings scheme for old age. This would be tax free, and could be managed by any number of approved mutuals, trades unions, and investment houses. In the spirit of bleeding heart libertarianism, I would not even be opposed to state supported additional contributions to help those on low incomes; who, for the first time, would have genuine cause to cheer the advances of business.

 If the success of similar schemes in Chile is any indication, then we can suppose this policy not only to reduce the burden on the exchequer and to provide additional funds for investment in new industry, but to even increase the retirement income of pensioners above their previous work income.  This would be true not only for the professional class but for ordinary workers who might be spared the inevitable trap of the endless years of work that is necessitated by collective provision. Cradle to grave socialism has failed; it is time that the inventive cooperation of the many ran welfare, instead of the directives of the political elite.

The Equality Trust is wingeing on again

The Equality Trust has decided to favour us with another whinge about just how appalling we are in our inequality and the treatment of the poor. The release comes in the house magazine for the worriers, The Guardian:

"The public are misled about this country's tax system. They think households with the highest incomes pay more than those with the lowest, whereas the opposite is the case. Even more concerning is how little our current system matches people's preferences on tax. There is clearly strong support for a system that places far less burden on low-income households," he said ahead of the "Unfair and Unclear" report. "We're calling on all parties seeking to form the government from 2015 to commit to the principle that any changes in tax policy are progressive." Not a single respondent in the poll knew how much the richest and poorest paid in tax. On average the public underestimates what the poorest 10% pays in tax by 19 percentage points, believing they pay just 24% of their income in taxes, the Equality Trust said. When asked about how to make the tax system fairer, on average, people said the poorest 10% should be taxed just 15% of their income, or 28% percentage points less than they currently are. They believe the richest 10% should be taxed 39%, or 4 percentage points more than now.

Hmm. Those figures at the top are from here. Agreed, it's quintiles not deciles and total income there means including benefits in kind (health care and education). But those poor households appear to make £5,000 a year by their own effforts and then get to command resources of £15,000 a year. And if your total income, after the influence of the tax and benefits system, is three times your market income then I would describe you as having a tax rate of minus 200%. Meaning that looking just at the nominal tax rate is extremely misleading.

Well done to the Equality Trust there.

But let us take the specific issue they attempt to highlight seriously for a moment. It's actually what people think the various groups ought to be paying. And at the top end we're pretty close to what people think "the rich" should be paying. I'd certainly, given how appallingly out of control most state projects (think Olympics for a moment) get, accept a 4% error as being pretty good for government work.

So the Great British Public don't think that the rich are paying too little. But they do think that the poor are paying too much. At which point we here at the ASI would be delighted to support the plan to create a more progressive taxation system. We could start by lifting the income tax and NI limits to perhaps £12,500 a year. The level of the minimum wage. This would reduce the tax burden on the poor, most certainly. It would also have the handy attribute of converting the minimum wage into the living wage (the difference between the two being only that vast amount of tax we charge to low incomes).

But we would insist on noting that thought that the rich shouldn't be paying more. It is, rather, that everyone should be paying less. This means that we get to have the most lovely fun deciding which tens of billions of pounds we should be cutting out of government spending in order to make the tax side of the P&L match up with the public's democratic desire for a reduced tax burden on the poor.

So, remarkable as it may seem, we're fully behind the Equality Trust on this one. The public are demanding tax cuts and smaller government and what's not to like about that?

Liberalism day

Today is Liberalism Day. It's the day when we snatch the word 'liberalism' back from the American left, who on most economic matters at least are anything but liberal.

Genuine 'liberalism' developed in the seventeenth and eighteenth centuries, under the guidance of philosophers like John Locke and Adam Smith, and flourished in the nineteenth century, guided by yet other philosophers like John Stuart Mill, not to mention a clutch of enlightened politicians.

The early liberals – the Old Liberals or Classical Liberals as they are called – thought that economic activity in free competitive markets was an important part of freedom in general. The key feature of liberalism is the presumption of liberty: there may well be good reasons for curbing people's freedom in various cases, but the onus is on those advocating the curb to justify it.

If only our politicians today would begin with such a presumption – instead of presuming that they have the solution to everything.

Take More Syrian Refugees

James was awarded joint third place in the Adam Smith Institute's 'Young Writer on Liberty' competition - the theme of which was '3 Policy Choices to make the UK a Freer Country'. The following is one of James' entries. The government's decision to accept a number of Syrian refugees is a welcome measure but it does not go far enough. The Civil War has reportedly created 2.4 million refugees and 6.5 million internally displaced people, figures which mean an effective humanitarian response would have to be in the many thousands rather than the proposed hundreds. Without sanctuary, many will perish either in conflict or through disease, squalor and lack of basic necessities. Allowing them entry to Britain would undoubtedly be the moral thing to do. Yet it would be incorrect to view this act as a gesture of self-sacrifice. By helping the Syrians, we would be helping ourselves.

The economic case for more immigration is well-established. By increasing the size and variety of the workforce, immigrants allow a greater division of labour, ensuring specialisation, efficiency and ultimately per capita productivity. Evidence suggests that immigrants boost rather than consume government resources, paying more tax than the average Briton and being 45% less likely to receive handouts than those born in the UK. Both the OECD and the OBR have demonstrated that without migrants the government would have to make further cuts to public services or pay higher taxes or both. At a time of austerity, it would be wrong to reject a potential source of wealth creation.

Past instances of refugees illustrate there is a positive social case for taking more Syrians. Many of the 17th century Protestant Huguenots went on to become successful silk weavers, financiers, soldiers and artists, becoming an integral part of British life. In the inter-war period, Britain's comparatively liberal immigration policy produced great dividends. Designer Alec Issigonis left Greece and created the iconic Mini, novelist Judith Kerr escaped Germany and wrote the quintessential children's book "The Tiger who came to Tea" whilst Ludwig Guttmann founded the Paralympic Games. These are just a few examples of the many generations of immigrants that have enhanced rather than diminished Britain's cultural and economic fabric.

Furthermore, by providing sanctuary, we would expose a number of Syrians to the values of a liberal democracy. When the conflict ends and refugees return, their first-hand experience of life in a free country make it less likely that they will tolerate a regime which practices tyranny. If the government wants to help both the people of Syria and Britain, it should welcome more refugees with open arms.

Will Hutton's free to comment but facts are indeed sacred

Will Hutton is, in our liberal society, entirely free to comment upon passing affairs as he sees fit. Just as we are free to catcall and lob peanuts from the gallery at him for those comments. But one of the rules of the game is that you're not allowed to make up your own facts in these matters. Which is what Hutton is doing here. Concerning the housing market he insists that the following must be done:

I have argued for 25 years that the conventional free-market wisdom on finance – embraced by the Bank of England, Treasury, IMF, chancellor Lawson and chancellor Brown – has been wholly wrong. Interest-rate increases alone are not enough to manage the systemic proclivities of modern finance. Governments have to direct the amount of capital banks hold, regulate how much is lent to which category of borrower, cap the multiples of a homebuyer's income that can be lent against and what proportion loans should represent of a home's value.

In short, the country would be a better place if we would all just buck up and do what Hutton thinks we should be allowed to do. The reason why this is necessary is, as he says:

To tackle the bubble, there are two more Thatcherite follies that Osborne will have to abandon. Britain needs to build 250,000 homes a year to accommodate the new households that are being formed. Since 1918, the private sector has only for a few years in the 1960s ever built more than 150,000 homes in a year. It is fine to set aside brownfield sites and all the rest, but ultimately the state will have to build homes on a serious scale. No council house sale should now be allowed without a commitment to build a replacement.

The problem with this argument being that it's ordure, stinking, smelly, ordure of the worst kind, the product of cows on curry. From his own newspaper:

How did the cheap-money policy stimulate the real economy? A very important channel was through development of new housing. The number of houses built by the private sector rose from 133,000 in 1931-32 to 293,000 in 1934-35 and 279,000 in 1935-36. Many of these dwellings are the famous 1930s semi-detacheds which proliferated around London and more generally across southern England. These figures are way ahead of any other year since the second world war.

Or again:

Vince Cable, the business secretary, has been pressing cabinet colleagues to adopt the 1930s approach. He thinks house building is the way to get real demand into the economy quickly, and has championed the idea of government guarantees for housing associations. He said in a speech last year that there was a virtuous circle in the 1930s in which higher mortgage demand led to an increase in house building, which in turn led to lower prices and greater affordability, leading to still higher demand. "Houses built by the private sector rocketed from around 130,000 in 1931 to almost 300,000 in 1934 and it is estimated that house building contributed almost a third of all employment increases in this period."

The apparatchiki controlling the financial system and the planning process is not necessary in order to provide the housing that the British desire. Rather, the liberation of both from said apparatchiki has worked in our past and would obviously work again. The way to build houses in places that people wish to live and at prices they wish to pay is to, as was true before the 1947 Town and Country Planning Act, allow people to purchase land and then build upon it. We have the evidence that this works.

And Hutton can only bolster his own argument by entirely wiping that fact from the collective memory.

Hutton's entirely free to produce any argument that he wishes in futherance of anything at all, just as we are free to jeer at him as he does so. But when he starts inventing his own facts to mislead us all we really should be condemning him. Comment is free but facts are sacred.

So this policy didn't work out all that well then

This particular policy came about as a result of the analysis we did here on this very blog:

Just 1 per cent of new fathers are using a new right to take extra paid paternity leave while their partners go back to work, figures reveal. Additional Paternity Leave was introduced in 2011 as part of ‘shared parenting’ plans promoted by the Liberal Democrats, which they claimed would revolutionise family life. But in a humiliating blow to Nick Clegg, just 1.4 per cent of new fathers currently make use of the scheme.

The genesis was our making the obvious point that we don't really have a gender pay gap in the UK any more. We have a motherhood pay gap. This was picked up by a Lib Dem activist (yes, we do know the name) and then went through the party's policy making process and became law. That it doesn't seem to have made much difference could be described as a failure of either the policy or the original analysis.

However, that's not quite the way to think about it. The better way is to consider that if we've a perceived inequity that is a result of things being done to people then we might want to work to stop those things being done. However, if that perceived inequity comes from people making free choices (and obviously ones that do not impinge upon the rights of others) then that final result isn't actually an inequity. It's just an outcome of the deecisions that people have been free to make.

So it is with shared parental leave. If the option is there, but people don't take it, then the continuation of that motherhood pay gap is not because of restrictions upon what people may or may not do. It's there because that's just how the majority of people desire to organise their lives.

And if you don't understand this sort of difference then you're going to be led into this sort of error:

Labour shadow childcare minister Lucy Powell, who uncovered the figures, claimed workplace culture still discourages men from saying at home. She said her own husband had refused to take more than two weeks’ paternity leave, fearing the reaction from his colleagues in the NHS. In an interview with MailOnline, Miss Powell suggested paternity pay may have to rise to encourage fathers to take more time off – unless there is a culture change for it to become more acceptable to men and their employers to equally share the childcare burden.

No, we don't want to force people into some set of approved behaviours. We want to offer the freedom and liberty for people to express their own preferences.

And as to raising the rate of paternity pay: this really isn't going to work at all. For along with that motherhood pay gap we see as many mothers cut back on their commitment to a career as they raise their children we also see a fathers' pay premium. Men with children do, after correcting for age and qualifications, earn more than men without children. There's obviously something innate in human behaviour going on here. Mothers staying near the cave to look after the young ones, fathers going off hunting mammoth to keep them all fed sort of thing.

Perhaps some people don't like this arrangement, it's even possible that we shouldn't like this arrangement but if that's what free people decide to do with their liberty then who are we to try and change what they're doing?