May 2008

Yes, Exactly

A Chinese friend of mine who had been active in the democracy movement explained…"Before Tianenmen, we believed that freedom is 90 percent political and 10 percent economic. A few years later, we came to realize that freedom is 90 percent economic and 10 percent political." You may find my friend\’s change of heart troublesome, but think about your own daily life and then try to tell me that second formula isn\’t a better description of how things really work for the vast majority of Americans.

Bravo! Bravo!

Sir Simon:

The same laws of economics apply to the price of oil – and, for that matter, wheat. These are scarce resources. The fact that more people want them is why they are more expensive. When a Labour MP last week cried that petrol should be made cheaper by the government “because it is a necessity”, he might as well have said two plus two equals five. When will these fools be sent for compulsory re-education before they do more damage?


A lesson here is offered by the recent experience of wheat prices, caused by a price hysteria in March. The French demanded that the European Union throw more subsidy at their farmers – confirming my view that a French economist is a contradiction in terms.

Although we would make an exception for M. Bastiat.

Price always tends to bring supply and demand into equilibrium, if left free to do so within an intelligent regulatory framework. Subtleties and complications surround this principle but, for starters, “That is all you know, and all ye need to know,” said the poet.

You can abuse the market, distort it, subsidise it or tax it, but it is rooted in human nature and will prove your master in the end. Far better to add economics to the core curriculum in every school and make it a qualification for any who would dare to embark on the profession of government.

Or, in the phrase which I stole from the Angry Economist, you can ignore economics, but economics isn\’t going to ignore you.


David Miliband is preparing to throw his hat into the ring in a leadership contest to “save new Labour” after the party’s disastrous defeat in last week’s Crewe & Nantwich by-election.

A couple of years ago I started making references to The Boy Dave (M) and The Boy Dave (C). No, I really didn\’t do this on the grounds that I hoped to see our choice as PM distill down to one of these two.

Well, Yes, We Knew This

Nor is it clear that organic saves the environment. A biochemist at Edinburgh University, Anthony Trewavas, has shown that organic uses more energy per tonne of food produced because the yields are lower. Also, because it requires more land – roughly twice as much as conventionally grown food – it means there is less available to be left unfarmed for biodiversity.

As for the oft-cited claim that organic food stops you ingesting tons of deadly cancer-causing pesticides – this got short shrift from Sir John Krebs of the Food Standards Agency. He wrote in Nature magazine: "A single cup of coffee contains natural carcinogens equal to at least a year\’s worth of carcinogenic synthetic residues in the diet."

Something of a scam then. But then we knew that too.

Oh, Great.

The protest leaders predict the event will be the capital\’s biggest ever demonstration over fuel.

Hundreds of lorries will drive through the city in convoy and at low speeds on Tuesday while a delegation takes a letter to 10 Downing Street demanding an immediate fuel duty rebate for lorry drivers.

This would happen on the one (highly infrequent) day that I\’m in London, wouldn\’t it? I have a feeling that it\’ll be the tube between appointments, not the cab….


A terrible crime, a ghastly one that must be stamped out, I\’m sure you agree.

A woman was threatened with a fine by her local council for putting posters on lampposts to find the owners of a lost cat. Public-spirited Joy Tracey wanted to reunite Copper the ginger tom with his owners after he was found whimpering in a garden.

The grandmother-of-three traipsed around animal shelters, vets and pet shops in a bid to help the cat. She also put adverts in her local paper and called the RSPCA, but drew a blank.

So after two weeks, and desperate to help the homesick pet, the former secretary printed 12 laminated, A5-sized posters. Tracey tied them to lampposts near her home in Denton, Greater Manchester, advertising her telephone number and asking for help for the lost animal. A day later uniformed council patrollers spotted the offending ads.

Tracey had fallen foul of the Town and Country Planning (Control of Advertisements) Regulations 1992, Clauses A, B and F, and Tameside council was determined to enforce the rules. She was telephoned from the council offices and ordered to remove the posters.

Aren\’t we lucky to have such caring and sensible rulers?

Airlines and Carbon Trading

Research for the Association of European Airlines finds that the changes are estimated to increase the cost to EU airlines from £36bn to £91bn over the 11 years of the current proposals.

The original scheme, proposed to be introduced by 2011, would force airlines to buy credits for any emissions above a pre-set cap, broadly based on their 2005 emissions.

In BA\’s case that would involve buying credits for emissions above 16.1m tonnes of CO? a year. Today the airline emits 16.6m-16.8m tonnes.

Amendments by members of the European Parliament propose to lower the cap and potentially force airlines to pay for 100pc of their emissions.

Mr Walsh challenged legislators to look at the wider picture at a time when oil was topping $130 a barrel and UK airlines already faced a 50pc rise in duty to £3bn a year by 2010 as a consequence of the Chancellor\’s replacement of Air Passenger Duty with a new aviation tax.

Credits should all be paid for, of course. Free allocation of credits is a corporate subsidy. The auctioning of all credits ends up being very like a carbon tax (although you end up targetting an amount of CO2, rather than a price).

However, at the same time as the credits come in, the APT should be abandoned. You don\’t want to tax the same emissions twice.

Now I don\’t know about this but I suspect that there\’s something of a turf war here. I have a feeling that the revenues from the auctions go to the EU, while the revenues from the APD (and if it were enacted instead, a carbon tax) go to national governments. So that there\’s always going to be, at EU level, a presumption that the cap and trade is the best way to go.

I argue the other way around (not just because it\’s the EU involved): instead of targetting an emissions level we should be targetting a price of carbon. This is because we don\’t actually want to stop climate change: we want the socially optimal amount of it. Thus adding the social cost of carbon to market prices will lead us to our desired solution via simple market processes.

That outcome might mean emissions continue to rise, they might fall as well: gbut it\’s the only way we have of actually finding out how people do value the future.

She Didn\’t, Did She?

Asked about calls for her to drop out of the race, she had said: "My husband did not wrap up the nomination in 1992 until he won the California primary somewhere in the middle of June, right? We all remember Bobby Kennedy was assassinated in June in California. I don\’t understand it."

She did.

There\’s an element of anyone wanting the power that badly being not qualified to wield it.

Climate Change Discount Rates

Those two issues are connected. Stern’s conclusion differs from Nordhaus’s principally because, on ethical grounds, Stern uses a lower “discount rate.” Economists generally value future goods less than present ones: they discount future goods. Furthermore, the more distant the future in which goods become available, the more the goods are discounted. The discount rate measures how fast the value of goods diminishes with time. Nord­haus discounts at roughly 6 percent a year; Stern discounts at 1.4 percent. The effect is that Stern gives a present value of $247 billion for having, say, a trillion dollars’ worth of goods a century from now. Nordhaus values having those same goods in 2108 at just $2.5 billion today. Thus, Stern attaches nearly 100 times as much value as Nordhaus does to having any given level of costs and benefits 100 years from now.


Those discount rates don\’t sound right at all. Anmyone remember what the true ones are?