Picking Losers

Responsible to whom?

From the BBC's live blog of Gordon Brown's press conference yesterday:

1705 The prime minister says he "will not waiver and will not walk away". He adds: "I admit there have been full mistakes made and I accept responsibility."

JamboTheJourno tweets: I think Brown's acceptance of responsibility potentially gives him the opportunity to start afresh.

Taking responsibility doesn't mean what it used to, does it?

The whole country has shown that it doesn't want this unelected Brown government.

  • Labour don't control a single council in England, and are down to under 180 councillors in the contested constituencies, compared to nearly 1500 for the Tories.
  • The LibDems have far more (473) councillors than Labour (and have a higher share of the vote).
  • Almost as many independent as Labour councillors were returned (164 and 176 respectively).
  • Who could ever have imagined seeing the Tories controlling Lancashire and Nottinghamshire?
  • Eleven ministers, including six cabinet ministers have quit (Jacqui Smith, Hazel Blears, John Hutton, James Purnell, Geoff Hoon, Paul Murphy, Caroline Flint, Tony McNulty, Margaret Beckett, Beverley Hughes, Tom Watson).
  • Brown has so much confidence in his parliamentary party and they in him, that he can't find suitable candidates for the vacancies from the 350 or so Labour MPs, and has to give two departments to the unelected Peter Mandelson and draft in other unelected individuals like Lord Adonis, Glenys Kinnock and Alan Sugar.
  • Brown is so enfeebled and dishonest that he can't move the ministers that he had planned to, then lies to the press by claiming that he had never planned to move Darling, and then preaches about the virtues of honesty and integrity that he learnt at his father's knee.
  • Less than half the Labour activists or supporters surveyed in polls on the Labourlist website, for Channel 4 News, in the Mail on Sunday and The Times want him to lead the Labour party into the next election.
  • In recent polls, the majority wanted a general election now (Telegraph, ITV News).

But what do the public know? Who are we to judge the Prime Minister? What matters is the Prime Minister's judgment of himself (and, to a lesser extent, the judgment of those who depend on him for their government positions):

"If I didn't think I was the right person, leading the right team, I would not be standing here... I have faith in doing my duty, in being fair to others, and in honest politics, and this is who I am... Our party cannot lead or succeed by heeding the empty and expedient reactions of the hour... I will not waiver, I will not walk away, I will get on with the job and I will finish the work."

So that's alright then, Gordon. You carry on "taking responsibility" by ignoring everyone else and reducing the country to penury to pay for your mistakes, while we figure out, if you won't listen to opinions expressed peacefully and democratically, how else we get rid of you. Your delusional faith in your own abilities and refusal to heed public sentiment may be the death of democracy in this country, but what do you care? You are in good company with other leaders who knew that their leadership was in the best interests of their ignorant, ungrateful populace. Charles I, Louis XIV, Stalin, Hitler, Mao Tse Tung, Saddam Hussein, Kim Jong Il, Gordon Brown...

Organisations: 

Sun stroke

I have been in France for a couple of days, visiting a potential business partner's sites. They have plans to install a huge area of photovoltaic (PV) panels at both sites. In both cases, they claim that the PV will pay for the cost of the buildings on which the panels will be installed. Hence they are building very big structures to cover with PV.

That is somewhat surprising, because PV, unless massively subsidised, doesn't even cover the cost of itself (i.e. installing and running the panels), let alone pay for the building underneath. The explanation: the French government is introducing a tariff to pay €500/MWh from PV. By comparison, their power costs (they claim, though this probably hides massive subsidy to the nuclear industry) around €37/MWh to produce, and consumers pay €42-120/MWh (large industrial to small domestic).

In this respect, they are outdoing even the Germans, who "only" threw €320-400/MWh at PV. This made the Germans the biggest deployers of PV in the world (relative to the size of their economy). And yet contributed a gnat's fart of electricity (<0.1%) to their total energy supplies.

Our potential colleagues will not be the only ones planning to respond to this incentive by building installations that otherwise would not be built, which will cost a fortune, fit badly with their nuclear power (as both are inflexible), and add little to their energy supplies or security. There will doubtless be a spate of construction subsidised by this massive distortion, whose cost bears no relation to the environmental or economic benefit (particularly in France, where this power will mainly be displacing nuclear, and therefore making a minimal impact on carbon emissions, and reducing the efficiency of the nuclear power stations).

The French government justifies this, as governments always do, by claiming that massive support will produce massive deployment, which will achieve economies of scale, and drive the technology down the learning curve, making the technology viable in the long-run. What they have not explained is why this has not already been achieved by the German programme, and why, following that programme and the supposed economies and learning achieved, they have had to introduce a subsidy even more generous than the Germans in order to encourage the market. Is this yet another example where the learning curve is negative, and the lessons learned are that the technology is more expensive and less likely to reduce in cost than its proponents expected?

Topics: 
Organisations: 

The Department for Picking Winners

The press seem determined to ignore a crucial aspect of Peter Mandelson's accumulation of power. They are very interested in the symbolic and honorary aspects, such as the award of the titles of First Secretary of State and Lord President of the Council. But most of them are reporting that he remains in charge of BERR. He does not. BERR no longer exists.

The Department for Innovation, Universities and Skills has been merged into the Department for Business, Enterprise and Regulatory Reform to form the Department for Business, Innovation and Skills. I am all for reducing the number of departments. But the nature of the merged departments indicates something more important: the revival of industrial policy continues apace, and this department will be its powerhouse.

This government knows nothing about entrepreneurial innovation. Its only contribution to the field is the negative one of providing perpetual competitive advantage to corporate incumbents, who have vested interests in maintaining the status quo and disadvantaging innovative new entrants. This government couldn't distinguish a real entrepreneur (not the fiction-peddlers in the City, nor the publicity-hunting media-darlings, but the iconoclasts who try to build real, innovative businesses) from a trades-unionist.

Hence the appointment of Suralan (soon to be Lordsugar) as Enterprise Czar. This was presumably inspired by the huge success of Lorddigby (most recently seen marching in support of protectionism for our car industry). If the Government and Suralan understood entrepreneurialism, they would know that entrepreneurs do not want or need a Czar to represent them in government. They need the Government to stop meddling, micro-managing and picking winners, so we can have genuine competitive markets in which innovative ideas thrive or fail according to their merits, and not according to how well they fit with the Government's latest ideas of what the outcome of the market should be.

A department that combines responsibility for businesses with responsibility for the least commercial group in the world (academics), run by people (ministers and civil servants) who have absolutely no commercial experience themselves, will end up rewarding those who try to implement academic cloud-cuckoo schemes and punishing those who are more interested in commercial reality. This has been the effect of the various grant schemes in the energy sector (and probably elsewhere) since time immemorial, and yet these efforts to sponsor white elephants are about to be re-doubled, at a time when we can afford them even less than usual. The new department will throw money at grandiose schemes dreamed up by academics who promise the earth without the responsibility of having to put their money and reputations where their mouths are. And because these grandiose schemes will require enormous amounts of finance, the big corporations will be invited to participate, in exchange for providing that part of the funding that is not provided by taxpayers. The commercial advantage this will provide to big businesses, and ideas that would be uncompetitive without the public funding, will crowd out private efforts, genuine innovation, and the smaller businesses that have usually been responsible for real innovation.

On the other side of the equation, industrial policy will appear to create jobs, and profits for those businesses favoured by involvement in government-approved enterprises. It will create the illusion of economic recovery, which is exactly what the government is reckoning on, whilst embedding uncompetitiveness and corporate influence further into our economy. Eventually, many years down the line, we will discover that we have created our own General Motors, just as we did with our nationalized industries.

Economic development is only sustainable and real where it allows genuine competition undistorted by government intervention, favour and planning. But a lot of people can be fooled otherwise for a long time, especially when they have forgotten or misunderstood their history. It wasn't public ownership that was the big problem in the seventies, but the protected position of favoured, and consequently lazy and ossified, enterprises. There are many ways to achieve that without full public ownership, but with just as negative long-term implications for innovation, competitiveness and the economy. The Government has been driving in this direction for many years in the energy sector, and probably many others. It is about to get worse.

The opposition parties do not have a significantly different attitude, as Tory policy on STEM (Science, Technology, Engineering and Maths) demonstrates. It is past time for entrepreneurs to get out of the country.

Organisations: 

A parliament swept clean of ideas and principles

Something is starting to bother me about the MPs' expenses scandal. I do not defend those MPs who have taken advantage of the lax rules that they instituted. They should go.

But it is starting to feel to me that, for most people, this is the only measure of an MPs' worth that matters. The corollary of the public appetite for kicking out any MP tainted by corruption, is that squeeky-clean MPs may waltz back into their seats at the next election simply by virtue of their purity, regardless of their merits as representatives of their constituents on matters of public policy. Is financial probity really the limit of our expectations from our MPs?

Organisations: 

Freedom and Responsibility

I recently heard a former central banker (not British) tell the story of a conversation he had with a Non-Exec Director of a bank, who had formerly worked for their government's finance department. The central banker asked the Non-Exec if he didn't find the burden of managing the risk overwhelming compared to his former job with the government. The Non-Exec replied that he had thought he would, but was relieved to discover when he joined the bank's board that his responsibility was limited to ensuring that the bank complied with the regulations, on the assumption that the regulations would prohibit excessive risk-taking.

Ed Miliband, interviewed on the Andrew Marr show, has just said about the MPs' expenses scandal:

"What people thought was, there are a set of rules in place and they are scrutinized by the House of Commons authorities, and people rightly thought, well look, that is the system that we have, that is the judgment that is made."

Tessa Jowell and Theresa May have just made similar points on The Politics Show. Given the continued delusion of most of our politicians and commentariat about the effect of regulation, corrective efforts will be concentrated on coming up with a "better" set of rules, probably more complex and chaotic (in the usual entropic manner of political "improvements"), which will turn out to be just as capable of abuse or otherwise unacceptable as the current rules.

The lesson the central banker drew from his conversation was the right one. It was that where you apply regulation, people delegate responsibility to the regulator, and stop applying their own judgment. If you want people to be responsible, you need to have a minimal set of rules, with harsh penalties for the consequences of breaking them or making poor judgments (e.g. no bail-outs). The central banker removed most of the regulation of banks in his country, and replaced it with a requirement on Directors to sign off every three months that they regarded the risk position of their bank as sound. The bank directors naturally thought this was most unfair, but the result of them being personally responsible and therefore taking a personal interest in the risks associated with the banks' activities is that the banks in that country are in a very much better condition than the banks in the UK, US and elsewhere, where bank directors throught their job was to push the risk as far as possible within the rules allowed by the regulators, while regulators thought their job was to allow as much latitude to banks as possible within the rules laid down by government.

The credit crunch and the MPs' expenses scandal are symptomatic of the dominant but bogus political and economic philosophy of modern times, which manifests itself in large and small ways in almost every aspect of our lives. It is the "Third Way" philosophy of government interventionism, corporatism, managerialism (or whatever you want to call it - they are all aspects of the same thing). We have replaced personal responsibility and harsh penalties for poor judgments that produce harmful consequences, with the idea that government should take responsibility for all of us, and can and should prevent harmful choices being made.

Politicians are keen on government laying down the rules about every little aspect of our lives, but they are not so keen on taking personal responsibility for the effect of those rules. Responsibility for application of the rules is therefore offloaded by modern governments to unaccountable public-sector organisations, further diluting any sense of personal accountability, which is the key force motivating prudent behaviour.

Freedom and Responsibility. That is what we are missing, what no political party is offering, and what we need. It should be the name of a new political movement: Freedom and Responsibility.

Scotland - land of the unfree

Does anyone need more evidence of the need for England to devolve from the socialist Gaelic republic than the episode of Question Time from Dunfermline just now? I have nothing in common with most of the audience and the panel, and would rather they tried to run their affairs the way they seem to think fit, and leave us to take a little more concern over our freedoms.

Topics: 

Environmentally vulnerable

Mental illness is no laughing matter, so I hesitate to take the piss out of the following. On the other hand, it's hard to know whether to laugh or cry when you see something like this. You can fill in your own punchlines about the mental state of many enviro-communists.

Ecominds logo 

The National Lottery is funding the Ecominds programme, "for a range of groups who want to encourage people with experience of mental distress to get involved in environmental projects, such as improving open spaces and wildlife habitats, designing public art and recycling."

There is nothing the enviro-communists like more than finding people who are mentally and emotionally vulnerable, and getting them personally invested in their philosophy. Physical/outdoor projects are probably a good thing for people with these problems, but we can't keep it as simple as that. We have to drag "the environment" into it. Like "Christian" charities, the enviro-communists want a piece of their soul in return.

The objective, to "help reduce the stigma surrounding mental distress and help create a society that treats people with experience of mental distress fairly, positively, and with respect", is worthy and utterly unobtainable by this means.

Topics: 

Inverse learning

Renewable energy has a number of benefits and disadvantages. The most significant of the benefits are the avoided carbon emissions and the energy-security benefits. The latter is more debatable - diversity is undoubtedly the key to security; on the other hand, the intermittent renewables, being unreliable, have some negative impacts on security too.

Whatever the pros and cons, one can say that in most regards one type of renewable provides similar benefits (per MWh) to another, and that if we were to distinguish between them at all, it would not be to favour intermittent technologies (wind and wave, in particular). Nevertheless, the Government treats the intermittent technologies very much more favourably than the alternatives.

In the case of onshore wind (which is treated four times more generously than landfill gas, a technology of similar costs and maturity), this is almost completely incomprehensible and unjustifiable. In the case of offshore wind and wave, the justification, such as it is, for generous support is that they are immature, and that generous support to bring on projects now will drive them down the "learning curve" in the belief that they will thus become economic.

The learning curve is a piece of economic mumbo jumbo. But let's pretend that it's not. I posted recently on offshore wind's apparent learning curve to date, which has been strongly upwards (i.e. the more we learn, the more expensive it turns out to be). Now the Government has released a report by Ernst & Young that was commissioned to support their decision to "band up" offshore wind in a review of the Renewables Obligation banding.

DECC don't appear to have made the document publicly available; perhaps even they and E&Y are too embarrassed to expose this drivel to public consideration. So I have attached it here.

The report includes the customary incantation of the "learning curve" mantra, in Appendix C: Industry learning. And indeed, assumptions about learning-curve benefits are included within E&Y's calculations of future costs.

So how much better do E&Y forecast that offshore wind will get as a result of the Government's generosity and the magical properties of "learning curves"?

Well, here is their projected curve for the cost of the turbines:

E&Y turbine costs 

Oops. Well perhaps they are getting cheaper to put in? Here is E&Y's projection of foundation costs:

E&Y offshore wind foundations costs 

Never mind, maybe the electrical infrastructure is getting cheaper?

E&Y offshore wind electrical infrastructure costs 

As E&Y note, "Since more recent projects are located further offshore they see higher electrical infrastructure costs than earlier near-shore projects." Oh dear. Anyone remember the cherry-picking effect, which I have repeatedly pointed out will counterbalance and often outweigh the learning curve?

In all E&Y project that the trend of capital costs will be:

E&Y offshore wind capital costs

But capital costs aren't the be-all-and-end-all of project economics. Perhaps the operating costs are improving:

E&Y offshore wind operating costs

Last chance. Will the costs of repair and maintenance improve so much that they make up for all these other increasing costs?

E&Y offshore wind O&M costs

No. Everything about offshore wind is getting more expensive.

So remind me again. Just why are we planning to throw billions of pounds at this technology, and support it to a much greater extent than technologies that deliver the same or greater benefit, are more reliable and less difficult?

Is there any reason other than to provide yet another bung to the Government's corporate pals?

As a postscript, I have to admit that I got a figure wrong in my previous post on this subject. I generously allowed a load factor of 40% for offshore wind's output (i.e. it would produce 40% as much energy as it would if it ran at full power all the time). The industry used to claim around 45%, when it was arguing that it could deliver lots (rather than when it was trying to argue how poor it is). Everyone except the Government knew that was fantasy, but I thought 40% was a reasonably adjusted figure. Apparently not. Ernst & Young have been working for a while now on a figure of 35%. And in the most recent year for which we have figures (2007), the Renewable Energy Foundation's excellent analysis of ROC-Register data shows that the average offshore load factor was 27.1%, lower than the onshore average. I am sorry to have given a misleading impression that offshore wind might have some modest redeeming feature. [PPS: E&Y used 35% in their report supporting the consultation on banding the RO, but I now see that they are allowing 38-44%, depending on project, in this latest report. Don't know how this is justified, considering the performance demonstrated by REF. It all shows that claims that you can calculate what technologies need, rather than simply creating rational incentives and seeing what turns out, is stupid, illusory, and counter-productive. Government never has good-enough information or pure-enough motives for central-planning to be an effective option, whether that planning is implemented by literal command-and-control or through incentives targeted at calculated needs and outcomes.] 

And another supplementary thought: E&Y's capital cost curve shows capital costs rising towards £3 million per MW. So how did the Government come to the figure of £9 billion they claimed would be invested to deliver the 1300 MW that they estimated the half-billion-pound bung would deliver?

Topics: 
Organisations: 

In the land of the quangocrats

Spent the morning at a Regen SW workshop on the Heat and Energy Saving consultation. Before we got to the main course (a presentation by the DECC civil servant responsible for the consultation), we were treated to an hors d'oeuvre from another DECC civil servant on the Community Energy Saving Programme (CESP).

For those not familiar with CESP, it is the successor to CERT (the Carbon Emission Reduction Target), which itself was the successor to EEC (the Energy-Efficiency Commitment). All of these mechanisms place obligations on energy suppliers (and now, under CESP, on generators too, as though generators have any influence on the following) to improve the theoretical energy-efficiency of a (small) defined proportion of their customers' properties, with particular emphasis on social housing. The VILE companies' main response to this obligation under the current scheme (CERT) has been to give away 120 million low-energy lightbulbs to no one in particular. This is the effect of trying to encourage people to use less of something while keeping its cost low, through supply push (rather than demand pull) intermediated by companies who have vested interests in preserving the status quo.

But CERT, we learnt today, is not dumb enough. The government set themselves the difficult task, with CESP, of devising something even dumber. It seems that under CERT, people have ignorantly been choosing the cheapest options to meet their obligations. This does not suit the Government, for whom a job is never done until it has encouraged us to do it as expensively as possible. So, under CESP, the incentive will be weighted to encourage people to implement expensive and ineffective options, and to discourage people from implementing cheap, efficient options.

The example that was given was that loft insulation, which is a relatively cheap and effective way of making homes efficient, would be credited with only half the carbon that it is assumed to save (i.e. half the contribution towards the obligation). On the other hand, air-source heat pumps, which the Government's figures (correctly) suggest don't contribute much to carbon savings relative to their cost, will be attributed three times their potential savings for the purpose of calculating their contribution to meeting the obligation.The Government hopes in this way to encourage the VILE companies to put in as many air-source heat pumps and as little loft-insulation as possible, thereby ensuring that we save as little carbon for our money as possible.

But this is not complicated enough for them. The Government has decided that it makes most sense to install multiple technologies at once, regardless of whether the same teams would install (say) insulation, a new boiler and photovoltaic panels on the roof. They wouldn't, of course, but when has the Government ever let reality stand in the way of opportunities to complicate things to perverse effect and increased cost? They have therefore devised a mechanism whereby the contribution of a simultaneous installation of multiple technologies will be assumed to be worth more than the sum of its parts. A new boiler may contribute X (nominal carbon-savings according to the warped scale described above, and accordingly to the obligation) and cavity-wall insulation may contribute Y, but putting them both in at the same time will be deemed to contribute (say) 120% of X + Y.

These rules were introduced, the civil servant explained, because the previous versions of the obligation had failed to deliver what the (all-seeing, all-knowing) government had intended, and had produced unintended consequences (such as the stocking of many people's cupboards with free lightbulbs). With this new, more complex version, they believe it will be sufficiently well micro-managed that unintended consequences will be minimized. And what sort of cynic, indeed, would suggest that there is just a hint of a possibility of perverse outcomes in such a scheme?

At the end of the presentation, the Chief Executive of Regen SW (the "sustainability" arm of the Regional Development Agency) invited questions. Not any old questions, though, such as those areas that the audience might have decided for themselves were of concern. The audience clearly were not capable of identifying the key points. So he set out the two areas that he thought might be open to question (woolly issues regarding the relationship between the "community", i.e. local authorities and voluntary bodies, and the VILE companies in the implementation of this scheme), and invited questions on those topics. Only with a couple of minutes to go before the next session did he allow people to ask their own questions.

Despite this effort at control, one of the participants managed to question what value there was in encouraging improved insulation (which is covered by the mechanism) if doors and windows (which are not covered) were not also to be improved (analogous in its effectiveness to fixing one of three leaks in a boat). The civil servant explained patiently, to what he obviously regarded as a rather ignorant question, that doors and windows were covered by Building Regulations, and would therefore be improved anyway. The questioner raised the frivolous point that a homeowner could avoid the effect of Building Regs by the cunning expedient of not applying to modify his doors and windows, but the civil servant swatted this objection away. Clearly the questioner did not understand the system. Could he not see that black was white?

Following the main presentation (also utterly irrational, but that should be taken as read by now), we went on to group discussion sessions. Employees of Regen SW kept notes of the points and presented conclusions at the end. By the time I had finished with them, I believe that my group was broadly persuaded that the British approach was back-to-front and irrational: that instead of micro-management and price-suppression, we should use rational price signals (i.e. a carbon tax) and leave the rest to the market. You wouldn't know it from the quangocrats' summaries, though. These listed dozens of abortive suggestions for how the complexity could be increased to little or negative effect.

It was a perfect snapshot of the roles and relationship of the Government's bloated bureaucracy and the supportive superstructure of the quangocracy. They exist to reinforce and protect each other's delusions.

There is clearly only one solution: sack them and scrap them.

Topics: 
Organisations: 

Replacing the state with charity and community action

This is a mantra of the right. Martin Vander Weyer voiced a fairly standard version in today's Sunday Telegraph:

Those reductions of state provision will be met in part by a reinvigorated voluntary sector, to which the retired and unjobbed middle classes will happily turn their energies. In the new austerity era, local community activity of all kinds could become "the new shopping" or "the new going on holiday". It is even possible to imagine a return to a lost age - an idealised version of the late Fifties, when Harold Macmillan told us we'd never had it so good - in which neighbourliness and mutual respect will count for more than greed and envy

This is pretty standard fair for the Conservative Party now, who are very keen on the "Third Sector" delivering more of what the state currently delivers. Even my friends at the IEA and other classical-liberal think-tanks support the replacement of the state by voluntary and not-for-profit groups in many sectors, including health and education.

Just one problem. The Third Sector cannot fund itself. It has to be paid for, from that small proportion of proceeds that can be spared in a competitive market by businesses and their employees. By definition, the Third Sector is dependent on outside funding, whether as a charity or a not-for-profit organisation. The availability of that funding is closely linked to levels of prosperity and disposable income. The straitened circumstances (such as at present) in which we are likely most to rely on these organisations, should they take over from the state, will be circumstances in which these organisations cannot raise enough money to maintain the services that they were able to provide in better times.

Many on the right like to rely on the deus ex machina of the voluntary sector to pretend that we can reduce the size of government and still have as generous social provision as before. This is a lie.

Even when times were good, if we relied on the voluntary sector to provide services, market information would be as obscured as it is in the public sector. And little money would be freed (we might expect it to be a little more efficient than the state, but those who have seen how charities are run would not expect a huge improvement); it would simply be diverted from the tax bill to the charitable-contributions item of domestic spending. In reality, of course, we would all find, if we weren't feeling flush, that this was the first item of expenditure that could be cut back.

That is exactly what is happening at the moment. How could anyone have imagined otherwise? If we don't have enough money to pay the bills, charitable contributions will be straight out the window. And even if we have some residual income after necessary expenditure, if we are insecure about our jobs or the economic future generally, then we will be inclined to save that residual income rather than give it away.

The reality is this: the state will have to become less generous, and the Third Sector will not fill the gap. We have been living beyond our means, and taking for granted the cheap availability of goods for which we will have to pay more in future. These taxpayer-subsidised goods will have to be moved into the market and we will find that, priced rationally, we can afford less of them.

Organisations: 

Renewable redistribution

It was a miserable budget. Lots of people got screwed. The main ones will be picked up by the commentariat. Let me add to that list a group who many might imagine had done quite well: renewable developers.

But didn't Darling throw lots of money at renewables?

Well, sort of.

The headline was £525 million "uplift in support for offshore wind investments" that "is expected to support £9 billion of investment and power up to 2.8 million homes". Pretty generous, right?

The way this money will be delivered is by "banding up" offshore wind under the Renewables Obligation (RO). Therein lies the rub.

Topics: 
Organisations: 

More Tory spend-save

It's not true that the Tories don't have any policies. They have a policy for each of us. Do you want lower taxes? They support that. Do you want more public investment? They support that too. Worried about the national debt? They are worried too, and plan to bring it down. You want it, they support it.

George Osborne had an article in yesterday's Sunday Times attacking the debt culture, and extolling the importance of building any recovery on a more sustainable balance of saving and borrowing.

Quite right. But then why was he also advocating a £6,500 energy-savings entitlement for each home, financed against the property, to be repaid (apparently) over a 40-year period? Isn't that boosting the debt culture?

And now he is advocating spending an additional £600 million on training scientists, technologists, engineers and mathematicians, of which over half (£350m) would go to an extra 25,000 Masters degrees in the subjects.

If we have a thriving industrial sector, they will need more engineers (and other skills). If there is a shortage, they will have to pay more to get them or train people in-house. If vacancies are plentiful and terms are good, more people will be drawn into the field. Supply will expand to meet demand.

If we try to boost the sector through supply-push (training graduates) rather than demand-pull (industrial expansion and recruitment), we will end up either with unemployed engineers, or over-qualified graduates trying to find ways to use their skills in other sectors, as happened so successfully with the quants in the City, who calculated that they had eliminated risk.

The very fact that so many STEM graduates went into the City tells you that we don't have too few STEM graduates, we have too few attractive STEM jobs.

And the right horlicks that these people made in the City tells you that academic education isn't always the best way to train people in what's important - it's intelligence and understanding of what you are doing that really matters. Understanding is best acquired by "scratching an itch". We need lots of businesses looking to solve lots of problems in lots of different ways, employing lots of people (graduates or not) to deal with the many little complexities that arise in trying to improve every business process.

And if that doesn't come to 25,000 extra Masters students, then we should never have trained that many. How do the Tories know how many students we need of one type or another?

So the key is creating an entrepreneurial climate. That means low taxes, no micro-managing incentives, reduced regulations, no winner-picking grants and subsidies, etc.

...which is an approach that the Tories support.

...and an approach that the Tories oppose.

Depends who is listening.

Organisations: 

Cleggover blunders again

Martha Kearney just nailed Nick Clegg (again). This time he's claiming he knows how much money will be brought in by removing various tax loopholes, but doesn't know how many people will be affected. He then comes up with a figure of 10%, but when pressed, can't tell Martha how many people 10% of taxpayers is.

Oh dear. A bit cavalier with other people's money is Nick (remember the pension-value mistake?). Maybe numbers aren't his forte.

Organisations: 

Hot air freight

Carbon-capture and storage (CCS) is already one of the biggest political lies around. The Government is poised to grant permission to the development of several coal-fired power-stations, so long as they are "CCS-ready". They don't actually have to do any capturing, just be capable of having the carbon captured. My car is capable of having the carbon captured. It's doing it that means something. This is just a fig-leaf, to allow the Government to permit installations that they know are important to our future energy-security. I wouldn't have a problem if they'd just be honest. It's the attempt to greenwash it that makes me want to vomit.

One of the many problems with CCS is that it is energy-intensive, which means it reduces the net efficiency of power stations (possibly by as much as one-third), which means that you have to use a larger amount of fossil fuels for the same amount of power supplied to the grid. Not exactly a smart response to over-dependence on fossil fuels.

But that's not wasteful enough. Now, the Sunday Times reports, they are not just looking at capturing and liquefying the gas and sticking it in the ground (crossing their fingers that the acidic, pressurised, liquid CO2 doesn't dissolve the rock and leach out). No, that would be too simple. Now they are looking to capture it where there is nowhere to store the liquid CO2, and stick it on boats to travel halfway round the world (or whatever distance it is from Japan to the Middle East), to store in spent oilfields.

They won't be able to use existing tankers, because these ships' tanks will have to be kept cooled and pressurised. That will need energy (i.e. fossil fuels), not just at loading, but all the time the ship is in transit. And it's not obvious what return-loads they would share. So, in the name of reducing our carbon footprint, we will have boats sailing halfway round the world and back to bury a gas that will probably leak out again, and for which we don't have remotely enough storage capacity to last more than a few years, before the process becomes redundant.

Naturally, CCS is hugely popular with policy-makers the world over. In the UK, Labour, Tories and LibDems are racing each other to bid up the number of projects that should be backed. The EU is throwing money at multiple "demonstration" projects in many different countries (isn't the point of demonstration projects that you only have one or two and then go commercial?). And Obama thinks it is the magic bullet.

Organisations: 

More from Mark "externalities are internal" Wadsworth

Further to the earlier post about the dumbest economic argument in the world, the perpetrator (Mark) has now published the results of his poll, which asked "Who is best placed to decide what to build on any particular plot of land?" He has discovered that most people think that the owner is. Well, knock me down with a feather. Of course they do. So do I.

But in Mark's strange world, dreamt up to justify his devotion to LVT, this somehow means that whatever use gets the best value for the landowner also is most beneficial for the neighbours. Gems from his analysis include:

"Interestingly, even though each of these uses must have some 'external costs', it must also have 'external benefits', and the rental value of each shop reflects the profit value to the owner/occupier, plus the external benefits and minus the external costs of the neighbouring businesses."

"as the rental values of premises in the same street are going to be broadly the same, the external benefits generated by each occupant must exceed the external costs (or else rental values would tend to nil rather than skywards)."

"So the 'location value' of any site, being a positive figure, consists to a large extent (I can't quantify this as a fraction of the total rental value, but it it very significant) of the external benefits created by neighbouring occupants"

Notice how Mark is rather casual about the direction and extent of externality. So long as there are some external costs and benefits floating around, it doesn't much matter in Mark's world whether you are the inflicter or the inflictee. Somehow, this has all magically coalesced into fair value for all.

Hoover: Austrian or interventionist?

Following an interesting debate with Paul Halsall on Austrian economics and the possibility of economic calculation in a socialist system, Paul posted half the text of an Anatole Kaletsky article in The Times, which made various spurious claims about Austrian economics and history. One of them, which had long ago acquired the status of conventional wisdom, was that the Hoover government had pursued an Austrian approach following the Great Crash, and had thereby exacerbated the following downturn, and discredited Austrian economics from adoption by politicians for ever after. His "evidence" for this is the famous quote from Hoover's Treasury Secretary, Andrew Mellon: "liquidate labour, liquidate stocks, liquidate farmers, liquidate real estate".

I meant to reply to this point, but I wanted to be sure I got my facts straight. That meant doing quite a bit of reading and note-taking, and by the time I had finished, it was really a bit late for a response to Paul. But it seems a shame for the effort to go to waste. So I thought I would post it here, for reference or as a challenge (depending whether or not you lazily accept the myth propagated by the interventionists to cover up for their own culpability, and failure (yet again) of their philosophy in practical application).

Topics: 
Organisations: 

Another calamitous consequence of Callamity's time at Ofgem

There is much talk in energy circles of the "capacity gap" - the shortfall between operating capacity and demand that may arise as a result of the imminent closure (mostly within 6 years) of many of our coal-fired and nuclear power stations.

Competitive markets don't work that way. If there is a good with highly inelastic demand, and supplies of that good are expected with reasonable confidence to run short in the future, investors will step in to produce more of the good. Why wouldn't that be happening (as much as required) within the electricity industry?

Some might like to blame it on a gap between the cost of new plant and the price that customers are willing to pay. But demand is pretty inelastic, remember. You can be fairly confident that an unregulated price would rise to the level that was needed to satisfy demand.

The VILE companies like to blame it on the projected increased capacity of intermittent power (like wind and wave) and the absence of a capacity payment to accompany it. A capacity payment is a charge paid to generators simply for having their capacity available, whether or not it is used. It provided nice bunce for the big two generators in the days of the Pool, and they'd like some more. And it's true that, if we have substantially increased capacity of intermittent power, let alone if we try to use more electricity for heat (with its strong seasonality), then dispatchable generation plant will be called more intermittently to balance supply and demand. If the plant runs fewer hours, it will be unable to recover its costs at current prices. A capacity payment would be one way of dealing with that, but it is a bad one (favoured by the lazy VILEs, who like money for doing nothing). A better way would be to allow peak and balancing prices to increase to allow the generators to recover their costs over the shorter operating hours, and provide an incentive on the demand side for consumers to try to reduce their peak demand (if they were exposed to prices that reflected variation in supply and demand through the day).

But the real reason is that we do not have a liquid traded market for electricity. You cannot get forward prices for electricity beyond about 3 years. For gas, you can go beyond 10 years. And volumes in the traded market are tiny. That means that it is very difficult for an independent generator to build a power-station to fill the gap. He won't have a liquid market to sell into, and he can't mitigate his risk by contracting (or at least seeing and hedging) forward prices.

That leaves it to the VILE companies to fill the gap, and they can use their dominance and reluctance to build sufficient new capacity (on whatever pretext) to pressure the regulator for things they want, like capacity payments, which will further embed their dominance.

So we may have blackouts within 6 years (although this is probably brinksmanship and the gap will be filled in the end). And all because Callamity chose to allow vertical-integration and destroy any prospect of a competitive, liquid traded market. However difficult, and however much they scream, we have to reverse this process, not only for the sake of a competitive energy market, but to reduce the power of the big corporations to steer policy to their advantage. Disintegrate the VILE companies.

Topics: 
Organisations: 

Are the Tories spending or saving?

On the front page of today's FT is the headline: "Osborne warns of big spending cuts to come".

But in a speech yesterday, he announced 10 measures that should be implemented in the Budget to "kickstart a green recovery". Just his first measure alone - £6,500 energy-efficiency entitlement voucher for every home in Britain - would cost (given that there are around 25 million homes in Britain) over £160 billion. Others of the 10 announced measures would also cost billions of pounds.

That will help reduce the government deficit. Frown

But according to George, the measures will "only" cost £30 billion, "without adding a penny to the national debt".

Three questions:

Organisations: