Heresy of the week: The Eurozone does not have a single currency

Prepare to have your gast flabbered, because Wolfgang Munchau of the Financial Times has a flabbergasting fact for you:

• “A European Central Bank survey shows that households in northern Europe have a much lower net wealth than those in southern Europe. Average German net assets per household are just under €200,000, while they are €300,000 in Spain and €670,000 in Cyprus. No, this not a typo.”

What can possibly explain this counter-intuitive result? It surely can’t be that the average German is less wealthy that the average Spaniard or Cypriot, or can it? Munchau goes into the various ins and outs of the statistic, but even after taking into account the fact that Germans are less likely to own their own homes, the numbers still stubbornly indicate that the people doing the bailing out in the Eurozone are, on paper, poorer than those getting bailed-out.

Munchau’s explanation for this mystery is as follows: 

• “Since the start of the eurozone, wages and consumer prices have remained broadly constant in Germany. In southern Europe, the general level of wages and prices has increased year in, year out. Over the period, this persistent inflation gap has led to a large discrepancy in asset prices. This is why an apartment in Milan costs much more than one in Munich, the city with the highest property prices in Germany. A German euro buys more real estate in Munich than an Italian euro buys in Milan.”

But, hang on, what can he possibly mean by “a German euro” and “an Italian euro”. The whole point of the Eurozone is that there are just euros (or rather Euros – here at the Deep End we believe that currency names are proper nouns and should always be capitalised).

If a Euro in Italy can buy more property in Munich than it can in Milan, then why doesn’t it move north of the Alps and make its owner richer than he or she is already? Clearly, there must be various formal and informal barriers to the movement of capital, good and services. Wolfgang Muchau certainly thinks so:

• “Looking back to 1999, my own experience was that restaurants and taxis in Berlin were cheaper than restaurants or taxis in Brussels or Paris, but the differences have now become extreme. Curiously, the price gap also affects tradable goods: European cross-border retail markets are not working efficiently.
• “This leaves me to conclude that the unit of account is not really the same across the eurozone – that Spain and Germany have a different euro.”

But is it really just down to language barriers, regulatory hurdles and the like? Perhaps the reason why southern Euros stay where they are is precisely because of the inflation of asset prices in countries like Spain and Italy? After all, most people don’t regard rising property values as inflation, but as an investment opportunity.

Viewed from one angle, the debt-fuelled inflation of these asset bubbles is what has destabilised the Eurozone, but viewed from another angle it is the potential for speculative gain that has prevented Euro-denominated capital in southern Europe from fleeing north – thus bringing the whole edifice crashing down. 

We may therefore all sleep soundly in our beds, secure in the knowledge that the Eurozone rests on a firm foundation of irony.

Tags: Eurozone, wealth, property prices, speculation, debt

Let’s hope the Chinese discover shale gas and plenty of it

Nuclear fusion is the energy source of the future – and always will be. Or so the old joke goes. But what’s this? According to the Independent, the £13 billion ITER project in France has made a “breakthrough in [the] quest for nuclear fusion, a solution to climate change and an age of clean, unlimited energy.” 

Well, that would be nice – but if you look below the breathless headline, what this “breakthrough” actually consists of is no more than the latest stage in the project’s very long construction phase. If ITER eventually succeeds in its purpose – demonstrating that it is, in principle, possible to build a fusion reactor that generates more energy than gets put into it – then that would be a breakthrough. But the thing doesn’t even get switched on until 2020, the start of years of experiments, which, even if successful, would be no more than the starting point for a long struggle to commercialise the technology. 

So don’t throw away your electricity meter just yet.

In fact, the next time you see a headline – from whatever source – promising an energy breakthrough, do bear in mind that it is almost certainly a massive exaggeration. 

Ironically, we already know what a real energy breakthrough looks like. America’s shale gas revolution started off as an experiment, demonstrated its technical viability, commercialised its technology and visibly transformed the energy market in which it operates.

The shale gas industry does still have one thing to prove, however – whether it can open up shale gas reserves beyond North America. If it can, then energy markets will be transformed the world over.

Writing for the Financial Times, Nick Butler considers the case of China, citing the views of Elizabeth Muller of Berkeley Earth, “an impeccably green non profit research group in California”:

• “In her opinion, environmentalists in the US and elsewhere should be encouraging China to develop its shale gas resources. Those resources are huge – perhaps 50 per cent greater than those of the US, and have yet to be explored in detail. That process is just beginning and includes a number of international companies including Shell.”

Environmental NGOs like Greenpeace and Friends of the Earth are opposed to the development of shale gas, due to its carbon content and the risk of local pollution. However, the practical choice is not between shale gas and nothing, but shale gas and coal:

• “Shale gas is not carbon free but it is cleaner than coal which is China’s basic fuel now. And unless things can be changed radically, will be the dominant source of energy for the next several decades. If shale gas could back out some amount of China’s coal consumption, emissions could be materially reduced.”

What exactly do the green NGOs expect China to replace its hugely damaging coal use with? It’s not like China isn’t developing its renewable energy resources (in fact, the anti-greens might like to note that the Chinese are investing much more heavily in wind and solar power than we are). But Chinese coal use is on such a scale that it can only be displaced by something as big as shale gas. 

But looking at this from a geopolitical viewpoint, isn’t China already powerful enough? Is it really in the interests of the US to transfer its shale gas technology to the emerging super power? Nick Butler makes an excellent as it why it is:

• “...there is another good reason for the US (and the UK and indeed all sensible people) to hope that China will develop shale gas in a big way. Chinese oil and gas imports are growing. Last year oil imports totalled around 5m barrels a day along with a small amount of gas.
• On the International Energy Agency’s latest (pre-shale gas ) projections they are set to rise to over 12m barrels and over 230bn cubic metres of gas over the next 20 years. The impact on emissions is frightening. But, on top of that, import dependence for resources is pushing China into some very unhappy relationships with some very unpleasant regimes in the Middle East and Africa – from Iran to Zimbabwe.”

China and the West have a mutual interest in a close, cooperative partnership. All other things being equal, this is the dynamic that could and should drive international relations over the course of the 21st century. 

However, all other things are not equal. One only has to look at the way that the West’s foreign policy has been distorted by dependency on energy resources controlled by despots. Just imagine what the same thing will do to China’s foreign policy.

Tags: Energy, climate change, shale gas, coal, China, foreign policy

No, the case for austerity is not based on a spreadsheet error

When the media reports on a complicated issue, the truth can be horribly distorted – not so much through outright lies, but due to the journalistic practice of squeezing multi-layered facts into simple narratives.

We’ve just had an excellent example in the case of the economists Carmen Reinhart and Kenneth Rogoff, whose historical and international comparisons of recovery from past recessions have been cited in support of current-day austerity policies. 

It was, therefore, a bit of bombshell when spreadsheet errors were recently discovered in one of their academic papers. 

Anyone who uses spreadsheet software (such as Microsoft Excel) to perform complex calculations, or just to do their accounts, will know how easy it is to make a simple mistake which can then automatically and imperceptibly ‘infect’ the rest of your work. It is the sort of thing that keeps accountants, economists,  scientists and politicians awake at night – which is why, in the case of Reinhart and Rogoff, it made such a great story.

But as explained by FF Wiley on the Cyniconomics blog, all is not quite as it seems.

First of all, a brief description of the paper in question:

• “[Reinhart and Rogoff’s] conclusions are well-known in both academic and political circles. In their 2010 paper and a second paper released last year (with Vincent Reinhart), they suggested that economic growth tends to slow after government debt rises above 90% of GDP.”

Now, a brief description of the mistake or, rather, the mistakes:

• “...three Massachusetts authors – Thomas Herndon, Michael Ash and Robert Pollin, now known on the Internet as ‘HAP’ – argued that a heavily cited 2010 paper by Carmen Reinhart and Kenneth Rogoff (RR) contained fatal errors. In a critique that was released to the public last Tuesday, they revealed a calculation error in one of RR’s spreadsheets. And they also argued that RR omitted data points without justification and used an unconventional weighting method in their statistical averages.”

Note that the ‘HAP’ critique of Reinhart and Rogoff isn’t just based on the spreadsheet error, but also on disagreements over data selection and the weighting of that data. 

This matters because when you look at the rival analyses, it turns out that the spreadsheet error, while buttock-clenchingly embarrassing, actually made very little difference to the final results. In fact, the challenge to Reinhart and Rogoff is almost entirely to do with the other two points – which are essentially disagreements over methodology as opposed to straightforward mistakes. One might also add that this controversy applies to just one paper in a highly regarded body of work. 

So for all of these reasons and others, it might just be that the economic policies of the western world are not in fact based on a stray mouse-click.

However, one could argue that the economic policies of the western world are based on the academic discipline of macroeconomics – and that isn't necessarily a good thing:

• “If you were to review all of the published papers in this field for the last, say, 100 years, and weigh them up against real life events, the vast majority could be shown to have major shortcomings. Many have done real damage, leading policymakers to adopt views that are hopelessly disconnected from reality. It’s no exaggeration to say that the foundations of conventional macroeconomic theory have been discredited repeatedly in the last century.”

There are those who see the entire discipline as fundamentally flawed – relying as it does on methods of slicing and dicing data that are more likely to obscure the truth than to reveal it. One of them is Nassim Nicholas Taleb, author of the Black Swan, who puts it this way:

• “Rejecting a macroeconomic idea over an excel error is exactly like falsifying astrology over a computer glitch.”

Tags: Austerity, Carmen Reinhart, Kenneth Rogoff, macroeconomics, journalism, Nassim Nicholas Taleb

Has political correctness gone mad or is madness politically correct?

In 1961 a young psychiatrist by the name of Thomas Szasz published a book called The Myth of Mental Illness in which he argued that “psychiatry, unlike medicine, could demonstrate no physical basis for the ‘diseases’ it identified and ‘treated’”.

In a fascinating profile for Aeon, Holly Case writes that Szasz’s book was a big hit with the counter-culture of 1960s America, whose anti-establishment rebels delighted in what they saw as a repudiation of society’s suffocating norms.

And yet, Szasz was no leftwinger. In fact, he was a staunch Republican, who feared that, in the hands of the left, psychiatry would become a tool of political oppression:

• “In the run-up to the 1964 presidential elections, Fact magazine published ‘The Unconscious of a Conservative: A Special Issue on the Mind of Barry Goldwater’, which contained the results of an informal survey of psychiatrists on the mental competence of the Republican candidate. More than 1,000 respondents declared him ‘psychologically unfit to be president of the United States’, and several offered a diagnosis of paranoid schizophrenia.”

The Goldwater campaign slogan “in your heart you know he’s right” was famously parodied by his opponents as “in your guts you know he’s nuts”:

• “In the psychological marginalisation of… Goldwater, [Szasz] saw a trend towards the pathologisation of the right in general. The following year he declared that ‘psychiatry is a threat to civil liberties, especially to the liberties of individuals stigmatised as “right-wingers”.’ If those on the left focused on how the diagnosis of insanity was being used to marginalise unpopular voices, Szasz insisted the most unpopular voices were to be found, not in the slums or the colonies, but among US conservatives.”

There is a long history of psychiatric concepts being used to suppress inconvenient political opinions. For instance, before the American civil war slaves who tried to escape to the North were diagnosed as mentally ill. In the Soviet Union, psychiatry was an integral part of the apparatus of state terror. Even in our own time and place, outspoken purveyors of unfashionable points of view are routinely and not altogether un-jokingly dismissed as being ‘mad’ – as people like Peter Hitchens and Nadine Dorries know to their cost. 

But what about genuinely objectionable opinions like racism or religious fanaticism? Can it really be wrong to call those mad – especially when they motivate violent actions?

Szasz argued that it is – and went so far as to oppose the insanity defence in criminal trials:

• “In line with his distinctively conservative perspective, he… feared that it removed responsibility from criminal acts. Unpopular politics should literally have their day in court, and this meant talking about a defendant’s motives (political or otherwise), as well as punishing them for crimes they had committed. This was not a matter of science, but of morality.”

In other words, we should oppose such points of view on the grounds that they are factually and/or ethically wrong, not as the symptoms of a supposed medical condition.

Even at its worst, political correctness (whether practised on the left or the right) has not ‘gone mad’, rather it uses concepts of madness to define opposing viewpoints. This, potentially, is what makes it so dangerous. Instead of debating the rights and wrongs of an issue, one can simply pathologise a minority opinion by noting its deviation from the norm – and thus defined, its repression can be re-defined as ‘treatment’. 

As Thomas Szasz once said, “it can be dangerous to be wrong, but, to be right, when society regards the majority’s falsehood as truth, could be fatal.”

Tags: Thomas Szasz, psychiatry, mental illness, dissent, moral responsibility

Britain needs to build its way to recovery

0.3 per cent GDP growth in the first quarter of this year was better than many people expected. But it would have been better still if the construction sector hadn’t done so badly, contracting by 2.5 per cent.

As Nicholas Crafts reminds us in the Guardian, there was a time when construction led Britain out of recession:

• “In the early 1930s Britain recovered impressively from a double-dip recession which ended in 1932. In every year from 1933 to 1936, before rearmament could have made any difference, growth exceeded 4% per year.”

Nor was this growth “driven by fiscal stimulus; indeed it blossomed at a time of fiscal consolidation.”

In another parallel with the present, the central plank of the government’s economic strategy was “cheap-money policy”:

• “From the middle of 1932, short-term interest rates were reduced close to zero and monetary policy was expansionary enough to stop prices falling and sustain mild inflation in pursuit of a target, set by the chancellor, Neville Chamberlain, to return prices to the 1929 level.”

But if cheap-money produced growth under Mr Chamberlain, then why aren’t we getting similar results from quantitative easing under Mr Osborne?

In order to work, 'monetary activism' has to have a way of getting through to the real economy:

• “A very important channel [in the 1930s] 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.”

Including “multiplier effects’ it is thought that this building boom accounted for “a third of the increase in GDP between 1932 and 1934.”

This was also a period of rising home ownership, facilitated by the fact that the homes being built were remarkably affordable:

• “85% of new houses sold for less than £750 (£45,000 in today's money). Terraced houses in the London area could be bought for £395 in the mid-1930s when average earnings were about £165 per year.”

Of course, one enormous difference between then and now was the “almost complete absence of land-use planning restrictions which applied to only about 75,000 acres in 1932”:

• “Houses were cheap because the supply of land for housing was very elastic, which in turn meant that there was no incentive for developers to sit on large land banks.”

In the absence of such elasticity, current efforts to stimulate the market through lending subsidies seem doomed to increase prices rather than construction. As for the wholesale abolition of planning restrictions, that would be an excellent plan... for getting a UKIP MP elected in every rural and suburban constituency in southern England.

But there is an alternative: Massively increase taxes on land banks and other forms of property speculation; then use the proceeds to  reduce the tax burden on investment in high quality housing design and to provide investment for urban regeneration. That way we at least have a chance of getting the right houses built in right places at the right prices.

Tags: Economic growth, house building, monetary policy, planning policy, Neville Chamberlain, speculation, taxation policy

Heresy of the week: For social liberals, there’s now no reason not to legalise polygamous marriage

Will legalising same sex marriage lead to the legalisation of polygamous marriage? Claims that it might are typically met with accusations of scare-mongering. 

However, in a provocative article for Slate, Jillian Keenan – an enthusiastic support of same sex marriage – not only accepts the legal recognition of polygamy as a possibility, but regards it as one to be welcomed.

• “While the Supreme Court and the rest of us are all focused on the human right of marriage equality, let’s not forget that the fight doesn’t end with same-sex marriage. We need to legalize polygamy, too. Legalized polygamy in the United States is the constitutional, feminist, and sex-positive choice.”

In defence of her position, she applies a number of standard-issue socially liberal arguments – such as the principle of harm-reduction:

• “...legalizing consensual adult polygamy wouldn’t legalize rape or child abuse. In fact, it would make those crimes easier to combat… Right now, all polygamous families, including the healthy, responsible ones, are driven into hiding... In the resulting isolation, crime and abuse can flourish unimpeded.”

Then there’s the appeal to diversity:

• “Most polygamous families are motivated by religious faith, such as fundamentalist Mormonism or Islam… there is no constitutional reason why they shouldn’t be able to express that faith in their marriages. Legalized polygamous marriage would also be good for immigrant families, some of whom have legally polygamous marriages in their home countries that get ripped apart during the immigration process.”

And also the appeal to liberty:

• “If a woman wants to marry a man, that’s great. If she wants to marry another woman, that’s great too… And if she wants to marry a man with three other wives, that’s her damn choice.”

And not forgetting the appeal to equality:

• “Though polygamists are a minority—a tiny minority, in fact—freedom has no value unless it extends to even the smallest and most marginalized groups among us.”

Keenan rather understates her case here. Though the formal practice of polygamy may be rare in the west (outside of certain minority cultures), informal polygamy is relatively common – for instance, in the case of a man who maintains a long-term relationship with a partner other than his wife). Why should the ‘other woman’ in such a relationship be marginalised as a ‘mistress’ when she could enjoy equal rights within some form of modern marriage?

As for the interests of children, western societies already tolerate – and, in many respects, encourage – a variety of non-traditional family structures.

Admittedly, the recognition of polygamous marriage would raise a number of legal complications – due to there being more than two people and more than one relationship involved. However, as we’ve seen in this country, same sex marriage has also raised certain complications, which have been resolved in various ways (for instance, by having no legal concept of consummation).

Of course, if you were to ask those who support same sex marriage whether they’d also support polygamous marriage, then most of them would say no – especially the politicians. But on what grounds would they justify their opposition? Certainly, as Jillian Keenan makes clear, the socially liberal case for legalising polygamy is pretty watertight. So what other grounds does that leave?

Well, one could always assert a traditional cultural norm – but social liberals may want to think twice before pulling on that thread.

Tags: marriage, social liberalism, polygamy, cultural norms

The staggering hypocrisy of America’s liberal elites

Last month, a woman by the name of Susan Patton wrote a letter to the Daily Princetonian advising female undergraduates to use their time at university to find a suitable husband:

• “Simply put, there is a very limited population of men who are as smart or smarter than we are... you will never again be surrounded by this concentration of men who are worthy of you.”

These are hardly the sentiments of someone who has a low opinion of women, but she was, of course, condemned as a traitor to the feminist cause – as if finding a husband was all that she had recommended that female undergraduates do at university (which she hadn’t).

Writing in the New York Times, Ross Douthat explains the real reason for the outraged reaction:

• “[Patton’s] betrayal consists of being gauche enough to acknowledge publicly a truth that everyone who’s come up through Ivy League culture knows intuitively — that elite universities are about connecting more than learning, that the social world matters far more than the classroom to undergraduates, and that rather than an escalator elevating the best and brightest from every walk of life, the meritocracy as we know it mostly works to perpetuate the existing upper class.”

As Douthat notes, there’s nothing unusual about an upper class trying to perpetuate itself:

• “Every elite seeks its own perpetuation, of course, but that project is uniquely difficult in a society that’s formally democratic and egalitarian and colorblind. And it’s even more difficult for an elite that prides itself on its progressive politics, its social conscience, its enlightened distance from hierarchies of blood and birth and breeding.”

Yet, for all that liberal distancing, marriage remains an excellent way of concentrating wealth and privilege. Indeed, the best educated Americans (and Britons) are more, not less, likely to marry one another than they were in the past – a process known as assortative mating. Moreover (and despite the fashionable academic talk of diverse family structures) people with higher qualifications are more likely to get married and stay married than people with fewer qualifications.

As old fashioned aristocrats would also recognise, property is another excellent way of keeping the riff-raff at arm’s length:

• “...elite collegians… move to similar cities and neighborhoods, surround themselves with their kinds of people and gradually price everybody else out of the places where social capital is built, influence exerted and great careers made…What Richard Florida called ‘the mass relocation of highly skilled, highly educated and highly paid Americans to a relatively small number of metropolitan regions, and a corresponding exodus of the traditional lower and middle classes from these same places’ is one of the striking social facts of the modern meritocratic era.”

It is, of course, a good thing that deliberate discrimination on the grounds of race or gender is no longer acceptable in polite society. However, the super-sensitivity of the liberal elites to these old evils serves an ulterior purpose – to distract from newer, more slippery, forms of inequality:

• “...the unacknowledged mechanisms that preserve privilege, reward the inside game, and ensure that the advantages enjoyed in one generation can be passed safely onward to the next.”

Tags: Inequality, social class, assortative mating, academia, radical chic

Heroes and heroines of compassionate conservatism

Top row from left to right: Phillip Blond, David Willetts, Iain Macleod, William Wilberforce, Emmeline Pankhurst, Harold Macmillan, GK Chesterton.

Bottom row from left to right: Jane Austen, Mancherjee Bhownagree, Benjamin Disraeli, Iain Duncan Smith, Hannah More.

This is not a detailed account and it certainly isn’t comprehensive. Rather with the briefest of thumbnail sketches, the aim is to trace the story of compassionate conservatism in Britain as told through the life and work of 25 compassionate conservatives.

Note that these are not all big-C Conservatives. Indeed, we begin in the 18th century, before the birth of the modern Conservative Party, with the father of free market economics:

Adam Smith (1723-1790)

If you’re looking for a defence of laissez faire economic liberalism you won’t find it in the works of Adam Smith. His Wealth of Nations and Theory of Moral Sentiments are far more complicated than that – each of them an exploration of both the power and the pitfalls of the market. What you will find however is an early validation of the concept of relative poverty, an argument for high wages (“the liberal reward of labour”) and a defence of the common good: “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

Edmund Burke (1729-1797) 

The greatest conservative philosopher of them all was not a Tory, but a Whig – a reminder that what we now think of conservatism is drawn from many sources. At the dawning of an age of revolutions, Burke empathised with the revolutionary desire for a better world, but saw all too clearly that actual result would be hell on Earth. In place of grand plans and mighty governments, he placed his hope in human-scale institutions – families, communities and the ‘little platoons’ of civil society.

Tags:

In the previous century socialism was the biggest threat to the free market, in this century it could be the internet

Do we use computers, or do computers use us? 

It’s a silly question, of course – computers don’t have minds of their own, but they do run algorithms that serve the agendas of those who created them. 

As our lives become increasingly – and often invisibly – reliant upon computer networks (of which our laptops, mobiles and tablets are mere access points)  we need ask ourselves some questions about the position this places us in.

Jaron Lanier, one of world’s leading computer scientists, has been asking the questions on our behalf. Interviewed by JP O’Malley for the Spectator, his answers merit attention:

• “...one of the earliest computers was an automated loom. Let us suppose in the future there is some sort of automatic loom that can just turn out clothing for you. Where does the design for the clothing come from? Somebody might say: from an artificial intelligence algorithm, running on cloud software, using big data. But this data actually comes from a large number of people who have been anonymized and disenfranchised. If there was proper counting of where the data came from we would see that even in this highly advanced hypothetical automated loom, there would be real people who make the data possible to create a design.”

Companies like Google and Facebook are already living off our data in this way – generating vast revenues from personal information that we give them for free. 

Many people worry about the implications for privacy, but in some senses the problem is the opposite – because, economically-speaking, we are de-recognised. Our decisions, our preferences, our very identities have become a valuable resource, but one to which no price is attached. Lanier believes this must change:

• “If there were micro payments made to the people who fed the big data — which allowed that automated loom to make the artificial clothing for you — then there would still be an economy.  It’s not as if the people have disappeared from the economy, it’s just that we pretend they don’t exist.”

Lanier goes on to argue that the free market can be thought of as a giant algorithm – one that processes information from millions of people generating valuable intelligence about supply and demand in the form of prices:

• “...in capitalism, we make certain decisions of not trying to intervene on the function of a market place… we say instead of allowing human politics to decide everything, we are going to limit our reach, and allow this more abstract mathematical thing of the market place to sort out our affairs.”

Lanier believes this is good thing, but that “this is why it is so critical that market places can’t be corrupt and need to be honest.” In a properly functioning market, no one is ‘running the algorithm’ because no single entity controls the 'network' – i.e. the different contexts in which all those buyers and sellers interact. However, when it comes to the likes of Facebook and Google, the network and the algorithm is controlled by a single entity.

• “The problem with our cloud software right now is that it does tend to be run by the person with the biggest computer on the network, and serve certain interests more than others. It’s not an honest broker. We are constantly running into a situation where a company like Google is saying: we are being the honest broker. Of course that is ridiculous because they are a commercial concern.”

Of course, no one is being forced to run their entire lives through any particular provider of digital services. However, from social networks to search engines to supermarket loyalty cards, this is what they constantly encourage us to do. 

Without us thinking about who is ultimately in control, they want us to move our lives on to their networks. In effect, what they are attempting is the privatisation of what should be the most public of all institutions: the free market.

Tags: Internet, free market, capitalism, big data, Jaron Lanier

What would Margaret Thatcher have done about climate change?

In the late 1980s, Margaret Thatcher became the first major leader to warn the world about global warming. It is claimed in some quarters that, had she remained in office, she would have changed her mind – perhaps on the principle that euro-scepticism and climate scepticism go together (but try telling that to Zac Goldsmith). 

Of course, when it comes to climate change policy there are many kinds of scepticism. For instance, there are those who flatly reject the mainstream scientific consensus on the issue and insist that its all a big misunderstanding/fraud/conspiracy (delete as appropriate). Then there’s a somewhat larger and less excitable group who broadly accept the science, but argue there’s nothing we can practically do to stop global warming, so we might as well learn to live with it.

But there’s a third option – to accept the case for action as well as the science, but not the same actions as those pursued by the European Union. Not one to deny reality nor shrink from the fight, one can imagine Margaret Thatcher following this course – or, rather, leading it.

What one can’t imagine, however, is the Lady keeping quiet about the counter-productive farce that is the EU’s policy on renewable energy. For instance, consider the following facts – as reported by the Economist:

• “In its various forms, from sticks to pellets to sawdust, wood... accounts for about half of Europe’s renewable-energy consumption... After years in which European governments have boasted about their high-tech, low-carbon energy revolution, the main beneficiary seems to be the favoured fuel of pre-industrial societies.”

In an irony that Margaret Thatcher would not have enjoyed, coal-fired power stations are being adapted to harvest subsidies for wood burning:

• “...power stations can be adapted to burn a mixture of 90% coal and 10% wood (called co-firing) with little new investment… Drax… one of Europe’s largest coal-fired power stations, said it would convert three of its six boilers to burn wood. When up and running in 2016 they will generate 12.5 terawatt hours of electricity a year. This energy will get a subsidy, called a renewable obligation certificate, worth £45 ($68) a megawatt hour (MWh), paid on top of the market price for electricity. At current prices, calculates Roland Vetter, the chief analyst at CF Partners, Europe’s largest carbon-trading firm, Drax could be getting £550m a year in subsidies for biomass after 2016—more than its 2012 pretax profit of £190m.”

Any serious climate change policy should be shutting down coal-fired power stations, not subsidising them. 

It’s not even as if burning wood (much of which now has to be imported, pushing up prices for the paper producers and furniture makers) reduces carbon emissions on any relevant timeframe: 

• “Tim Searchinger of Princeton University calculates that if whole trees are used to produce energy, as they sometimes are, they increase carbon emissions compared with coal (the dirtiest fuel) by 79% over 20 years and 49% over 40 years; there is no carbon reduction until 100 years have passed, when the replacement trees have grown up. But as Tom Brookes of the European Climate Foundation points out, ‘we’re trying to cut carbon now; not in 100 years’ time.’”

Faced with this and other nonsenses, what would Maggie have done? Not nothing, but something different. Instead of the subsidies, the targets, the tradable permits and all the rest of it, she would have favoured something clear-cut and straightforward – for instance a carbon tax whose revenue could have been used to (a) reduce other taxes and (b) cut energy bills by carrying out basic energy efficiency improvements that are still left undone while the EU pays the coal industry to burn trees.

Tags: Margaret Thatcher, climate change, European Union, renewables, subsidies, carbon tax, energy efficiency