Quotulatiousness

May 20, 2024

The economic distortions of government subsidies

Filed under: Britain, Business, Economics, Government, History — Tags: , , , , , — Nicholas @ 03:00

The Canadian federal and provincial governments are no strangers to the (political) attractions of picking winners and losers in the market by providing subsidies to some favoured companies at the expense not only of their competitors but almost always of the economy as a whole, because the subsidies almost never produce the kind of economic return promised. The current British government has also been seduced by the subsidies game, as Tim Congdon writes:

Former British Conservative Prime Minister Margaret Thatcher in 1983. She was in office from May 1979 to November 1990.
Photo via Wikimedia Commons.

Why do so many economists support a free market? By the phrase they mean a market, or even an economy dominated by such markets, where the government leaves companies and industries alone, and does not try to interfere by “picking winners” and subsidising them. Two of the economists’ arguments deserve to be highlighted.

The first is about the good use — the productivity — of resources. To earn a decent profit, most companies have to achieve a certain level of output to attract enough customers and to secure high enough revenue per worker.

If the government decides to give money to a favoured group of companies, these companies can survive even if they produce less, and obtain lower revenue per worker, than the others. The subsidisation of a favoured group of companies therefore lowers aggregate productivity relative to a free market situation.

In this column last month I compared the economically successful 1979–97 Conservative government with the economically unsuccessful 2010–2024 Conservative government, which is now coming to an end. In the context it is worth mentioning that Margaret Thatcher and her economic ministers had a strong aversion to government subsidies of any kind.

According to Professor Colin Wren of Newcastle University’s 1996 study, Industrial Subsidies: the UK Experience, subsidies were slashed from £5 billion (in 1980 prices) in 1979 to £0.3 billion in 1990. (In today’s prices that is from £23 billion to under £1.5 billion.)

Thatcher is controversial, and she always will be. All the same, the improvement in manufacturing productivity in the 1980s was faster than before in the post-war period and much higher than it has been since 2010. Further, one of Thatcher’s beliefs was that if the private sector refuses to pursue a supposed commercial opportunity, the public sector most certainly should not try to do so.

Such schemes as HS2 and the Hinkley Point nuclear boondoggle could not have happened in the 1980s or 1990s. They will result in pure social loss into the tens of billions of pounds and will undoubtedly reduce the UK’s productivity.

But there is a second, and also persuasive, general argument against subsidies and government intervention in industry. An attractive feature of a free market policy is its political neutrality. Because market forces are to determine commercial outcomes, businessmen are wasting their time if they lobby ministers and parliamentarians for financial aid.

Honest and straightforward tax-paying companies with British shareholders are rightly furious if they see the government channelling revenues towards other companies who have access to the right politicians and friendly civil servants. By definition, the damage to the UK’s interests is greatest if the recipients of government largesse are foreign.

QotD: “Selfless” public servants

Filed under: Economics, Government, Politics, Quotations, USA — Tags: , , — Nicholas @ 01:00

WARNING: If you’re an elected government official or if you’re attached to idealistic notions about such officials, do not read this commentary. It will offend you.

Ideally, government in a democratic republic reflects the will of the people, or at least that of the majority. Citizens vote for candidates whom they believe will best promote the general welfare. Victorious candidates, after pledging to uphold the Constitution, go to state capitals or to Washington, D.C., to do The People’s business — to undertake all the good and worthy activities that citizens in their private capacities cannot perform.

Sure, every now and then crooks and demagogues win office, but these are not the norm. Our system of regular, aboveboard democratic elections ensures that officials who do not effectively carry out The People’s business are thrown from office and replaced by more reliable public servants.

Trouble is, it’s not true. It’s a sham. Despite being called “the Honorable”, the typical politician is certainly no more honorable than the typical dentist, auto mechanic, Wal-Mart regional manager or any other private citizen.

Despite being referred to as “public servants”, politicians serve, first and foremost, their own personal political ambitions and they do so by pandering to narrow special interest groups.

Don Boudreaux, “Base Closings”, Pittsburgh Tribune-Review, 2005-03-18.

May 10, 2024

A different take on the Russo-Ukrainian War

Filed under: Economics, Europe, History, Military, Russia — Tags: , , , , , — Nicholas @ 04:00

Kulak suggests that far from being a model for future wars, the ongoing conflict in Ukraine may not prefigure anything at all about future wars:

Few weeks go by where I don’t read a piece on how Ukraine is the Future of warfare and armies and thinkers need to adjust to the reality that the warfare of the future will involve massive unaccountable amounts of artillery, trenches, conscription and grinding warfare.

While sometimes they point to relevant lessons: Yes the inability of the US to quickly reindustrialize and produce artillery shells at a rate comparable to Russia does speak to a profound rot in American governance, the military industrial complex, and American business regulation more generally,

Often times the conclusions drawn are dangerously delusional: A draft would be more likely to break the American nation than save it. As indeed conscription has resulted in Ukraine’s population collapsing with somewhere between 6 and 10 million Ukrainians (out of a pre-war 36 million) having fled the country, not to escape the mostly static war, but to escape the Totalitarian conditions the Zelensky regime has imposed in response to the war. (1.1 million of whom escaped INTO Russia, for any who deny this [is] largely an ethnic conflict between Western and Russian Ukrainians, as it has been since 2014).

And the thing is all of these discussions rest on a assumption that seems ludicrous the second you stop and think about it: Ukraine is not the future of Warfare, these conditions will be almost impossible to ever create again.

Ukraine had a pre-war Nominal GDP of 199 billion USD. Officially this only declined to 160 billion in 2022 as a result of the war, but there’s good reason to think its actual internal private sector economy collapsed far further [given] it had collapsed from 177 billion in 2013 to 90 billion in 2015 as a result of the US backed Coup/Revolution.

Indeed given the population flight, conscription, and impositions on the populace, it is very likely a SUPER-MAJORITY of that 160 billion GDP in 2022, was actually the result of US and NATO pouring hundreds of billions into the country. Where it was either used or siphoned off as corruption.

Simply put Ukraine has received military, financial and other aid most like in excess of what its entire internal economy produced in the same period, and as of writing it’s still losing territory.

When commentators say this is a war between NATO and Russia they are almost entirely correct. If you combine all the economies that are funding, arming, or fighting on one side or the other of this war you get a majority of the entire global economy.

And they have used all that money to pay off the Ukrainian regime to refuse any peace agreement, even ones their own negotiators had agreed to, and that were clearly in the best interest of the country … you know if you value hundreds of thousands of young men and not having your population collapse more than narrow stretches of land being bought up by Blackrock.

May 9, 2024

“The ability to believe entire gargling nonsense is strong in the [environmental] sector – as with this particular claim that we’re going to run out of rock”

Filed under: Britain, Economics, Environment — Tags: , , , , — Nicholas @ 05:00

Tim Worstall really, really enjoys kicking the stuffing out of strawman arguments, especially when they touch on something he’s very well informed about:

Some environmental claims are not just perfectly valid they’re essential for the continuation of life at any level above E. Coli. None of us would want the Thames to return to the state of 1950 when there was nothing living in it other than a collection of that E. Coli reflecting the interesting genetic and origin mix of the population of London. Sure, the arguments from Feargal and the like that a river running through 8 million people must be clean enough to swim in at all times is a bit extreme the other way around. One recent estimate has it that to perform that task for England would cost £260 billion — a few swimming baths sounds like a more sensible use of resources than getting all the rivers sparkling all the time.

Some are more arguable — violent and immediate climate change would be a bad idea, losing Lowestoft below the waves (possibly Dartford too) in 2500 AD might be something we can all live with. Arguable perhaps.

But some of these claims are wholly and entirely doolally. So much so that it’s difficult to imagine that grown adults take them seriously. But, sadly, they do and they do so on our money too.

An example:

    Wow. According to this research 40% of the 1.5C C02 budget could be used just for digital & internet use/infrastructure & 55% of the earths carrying capacity for minerals & metals for the same use.

The internet alone could use 55% of the Earth’s carrying capacity of metals and minerals? Well, to take that seriously is insane. That is not mere hyperbolic insult, that actually is insane. I write as someone who has written an entire book on this very subject (available here, for free, save your money to buy a subscription to this excellent Substack instead). There is no metal or mineral that we’re even going to run short of — in the technical, not economic, sense that is — for tens of millions of years yet. As the average lifetime of a species is perhaps 2 million years that should see us out.

So, clearly, they’re using some odd definition of how many minerals and metals we’ve got that we can use. I thought they’d do the usual Club of Rome thing (no, read the book to find out), confuse mineral reserves with what’s available and thus insist we all died last Tuesday afternoon. Rather to my surprise, no, they didn’t. They went further into raging lunacy.

It’s not wholly obvious as they don’t really quite announce their assumption, it’s necessary to track back a bit — and that’s a problem in itself. A top tip about scientific papers — if they say “As Bloggs said” then what that really means is that many people accept what Bloggs said as being true and also useful. You do not have to reprove Einstein every time you do physics, you can just say “As is known”. You’ve only got to reprove Al if that’s what you’re really trying to do.

Thus, if a definition is a referral back to something else, elsewhere, then you can be sure that the definition is a building block being used by others in their own papers. It’s a generalised insanity, not a specific one.

So, what is that limit?

    Here we quantify the environmental impacts of digital content consumption encompassing all the necessary infrastructure linked to the consumption patterns of an average user. By applying the standardised life cycle assessment (LCA) methodology, we evaluate these impacts in relation to the per capita share of the Earth’s carrying capacity using 16 indicators related to climate change, nutrients flows, air pollution, toxicity, and resources use, for which explicit thresholds that should never be exceeded were defined

Now this is in Nature Communications. So it’s science. Even, it’s Science. It’s also lunatic. For, tracking back to try to find what those “resources use” are that will be 55% used up by the internet. It’s possible to think that maybe we’re going to use too much germanium in the glass in the fibreoptic cables say, or erbium in the repeaters, or … specific elements might be in short supply? As the book wot I wrote above points out, that’s nonsense. So, what is the claim?

Tracking back we get to this:

    Resource use, mineral and metals MRD kg Sb eq Abiotic resource depletion (ADP ultimate reserves) 2.19E+08 3.18E-02 JRC calculation based on factor 2 concept Bringezu (2015); Buczko et al. (2016) Resource use

That’s from Table 3.

Which takes us one stage further back. This paper here is talking about Planetary Boundaries and as with the building block idea. PBs — I assume — make the assumption that Bringzeu, and Biczlo et al have given us a useful guide to what those PBs are. Which is why they just use their method, not invent a new one. But that, in turn, also means that other people working on PBs are likely to be using that same definition.

[…]

Note what they’re doing. Humans should not take out of that environment more than nature puts back into it each year. That’s some pretty dumb thinking there, as we don’t, when we use a metal or mineral — except in very rare circumstances — take it off planet. We move it around a bit, no more. But the claim really is that we should abstract, for use, no more than is naturally added back each year.

So, the correct limitation on our minerals use is how much magma volcanoes add each year.

No, really, humanity can use no more earth than gets thrown out of a volcano each year. That’s it. To use more would mean that we are depleting the stock and that’s not sustainable, see?

May 8, 2024

The cocoa shortage is really the same economic trend that caused the Victorian “servant problem”

Filed under: Economics, Europe, Food — Tags: , , , , , — Nicholas @ 05:00

Tim Worstall explains not only why your favourite chocolate bar is going to be more expensive, but also why your olive oil will do the same and why it really is the same thing as the Victorian and Edwardian upper class complaints about “the help”:

Upper classes expected maids and other servants to be cheap, eager, and easy to replace. This began to change quickly in the Victorian era, as women found better-paying jobs in commerce and industry that didn’t require bowing and scraping and putting up with constand, casual abuse from oblivious wealthy snobs.

As you might have noticed, cocoa is getting very much more expensive. Futures prices (no, futures are not a good guide to actual market prices but still) have gone from $3,000 a tonne or so (-ish, you understand ) to $12,000 and back to $8,000 or so. According to the usual suspects this is climate change. According to those a little more informed there’s El Nino, there have been a few rusts and plant plagues to deal with. Low prices led to not much planting in recent years — all sorts of little problems that led to that burst of higher prices.

Real prices have changed, the sort of Cadbury’s bar that my wife likes a piece of with her afternoon coffee has gone up by a € a bar in recent weeks (I know, I know, “Send Munnies! Quick!”) and so something must be done.

But there’s a much larger and more significant problem here and one to which there may or may not be a solution. The servant problem.

One of those things you learn when living in foreign is that the poorer a country is the easier it is to get a servant and the cheaper a servant is when you get one. This doesn’t wholly make sense to folk until it’s explained. A poor place is one where wages are low — where wages are low is a poor place. They’re the same statement. So, wages for a servant are low in poor countries.

We can up that a little as well. Poor people spend — truly poor people that is — some 80% of their income on food and shelter. So, when you’re in one of those truly poor places you can gain access to a servant — their fulltime, undivided services — for $2 a day plus a bowl of boiled rice and being allowed to sleep in the barn. Because, if they were out there in the cash economy they’d be paid $2 a day (800 million still live at that level out there) and they’d have to buy their own bowl of rice and a tarpaulin to shelter under out of that.

Servants are cheap in poor places because human labour is cheap in poor places because a place with cheap labour is a poor place. QED.

As places become richer human labour costs more. Which is why the letters pages of The Lady started to fill up with complaints about the uppityness and demands of servants from about the 1880s onwards — about the time that British wages at that low and untrained end first started to substantially rise above mere subsistence. This is also one of our major political problems now that middle class women have the vote. They’re using the franchise to insist that government do something about that servant problem. That’s what all that insistence upon child care subsidies and freebies is about. Those middle class women going off to their terribly important power skirt jobs can no longer afford to hire some working class popsie to look after their kids — so government must be forced to do so instead. The correct answer being look after your own damn kids, obviously.

But cheap labour in poor places:

    Britain is at risk of olive oil shortages as the industry is wracked by a production crisis.

    Fears are growing over the risk of empty shelves as growers across Europe battle a combination of extreme weather, inflation and high interest rates.

Interest rates matter because you plant, wait some number of years, only then do you gain olives. You will then gain them for many decades even centuries, but that wait without income is more painful the higher interest rates get.

There are rusts, plant plagues, afflicting the crop across much of Europe. Of course we’ve those blaming everything on climate change but that’s just the usual bollocks.

However, low wages in poor places. I live in the middle of an oil producing area. Vast waving acres of olive trees in fact. I’ve also lived, until recently, in an historically poorer area of the same country. Where much of the land — little 2 and 4 acre farms (if they were lucky) which might raise a few goats, a sheep (cheese more than anything) and have a couple or four olive trees — has been simply abandoned. The place is getting richer, no one wants to scrape a living on 4 acres of land these days. Rightly so. 4 acres is an adventurous garden, not a living. The absence of those goats is also why the wildfires are getting so much worse — there’s more scrub to burn.

I can take you to places where there are hundreds of acres of such land. Plenty of olive trees in there too, all fruiting and none of them being picked. Because picking olives from the occasional tree is hard bloody work. Spread a net beneath it, hit the tree hard, a lot. Collect up the net with all the olives. Then sort them. By hand. Each single one needs to be checked (for worms and rot) and then nicked. Then you can take them down to the oil mill (every village has at least one) and you hand over the olives and get back the oil, minus a percentage for the mill owner.

May 4, 2024

Process optimization can definitely be taken too far

Filed under: Business, Economics, Food, Technology — Tags: , , , , , , — Nicholas @ 04:00

Freddie deBoer considers systems that have been overoptimized to the detriment of most users and the benefit of a small, privileged minority:

I know a guy who used to make his living as an eBay reseller. That is, he’d find something on eBay that he thought was underpriced so long as the auction didn’t go above X dollars, buy it, then resell it for more than he paid for it Classic imports-exports, really, a digital junk shop. Eventually he got to the point where, with some items, he didn’t ever have physical possession of them; he had figured out a way to get them directly from whoever he bought an item from to the person he had sold the item to, while still collecting his bit of arbitrage along the way. This buying and selling of items on eBay, looking for deals, was sufficient to be his full-time job and pay for a mortgage. But the last time I saw him, a few years ago, he had gotten an ordinary office job. He told me that it had become too difficult to find value; potential sellers and buyers alike had access to too many tools that could reveal the “real” price of an item, and there was little delta to eke out. He’s not alone. If you search around in eBay-related forums, you’ll find that many longtime sellers have reached similar conclusions. The hustle just doesn’t work anymore.

I don’t suppose there’s any great crime there — it’s all within the rules. And there does appear to still be an eBay-adjacent reselling economy; it’s just that, as far as I can glean, it’s driven by algorithms and bots that average resellers simply don’t have access to. It appears that some super-resellers have implemented software solutions to identify underpriced goods and buy them automatically and algorithmically. They have optimized the system for their own use, giving them an advantage, putting other sellers at a disadvantage, and arguably hurting buyers by eliminating uncertainty that sometimes results in lower-than-optimal-to-sellers prices. This is all in sharp contrast to the early years, when my friend would keep listings for lucrative product categories open – in separate windows, not tabs, that’s how long ago this was – and refresh until he found potential moneymakers. That sort of human searching and bidding work stands at a sharp disadvantage compared to those with information-scraping capacity and automated tools. It’s a good example of how access to data has left systems overoptimized for some users. One of the things that the internet is really good at is price discovery, and these digital tools help determine the “optimal” price of items on eBay, which results in less opportunity for arbitrage for other players.

My current working definition of overoptimization goes like this: overoptimization has occurred when the introduction of immense amounts of information into a human system produces conditions that allow for some players within that system to maximize their comparative advantage, without overtly breaking the rules, in a way that (intentional or not) creates meaningful negative social consequences. I want to argue that many human systems in the 2020s have become overoptimized in this way, and that the social ramifications are often bad.

Getting a restaurant reservation is a good example. Once upon a time, you called a restaurant’s phone number and asked about a specific time and they looked in the book and told you if you could have that slot or not. There was plenty of insiderism and petty corruption involved, but because the system provided incomplete information that was time consuming to procure, there was a limit to how much you could game that system. Now that reservations are made online, you can look and see not only if a specific slot has availability but if any slots have availability. You can also make highly-educated guesses about what different slots are worth on the market through both common sense (weekend evenings are the most valuable etc) and through seeing which reservations get snapped up the fastest in an average week. And being online means that the reservation system is immediate and automatic, so you can train a bot to grab as many reservations as you want, near-instantaneously, and you can do so in a way that the system doesn’t notice. (Unlike, say, if you called the same restaurant over and over again and tried to hide your voice by doing a series of fake accents.) The outcome of all this is that getting a reservation at desirable places is a nightmare and results in a secondary market that, like seemingly everything in American life, is reserved for the rich. The internet has overoptimized getting a restaurant reservation and the result is to make it more aggravating and less egalitarian.

As has been much discussed, nearly the exact same scenario has made getting concert tickets a tedious and ludicrously-pricy exercise in frustration.

April 29, 2024

“The Earth goes around the Sun, or so they would have you believe …”

Filed under: Economics, Environment, History — Tags: , , , , — Nicholas @ 03:00

Colby Cosh on a recent “grand theory” from Andrea Matranga, an Italian economist who outlined his thoughts in a paper accepted by the Quarterly Journal of Economics, summarized in the sub-hed “Hunter-gatherers were better off than Neolithic farmers, diet-wise — until Earth was hit by seasonal extremes caused by Jupiter’s gravity”:

Reconstruction of a neolithic farmstead at the Irish National Heritage Park in Ferrycarrig.
Photo by Jo Turner via Wikimedia Commons.

Matranga’s own explanation for the invention of agriculture is: “Believe it or not, it is down to extraterrestrial forces”. Yes, that’s an actual quote from a cheeky Twitter thread in which Matranga summarizes his hypothesis colourfully. The real idea is that the period of the Neolithic Revolutions coincided with a time when seasonal temperature and rainfall differences were maximized by coinciding features of Earth’s orbit — features attributable mostly to Jupiter’s gravitational tug on us.

The Earth goes around the Sun, or so they would have you believe, and Earth’s rotational axis is tilted relative to the Sun, which creates the seasons. But the Earth’s motion has other subtle wobbles and shimmies caused by Jupiter: the eccentricity of its elliptical orbit grows and shrinks, and the rotational axis “precesses”, or wobbles, meaning that the face of the Earth pointing toward the Sun at our closest approach to it changes over time.

The implication of this is that over a period of millennia, and particularly in what we think of as the “temperate” zones, the magnitude of climate seasonality will itself change in a somewhat chaotic way. For some periods much longer than a human lifetime, seasonal changes might be almost beneath notice; a few millennia later, they become a dominant feature of human experience. And one hemisphere of the planet — say, the northern one — might end up with a lingering developmental advantage because it was favoured at the right moment by the precession of Earth’s axis.

Matranga pulls together a lot of math, astronomy and geography to show that the local Neolithic Revolutions coincide with maximum local seasonality, and then he builds some economic models of primitive society to suggest what effect this might have had on social organization and population evolution. Alfred Marshall would have told him to burn this part of his paper, but perhaps the equations are necessary for appearances. The crucial point is that Matranga has found a strong possible explanation for the Neolithic paradox — why, and when, humans in many places adopted a form of social organization that seems to have left most of them worse off on average.

For it’s not just the average that matters. In a world that was more or less the same year-round, hunter-gatherers didn’t have to worry about food storage: they could migrate cyclically within a small range, following wild game, to keep up with modest seasonal effects. But if the seasons then got more intense, food storage would become more important to the long-term survival of the group: one winter could now finish everyone off.

April 28, 2024

How Britain got out of the Great Depression (and no, it wasn’t WW2)

Filed under: Britain, Economics, Government, History — Tags: , , , , — Nicholas @ 03:00

Tim Worstall, in refuting something being pushed by Willie Hutton, explains how the British government escaped from the Great Depression and set off a nice little boom in the mid- to late-1930s:

Piccadilly Circus in London, mid-1930s.
Colourized photo via Reddit.

Well, yes. Except that’s not actually what did drag Britain out of the Depression. What did was expansionary fiscal austerity. You know, that thing the Tories talked of in 2010 and which everyone laughed at? Somewhat annoyingly I was one of the very few (it’s annoying because I was clearly right in what I was saying) who pointed this out back then.

    When we boil this right down it’s an argument about the effectiveness of monetary policy. Absolutely no one thinks that it has no effect. But there’s many who think that it has no effect at the zero lower bound: when interest rates are zero. That’s really the argument that leads to fiscal policy, that idea that government might tax less, or spend more, blow out that deficit and get the economy moving again. We’ve done all we could with monetary policy and we’ve still got to do something so here’s fiscal policy.

To put it as simply as possible. We’ve two major macroeconomic tools, monetary policy and fiscal. The first is interest rates, exchange rates and money printing and so on. The second is the difference between taxes collected and money spent by government — the government deficit or surplus (note, please, for purists, this is being very simple).

OK, either lever or tool can be used to loosen conditions — gee stuff up — or tighten them. Which we use when is somewhere between a matter of taste and necessarily correct given the circumstances. But clearly the total amount of geeing up out of a recession — or tightening to prevent inflation — or depression is the combination of the two sets of policies, applications of levers and tools.

It’s thus theoretically possible to tighten with one, loosen with the other and gain, overall, either tightening or loosening. Depends upon how much of each you do.

Britain in the 30s tightened fiscal policy. The opposite of what the Keynesians said, the opposite of what the US did and so on. Cut — no, really cut, not just slowed the increase in — government spending and thereby cut the government deficit (might, actually, have gone into surplus, not sure). This is, according to the Keynesian line, something that should make the recession/depression worse.

But at the same time they came off the gold standard — Churchill had taken us back in in 1925 at far too high a rate — and lowered interest rates. That’s a loosening of monetary policy.

As it happens, on balance, the monetary was loosened more than the fiscal was tightened and so we have expansionary fiscal austerity. Which set off a very nice little boom in fact. The mid- to late- 30s in Britain were economic good times. Driven, nicely driven, by a housebuilding boom — the last time the private sector built 300 k houses a year in fact (this is before the Town and Country Planning Act stopped all that). Mixed in was that the motor car was becoming a fairly standard bourgeois item and so housing spread out along the roads.

April 27, 2024

Climate science or climate “science”?

Filed under: Economics, Environment, Media, Science — Tags: , — Nicholas @ 04:00

David Friedman is a very intelligent man and I wouldn’t want to face him in a debate, even on a topic I feel well-informed about. He’s not a scientist and hasn’t made a serious study of climate but he can read the reports and make up his own mind. He’s inclined to believe the data available indicates that the planet is warming but he isn’t convinced that this is enough to justify the kind of authoritarian controls that climate activists demand:

The argument for doing drastic things to prevent global warming has two parts. The first has to do with reasons to think that the earth is getting warmer and that the reason is human action, in particular the production of CO2. The second is the claim that changes we have good reason to expect if we do not take appropriate action to prevent them will have very bad consequences for us.

Much of the criticism I have seen of the argument has to do with the first half, with critics arguing that the evidence for global warming, at least the evidence that it is caused by humans and will continue if humans do not mend their ways, is weak. I do not not know enough to be certain that those criticisms are wrong; climate is a very complicated and not terribly well understood subject.1 But my best guess from watching the debate is that the first half of the argument is correct, that global climate is warming and human action is an important part of the cause. What I find unconvincing is the second half of the argument, the claim that climate change we have good reason to expect would have catastrophic consequences for humans.

Obviously one can imagine climate change large enough and fast enough to be a very serious problem — a rapid end of the current interglacial, for example. If, as I believe is the case, climate is not very well understood, one cannot absolutely rule out such changes.2 But most of the argument is put in terms not of what might conceivably happen but of what we have good reason to expect to happen. I think the outer bound of that is provided by the IPCC models. They suggest a temperature increase of a few degrees centigrade over the next hundred years resulting in a sea level rise of less than a meter.3

Comparing a map of global temperature to a map of population density shows densely inhabited regions with average temperatures from about 10°C to about 30°C, with some of the most densely inhabited regions at the high end of the range. I could find no empty areas that are hotter than all populated areas, hence no areas that are depopulated only because of how hot they are. If people can currently live, work, grow crops over a temperature range of twenty degrees it is hard to imagine any reason why most of them couldn’t continue to do so about as easily if average temperature shifted up by two or three degrees, with a century to adjust to the change.

That raises the question with which I titled this post: Does climate change catastrophe pass the giggle test? Is the claim that climate change on that scale would have catastrophic consequences one that a reasonable person should take seriously?

[…]

A different version of the catastrophist argument is the claim that climate is unstable, that an increase of a few degrees could trigger a much larger increase. That might be plausible if current temperatures were so high that additional warming would raise them above any in the past. But although present temperatures may be higher than any in the past two thousand years, as discussed in an earlier post, the Earth is much more than two thousand years old.

The graph below4 shows estimated global temperature over the past five hundred million years. While present temperature is high relative to the recent past it is cool relative to the more distant past, more than thirteen degrees below the high of the past hundred million years.

We are currently in an ice age, defined by geologists as a period when there is an ice cap on one or both poles. For most of the past five hundred million years there wasn’t.

The claim that we have good reason to expect climate change on a scale that will produce not merely problems for some but catastrophe for many is one that no reasonable person should take seriously.5

    1. As some evidence, as of 2018 the temperature projections produced by the IPCC’s elaborate analysis did a somewhat worse job of predicting actual temperature than a straight line fit from the date when warming restarted after the midcentury pause to the date of each of the first four IPCC reports.

    2. We cannot absolutely rule out catastrophic changes either caused by anthropogenic warming or prevented by anthropogenic warming. There is, in fact, some evidence, discussed in an earlier post, that the reason the next glaciation is not already starting is anthropogenic warming — not current warming due to the industrial revolution but warming that started some eight thousand years ago due to the invention of agriculture.

    3. From Future Climate Changes, Risks and Impacts. RCP8.5 was originally designed as an upper bound on how high future CO2 emissions might be and assumed a level of world population growth that, so far, is not occurring, so should probably not be included.

    4. The headline of the news story I found it in: “A 500-million-year survey of Earth’s climate reveals dire warning for humanity”.

    If life gives you peaches, make cyanide from the pits.

    5. The weaker claim that climate change will produce net costs for humans is, in my view, less obviously true than many believe. For reasons see my past posts on the subject.

April 26, 2024

Economic inefficiencies in the water market? Don’t worry, here’s the government to make it much worse

Filed under: Economics, Government, USA — Tags: , , , , , — Nicholas @ 03:00

Tim Worstall discusses the economics of water markets in the US … that Senator Elizabeth Warren and Representative Ro Khanna seem determined to make far less efficient if their plans come to fruition:

Senator Elizabeth Warren speaking at the Iowa Democrats Hall of Fame Celebration in Cedar Rapids, Iowa, on 9 June, 2019.
Photo by Lorie Shaull via Wikimedia Commons.

Aficionados for truly stupid political interventions into matters economic will already be aware of the idiocies perpetrated by Senator Elizabeth Warren and Representative Ro Khanna. The two seem to end up as if someone rolled together the ideas of Professor Richard J Murphy and The Guardian opinion page then removed all the insight, subtlety and sensibility. True, not an arduous task removing those three but …

The basic water problem out in the Western US is that the wrong people currently own the water rights. We would therefore like to see more trade in those rights. Warren and Khanna are insisting upon further limitations upon the trade in those rights. This is rampant idiocy.

To set the scene, as folk moved out there they realised that water was not one of those things in great surplus in the area. So, those who got there first made sure that the property rights to the water were assigned to them. Nothing odd about this and rights to a scarce resource do need to be allocated. Otherwise we just end up with the commons problem and the resource is exhausted.

OK. And, y’know, quite a lot of things have changed in the century, century and a half since that Wild West was properly populated. But the descendants of those original farmers still own near all the water rights. Hmm, bit of a problem.

That’s OK, we’ve Coase to advise us here:

    Ronald Coase (1960), “The Problem of Social Cost”

    In the absence of transaction costs, if property rights are well-defined and tradable, voluntary negotiations will lead to efficiency.

    It doesn’t matter how rights are allocated initially …

    … because if they’re allocated inefficiently at first, they can always be sold/traded …

    so the allocation will end up efficient anyway

Now, the distribution — who gets the cash from all of that — is dependent upon that first distribution. But that’s a minor problem compared to the efficient use of water.

So, we want lots of buying and selling. The idiots using $300 of irrigation water to grow $100 worth of alfalfa (pretty much my first English-world piece was on exactly this subject, near 30 years back) can instead sell that same acre-foot to a city, where the two households will happily each pay $500 a year for the half an acre-foot they require.

The asset — the water — has moved from a lower valued (actually, value destructive) use to a higher, the world is richer in aggregate. It doesn’t matter that the farmers get the money because Grandpappy shot all the Injuns. Even without the who gets the money we’re all richer — we’re getting $1k not $100 from the same acre-foot of water.

Coolio!

Enter Warren and Khanna:

    With private investors poised to profit from water scarcity in the west, US senator Elizabeth Warren and representative Ro Khanna are pursuing a bill to prohibit the trading of water as a commodity.

Idiots. Damn fools. Politicians, but I repeat myself triply.

Now, do note they’re not trying to insist that water cannot be bought and sold — not because they don’t want to, they do, but because as Federal politicians they’ve no power whatever over within state markets. However, as Federal politicians they can claim power over commodity markets — the speculators will come from around the country, over state lines and interstate commerce is Federal.

So, as with onion futures, they want to ban water futures.

April 23, 2024

Debating the economic impact of the Raj on India

Filed under: Books, Britain, Economics, History, India — Tags: , , , , , — Nicholas @ 05:00

At The Daily Sceptic, Nigel Biggar looks at a few books making or refuting the narrative on how much or how little British rule in India extracted or contributed to the economic life of the subcontinent:

Beyond slave-trading and slavery, what were the economic effects of British imperial dominance? Can they be reduced to Britain’s leeching wealth from exploited subject peoples?

For over a century, that is what Indian nationalists have claimed. It is also what the politician Shashi Tharoor claims in his 2016 book, Inglorious Empire: What the British Did to India. Against him, however, the Bengali-born, LSE-based economic historian Tirthankar Roy has declared of the nationalist critique that “generations of historians … have shown that it is not [true]”. Pace Tharoor, the statistic that India produced 25 per cent of world output in 1800 and 2–4 per cent in 1900 does not prove that India was once rich and became poor: “[i]t only tells that industrial productivity in the West increased four to six times during this period … The proposition that the Empire was at bottom a mechanism of surplus appropriation and transfer has not fared well in global history”.

On the contrary, the British Empire’s commitment to free trade gave Indian entrepreneurs new opportunities to grow. Some of them visited England in the late 19th Century, observed the workings of manufacturing industry, imported machinery and expertise to India, built factories employing Indians, and then outcompeted Manchester. This is exactly how the Tata Iron and Steel Company began in Bombay – the same company that now owns what remains of the British steel industry.

What is more, colonial governments often protected native producers against British business, in order to moderate economic and social disruption, partly because they genuinely cared for the welfare of native people and partly because they didn’t want to have to manage the political unrest that foreign commercial intrusion could excite. Famously, in 1910-11 colonial officials barred Lever Brothers from acquiring concessions in Nigeria on which to establish palm-oil processing mills with widespread hinterlands, since Africans were already producing for the world markets and generating tax revenue and because the alienation of large areas of land risked provoking native opposition.

Further still, the British were the leading exporters of capital from the mid-19th Century to at least 1929. Between 1876 and 1914, Britain invested over a third of its overseas capital in the Empire, over 19% of it in India. Of course, British investors often made a profit out of this. That’s the thing about investment: you tend to want to grow your money, not waste it. But if the British gained, so did colonial peoples. Take railways. By 1947, British India had 45,000 miles of railway track, most of it constructed with private capital, whereas five years later un-colonised China still had less than 18,000 miles. For sure, the railways served military purposes. But they also served commercial and economic ones: one estimate reckons that when the railway network reached the average district, real agricultural income rose by about 16%. And it served the welfare purpose of efficient famine relief, too.

A basic reason why the British sent their capital overseas to the Empire, enabling the growth of businesses and the building of infrastructure, was that colonial states provided sufficient political stability and legal certainty to make the risks of financial ventures worth taking. (Badenoch hints at this in her reference to the economic effects of the Glorious Revolution of 1688.) That explains why Australia’s economic growth compares so favourably with that of many Latin American countries, and why, between the 1860s and 1890s, Australia was the richest country on earth.

In sum, the considered judgement of the Swiss historian Rudolf von Albertini, whose work – according to the world’s “leading imperial economic historian”, David Fieldhouse – was based “on exhaustive examination of the literature on most parts of the colonial world to 1940”, was simply this: “colonial economics cannot be understood through concepts such as plunder economics and exploitation”.

QotD: Who cares about you?

Filed under: Economics, Quotations — Tags: , , — Nicholas @ 01:00

During my student days at a UCLA economics department faculty/graduate student coffee hour in the 1960s, I was chatting with Professor Armen Alchian, probably the greatest microeconomic theory economist of the 20th century. I was trying to impress Alchian with my knowledge of statistical type I and type II errors. I explained that unlike my wife, who assumed that everyone was her friend until they prove differently, my assumption was everyone was an enemy until they proved otherwise. The result: My wife’s vision maximized the number of her friends but maximized her chances of betrayal. My vision minimized my chances of betrayal at a cost of minimizing the number of my friends.

Alchian, donning a mischievous smile asked, “Williams, have you considered a third alternative, namely, that people don’t give a damn about you one way or another?” Initially, I felt a bit insulted, and our conversation didn’t go much further, but that was typical of Alchian — saying something profound, perhaps controversial, without much comment and letting you think it out.

Years later, I gave Alchian’s third alternative considerable thought and concluded that he was right. The most reliable assumption, in terms of the conduct of one’s life, is to assume that people don’t care about you one way or another. It’s an error to generalize that people are friends or enemies, or that people are out to either help you or hurt you. To put it more crudely, as Alchian did, people don’t give a damn about you one way or another.

Walter E. Williams, “Who Cares About You?”, Townhall.com, 2019-10-01.

April 19, 2024

QotD: The “Greatest Generation”

Filed under: Economics, Government, History, Quotations, USA — Tags: , — Nicholas @ 01:00

Our parents had learned some wrong lessons from the ’20s, ’30s, and ’40s. They learned to love government too well. They learned that government was what rescued you from depression and war. Our parents were very trusting of large governmental institutions. The liberalism that was a seed of the radicalism to come was in our parents, even when our parents were Republicans. They had taken large government for granted.

P.J. O’Rourke, interviewed by Scott Walter, “The 60’s Return”, American Enterprise, May/June 1997.

April 16, 2024

QotD: Binding and non-binding rules

Filed under: Economics, Law, Quotations — Tags: , , — Nicholas @ 01:00

Describing situations in which violating a sound rule will make the world a better place is surprisingly easy. The reason for this ease is that the very purpose of rules – “the reason of rules” – is that they are tools to better enable us always-imperfectly informed human beings to successfully navigate a world filled with uncertainty. All that such descriptions require is the assumption that we human beings know more than we know.

An omniscient being would be foolish to bind itself to rules.

When we adopt a rule, we wisely admit our ignorance. For a clever assistant professor or ambitious politician to then describe situations in which violating this or that rule will make the world a better place is to achieve absolutely nothing. Although such descriptions often appear to be ingenious discoveries of means for improving the human condition, such descriptions are nearly always nothing but trite demonstrations that if we knew what we do not and cannot know, then acting in disregard of the rule would bring about a state of affairs better than the state of affairs that would be brought about by following the rule.

Well duh.

As a rule, whenever you encounter someone peddling a scheme for improving the world by giving the state discretion to act in violation of well-established rules – for example, to make workers better off by blocking the operation of the price system with minimum wages, or to enrich residents of the domestic economy by substituting free trade with “strategic trade policies” or “optimal tariffs” – recognize that these scheme peddlers arrogantly assume that they or those who will carry out their schemes possess knowledge and information that human beings, as a rule, do not and cannot possibly ever possess.

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2019-08-20.

April 11, 2024

All the ways A few of the ways Canada is broken

Filed under: Cancon, Economics, Government, History — Tags: , , , , , , , — Nicholas @ 05:00

In The Line, Andrew Potter outlines some of the major political and economic pressures that prompted the formation of the Dominion of Canada in 1867, then gets into all the ways some of the myriad ways that Canada is failing badly:

It is useful to remember all this, if only to appreciate the extent to which Canada has drifted from its founding ambitions. Today, there are significant interprovincial barriers to trade in goods and services, which add an estimated average of seven per cent to the cost of goods. Not only does Canada not have a free internal market in any meaningful sense, but the problem is getting worse, not better. This is in part thanks to the Supreme Court of Canada which continues its habit of giving preposterously narrow interpretations to the clear and unambiguous language in the constitution regarding trade so as to favour the provinces and their protectionist instincts.

On the defence and security front, what is there to say that hasn’t been said a thousand times before. From the state of the military to our commitments to NATO to the defence and protection of our coasts and the Arctic to shouldering our burden in the defence of North America, our response has been to shrug and assume that it doesn’t matter, that there’s no threat, or if there is, that someone else will take care of it for us. We live in a fireproof house, far from the flames, fa la la la la. Monday’s announcement was interesting, but even if fully enacted — a huge if — we will still be a long way from a military that can meet both domestic and international obligations, and still a long way from the two per cent target.

As for politics, only the most delusional observer would pretend that this is even remotely a properly functioning federation. Quebec has for many purposes effectively seceded, and Alberta has been patiently taking notes. Saskatchewan is openly defying the law in refusing to pay the federal carbon tax. Parliament is a dysfunctional and largely pointless clown show. No one is happy, and the federal government is in some quarters bordering on illegitimacy.

All of this is going on while the conditions that motivated Confederation in the first place are reasserting themselves. Global free trade is starting to go in reverse, as states shrink back from the openness that marked the great period of liberalization from the early 1990s to the mid 2010s. The international order is becoming less stable and more dangerous, as the norms and institutions that dominated the post-war order in the second half of the 20th century collapse into obsolescence. And it is no longer clear that we will be able to rely upon the old failsafe, the goodwill and indulgence of the United States. Donald Trump has made it clear he doesn’t have much time for Canada’s pieties on either trade or defence, and he’s going to be gunning for us when he is returned to the presidency later this year.

Ottawa’s response to all of this has been to largely pretend it isn’t happening. Instead, it insists on trying to impose itself on areas of provincial jurisdiction, resulting in a number of ineffective programs — dentistry, pharmacare, daycare, and now, apparently, school lunches — that are anything but national, and which will do little more than annoy the provinces while creating more bureaucracy. Meanwhile, the real problems in areas of clear federal jurisdiction just keep piling up, but the money’s all been spent, so, shrug emoji.

What to do? We could just keep going along like this, and follow the slow-mo train wreck that is Canada to its inevitable end. That is is the most likely scenario.

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