Discounting a future of global warming

It’s safe to assume that when Theresa May decided to announce yet another freeze in fuel duty last week she was thinking of her own political survival rather than the survival of the white lemuroid ringtail possum, or the thousands of other animal species on the planet which are facing extinction due to fossil-fuel driven global warming.

It seems reasonable to speculate that her own political welfare loomed somewhat larger in her calculations than the economic welfare of as yet unborn generations of Britons. Depressing it may be but such shorttermism is hardly unusual. It’s innate to our species. As humans we place a higher value on jam today than jam tomorrow. We generally value our own welfare more highly than that of generations to come. We “discount” the future.

The more mature among us moderate our discounting, understanding that we will, probably, be around to live with the consequences of spending like Liberace in 2018. Most of us care about the living standards of our children and their children. But the reality is that we all discount.

Should we expect something different from policymakers? Shouldn’t we expect them to take the long view, or at least to give the impression of doing so? The answer is yes, but not an unqualified one.

In 2006 a landmark UK government-commissioned report into the economics of climate change by Nicholas Stern used a (virtually) zero discount rate to put a price on the future economic damage threatened by a warming planet. Stern’s cost-benefit analysis yielded the firm conclusion that urgent action to reduce emissions was warranted, even if it entailed a sizeable short-term economic cost in terms of investment in low-carbon technology and taxes on fossil-fuel pollution.

Yet William Nordhaus, who was awarded the Nobel economic gong by the Swedish Academy of Sciences on Monday for his pioneering modelling of climate feedback effects on the global economy, was unhappy with Stern’s discount rates. He suggested that using a zero discount rate implied that we would take vastly expensive action today to forestall a negative economic event in 200 years’ time – even though, assuming humanity survives that long, our descendants will probably be far wealthier than us.

Stern, said Nordhaus, “would justify reducing per capita consumption for one year today from $10,000 (£7,600) to $4,400 in order to prevent a reduction of consumption from $130,000 to $129,870 starting two centuries hence and continuing at that rate forever after.” Which sounds like lunacy. But two can play that game of using assumptions to yield ridiculous-sounding conclusions. As Stern has countered, if one uses a discount rate of just 2 per cent “a life starting 35 years later, but otherwise the same, would have half the value of a life starting now”.

Economics can’t tell us the answer of what discount rate to choose when setting up a cost-benefit analysis of a policy like climate change mitigation. How highly we should value the welfare of future generations is a philosophical question.

So are we stuck? Thankfully, no. Since the Stern review was published 12 years ago the estimates of the potential economic damage of climate change have been revised upwards. We know more about potential “tipping points”, after which things get very bad very quickly. The costs of action have also fallen as the cost of renewable energy generation, particular solar power, have come down. Even applying somewhat higher discount rates does not undermine the case for action today. Nordhaus has revised up his estimates of the damage from carbon pollution significantly in recent years.

Nordhaus recommends a straightforward uniform global carbon tax to curb emissions. Other economists prefer a cap and trade system of pollution permits. But provided the cap is set at an appropriately low level – and provided its coverage is sufficiently global – this should have the same impact as a tax. The key is action to make sure that businesses and households internalise the cost of pollution and change their behaviour. Think about the Conservatives’ irresponsible nine years of frozen fuel duty in this context.

The climate science points in one direction, as this week’s updated warning from the United Nations’ Intergovernmental Panel on Climate Change. So does the economics, thanks to the work of the likes of Nordhaus and Stern. The blockage is politics.

#climatechange #NicholasStern #TheresaMay #WilliamNordhaus

Autocracies are fragile – however sophisticated they may seem

It’s a tale of two autocracies. Last week we laughed at the apparent primitiveness of the Russian intelligence services and simultaneously trembled at the sophistication of their Chinese counterparts.

Bloomberg Businessweek magazine reported that China’s military has managed to implant a microchip no bigger than a grain of rice in US computer mother boards, as they were being assembled in China, effectively giving Beijing a secret back door into giant American firms including Amazon and Apple.

It was seen as a jaw-dropping technical feat. “Like witnessing a unicorn jumping over a rainbow,” one hardware expert commented.

The Russian security services, meanwhile, were exposed as low-tech bungling amateurs. Western governments revealed that earlier this year Dutch police had apprehended four Russian agents as they attempted to hack into the investigation into the Salisbury novichok poisonings at a chemical weapons watchdog facility in the Netherlands.

They were sitting in the facility’s car park in a rented car with a coat over their equipment. One of the spies even had a taxi receipt on his person, showing that they had been picked up at the Moscow headquarters of the GRU military intelligence service. An examination of the men’s laptops and phones confirmed that they had been involved in a host of other notorious computer hacks on western targets.

And it got worse. Using the personal information on the agents released by the western authorities, the investigative website Bellingcat was seemingly able to produce a database of the names of a further 300 GRU operatives, including their mobile phone numbers.

No unicorns or rainbows there. So why are the Chinese so good at the spying game and the Russians so hopeless? One explanation offered was that the skills of the once formidable Russian intelligence services have degraded since Soviet days.

Alexander Gabuev, of the Carnegie Moscow Centre think tank, suspects they registered their private cars and names with the Russian Traffic Authority, using the GRU address, in order to access special road privileges, such as not being stopped by the police, immunity from drink driving fines and exemption from car tax. Did someone at the notoriously corrupt Russian Traffic Authority sell this list? “[The] root cause of [the] largest intelligence failure in modern Russian history is a combination of wrecked values system in parts of the Russian society, notorious incompetence and, well, banal corruption,” Gabuev concludes.

So how different is China? Less different than this week – and the general tone of western commentating on China – might have led people to believe. For corruption is also an advanced cancer in that society too.

The China scholar Minxin Pei, in his recent book China’s Crony Capitalism describes how “local governments penetrated by these elites unavoidably experience degradation in their capacity for providing public goods” and “corruption networks, consisting of officials, businessmen, and gangsters, seize control of these jurisdictions and turn them into local mafia states”.

In 2015 Ma Jian, a senior official at the Ministry of State Security (MSS), China’s equivalent of the GRU, was arrested in a corruption scandal. Ma was revealed to have put the MSS’s spying capabilities at the service of a real estate tycoon in exchange for bribes. He had six mistresses and two illegitimate children.

Xi Jinping has ostensibly cracked down on corruption by Communist Party officials in recent years. But in the absence of any transition towards government transparency or the rule of law this feels more like the consolidation of political power by Xi, crushing rival factions, than a genuine attempt to clean up China’s rotten public realm.

China’s rapid economic growth of the past decade, a period over which the developed world has struggled, has led to something of a panic in the west, a crisis of confidence not only in our liberal economic model but our liberal democratic institutions.

This was magnificently symbolised when The Times recently carried a piece by David Cameron’s exspeech writer, Clare Foges, imploring us to learn lessons from the world’s new generation of “strongmen”, including China’s Xi Jinping.

But all autocracies are inherently fragile, however slick and impregnable they may look from the outside and from a distance of several thousand miles. For all their surveillance, the information feedback channels, which all governments need to be effective, tend to be calamitously defective. Reform-blocking vested interests are much harder to override in an environment of collusive corruption than they are in democracies with a free media and the rule of law.

As Minxin Pei puts it: “Instead of institutional resilience [China suffers from] pervasive institutional decay – degeneration of norms, disloyalty to the regime and subordination of the regime’s corporate interests to the private interests of members of corruption networks”.

Overestimating the competence of the autocrats of Beijing might be as dangerous as underestimating the thugs of Moscow.

All autocracies are inherently fragile, however slick and impregnable they may look from the outside and from a distance of several thousand miles

#China #MinxinPei #Russia

Another pointless "crackdown" on middle class drug use

The last time a senior Tory announced a crackdown on middle class drug use at a Conservative Party conference it turned into a rather bad trip.

Eighteen years ago the shadow home secretary Ann Widdecombe proposed £100 fixed penalties for anyone caught possessing “just one joint” of cannabis. “No more getting away with just a caution, no more hoping that a blind eye will be turned,” she thundered to delegates in Bournemouth. “Parents want it. Schools need it. Our future demands it. The next Conservative government will do it.”

But it turned out her colleagues weren’t so keen. Eight shadow cabinet ministers subsequently cheerfully relayed to newspapers that they’d smoked marijuana while at university, leaving Widdecombe’s policy and her political credibility looking more wrecked than Hunter S Thompson’s hotel room.

Back in 2000, Sajid Javid was a fresh-faced investment banker at Deutsche Bank. But today he seems to have got a case of the Widdecombes.

Cocaine use at ‘middle class parties’ helping to fuel gang violence on London streets, Sadiq Khan warns

“We need to make people understand that if you are a middle class drug user and you sort of think, ‘Well, I’m not doing any damage, I know what I’m doing,’ well, there’s a whole supply chain that goes into that,” the home secretary told the Daily Mail, citing the repellent“county lines”drugs trade, and associated exploitation of vulnerable children by criminal gangs.

“You are not innocent – no one is innocent if they are taking illegal drugs.”

We’re promised a Home Office “review” in which even “professionals” will be targeted.

When one is talking about any market, illegal drugs included, one does indeed have to consider the forces of supply and demand. Javid’s right about that. QCs and surgeons sniffing cocaine in the toilets of posh London clubs create demand just as surely as heroin addicts on a Bristol council estate or homeless spiceheads roaming around Manchester’s Piccadilly station. And the demand stimulates a lucrative and often violent black market supply industry.

So curb the demand and kill the supply? Once again we are reminded that a little bit of economics is a dangerous thing. The question is not whether demand drives supply – it clearly does – but how amenable demand, from all sections of society, will be to the kind of crackdown Widdecombe and now, apparently, Javid envisage. How “elastic” is consumption to new sanctions and enforcement?

The evidence suggests not very. The US government’s hardline “war on drugs” over the past 40 years has done nothing to reduce rates of substance abuse among the American public. Rather this inordinately expensive policy of prohibition has delivered mass incarceration and political destabilisation for countries like Colombia and Mexico.And there are other ways to reduce the social harm done by drug abuse, other ways to curb demand.

Not long after Widdecombe’s humiliation, the government in Lisbon embarked on an experiment. Rather than “cracking down”, in 2001 Portugal became the first country to decriminalise the personal use and possession of illicit drugs. The results are not entirely conclusive  –but they are pretty encouraging. Drug use among the Portuguese population, which had been in the grip of a heroin addiction epidemic, seems to have been in decline over the past decade, according to the European Monitoring Centre for Drugs and Drug Addiction.

Drug use rates among 15- to 34-year-olds are now low relative to those in other European countries. The numbers of people seeking heroin and cocaine addiction treatment have slumped (although they have risen in the case of cannabis).

Overdose deaths have fallen. The drug-induced death rate in Portugal is now around three per million,five times lower than the EU average rate and 15 times lower than the rate here in the UK. There has been no upsurge in drug-related crime.

Widdecombe’s zero tolerance speech won “loud applause” from that Bournemouth conference hall 18 years ago. If Javid wants a better legacy than hers on drugs he should follow the evidence rather than the ideology.

#decriminalisation #SajidJavid #crime #legalisation #drugs #warondrugs