Monday, May 31, 2010

Some thoughts on the welfare state - continued from the FT website

What follows originated as posting to the FT website (see previous post here). It got removed from the FT website, perhaps justifiably in view of its length and remoteness from the FT article that prompted the commentary. The rest of the FT commentary can be seen here:- This posting was a response to one by Thornton on 27 May, 6.18pm.


Yes, my points about giving at Christmas were not directly in response to your point about what some great people have given to the world. Incidentally, I am also something of an admirer of Bill Gates - sometimes grudgingly as I frequently curse Microsoft, perhaps a little unjustly. As for Churchill, by coincidence, the last volume of Martin Gilbert's biography of him is currently my bed-time reading. A fascinating, larger-than-life character.

The welfare system is problematic in all sorts of ways. Most of my working life has been in the field of social housing which is closely related. Though most of my work has been with looking after the financial welfare of housing associations (not entirely with success - one had to be taken over to avoid going bust), I have had occasional forays into national policy.

One major issue is the poverty trap. You can't focus welfare provision on the most needy without also creating a big disincentive to work. I said in an earlier post that I wasn't in favour of very high tax rates - eg 80% - 90% - but taking taxes and benefits together, that is the sort of marginal rate that people on benefits face. Try a gentler taper so that recipients face a lower marginal rate of tax and benefit withdrawal, and a much wider range of people become eligible for benefits and the cost to the public purse becomes prohibitive. The intrinsic problems look intractable.

I remember recently being at a gathering addressed by an ageing former Labour MP. He had known some of the people involved in setting up the post-war welfare state. He said that no-one anticipated then that we would now be finding people who were third-generation welfare-dependent. Another sad case of unintended consequences.

You make an interesting point about how you think the welfare system also saps the generosity of people. I can't say I have personal experience of this. Wilkinson and Pickett's work suggests that in more equal societies people tend to be more generous (as revealed, for instance, by the scale of foreign aid) but that's a separate issue from the generosity of people in supporting those nearest to them. I'm going to have to leave it on one side for the moment while I think about it further.

As you will have gathered by now, as I gradually became aware of the enormity of the threat from global warming, I found myself looking in a fundamental way at how our economy operates. Developed countries are market economies in which, broadly speaking, spending power is distributed to people according to the perceived value of the work they do. I remember looking at the case for the third runway at Heathrow being made by one of the interested parties. Along with claptrap such as "In a competitive world, standing still is not an option", there were some examples of businesses that benefited from their proximity to Heathrow. One was marketing computer games and another was distributing Japanese-made contact lenses.

It occurred to me that we don't really need people flying round the world marketing computer games and contact lenses. This reinforced my feeling that much of the work that people do is work that simply doesn't need to be done. A few people are producing and distributing the goods and services we need. The rest of us work partly because it's generally considered more acceptable to pay people for work done, even if it's useless work, than to dish out money to layabouts. To disguise the uselessness of the work, we spend heavily on marketing and advertising to help create demand for goods and services we don't need.

The system seems to work quite well until we look at environmental costs and risks and natural resource constraints. Briefly, what we are now doing is paying people to help make our planet less capable of supporting us. Arguably we should now be generously dishing out money to layabouts rather than encouraging people to work for a living. However, I don't suppose you relish that idea and neither do I. Work, even if its usefulness is more apparent than real, is psychologically important. I am semi-retired but I get a real kick out of doing paid work. As well as the sheer joy of being able to ply my trade, which these days is mainly financial modelling, I get from the payment a warm feeling that someone, rightly or wrongly, thinks my work is useful. But whether paid or not, purposeful activity is a key to happiness and robust mental health.

In any case, even in a resource-constrained world, there is no reason to encourage anybody to be idle. For a start, limited energy supplies will probably mean that much essential work, such as growing food, will become more labour-intensive and there may be a revival in demand for relatively unskilled labour. I hope we never reach a point when all work needs to be directed to the bare essentials of survival. However, if we did, we would be justified in expecting everyone to do their fair share of work and there would be no need for welfare payments for unemployment alone - though they would still be needed for disability, chronic illness and old age. I am certainly not of the view that these things can be left to the voluntary generosity of individuals.

I would expect there will always be scope for work directed at quality of life rather than mere survival. Now suppose there was a near-complete economic collapse in the developed world that meant widespread bankruptcies and governments defaulting on their obligations. I see this as improbable but eminently possible some time over the next thirty years. We would then have to rebuild our fiscal, monetary and welfare systems from scratch. This could give us a chance to think from first principles about how we want to organise our affairs. What emerged might possibly be something like a social credit system where every citizen received, as of right, an income just big enough to survive on, or perhaps slightly less. Suppose also that only part of the potential labour force was required to provide food and other essential goods and services and that limited supplies of energy and raw materials were available to allow some non-essential goods and services to be provided. There would be no need for a minimum wage because the social credit payment would cover basic living costs. Wages for the easiest or most popular and agreeable work might be close to zero. Given a well-managed money supply, other wages would find their level according to the demand for the work and the supply of willing workers.

This is how I am currently thinking about the conundrum of welfare though I'm not yet convinced that I have a workable answer. Social credit means a very radical restructuring of how we organise our financial affairs, including how money is created and the money supply managed. I think some form of financial (but not necessarily human) catastrophe would be needed to cut through the Gordian knot of sovereign debt, pension commitments, going rates of pay and expectations that the we can go on living the way we live now.

These are not original ideas of mine and I am currently away from the books where I have read about them. I will try and supply some references in a later post.

Wednesday, May 26, 2010

Long time no post

It's a long time since I posted anything to this blog. Lots has happened since. For as start, I've just about finished converting the winter's harvest of coppiced wood to a couple of piles of logs which should be ready for burning the winter after next.

Apart from doing a spot of paid work (my speciality is financial modelling in Excel, should anyone out there be interested in my services) , my writing effort over the past week has been directed to the FT website, where responses by myself and others to an article by Dick Olver, the Chairman of BAE Systems, have developed into an interesting (and perhaps largely private) triologue.

In the interests of making the triologue less private, here is a link to the article and the ensuing correspondence:-

Friday, February 19, 2010

Support for local currencies?

What follows is something I posted today on the Transition Horsham Forum.

I often get the feeling that mainstream economists are living on a different planet from the ecologically-aware thinkers who inspire the Transition Movement. However, occasionally one sees signs of convergence and there is one, very faint sign in today's FT.

I reckon that Sam Brittan is about our most respected economics columnist. His column today is entitled Greek light on an over hasty project. It is about the way the financial crisis in Greece (too much debt) suggests that the euro was launched prematurely - perhaps 20 or 30 years ahead of its time. Now Greece's participation in the euro is restricting its ability to find a way out of the financial mess that it's in. Italy, Portugal and Spain have similar difficulties and if Greece fails to find a way out of its difficulties, there could be a domino effect that forces a messy demise of the euro and a return to national currencies.

When a country with its own national currency finds itself with too much debt, it has a couple of safety valves. It can print money and so inflate some of the debt away. It can also devalue its currency and so make its exports cheaper and its imports more expensive - so stimulating local production. With a common currency like the euro, it can't do this. In order to remain creditworthy it has to go for more painful and politically difficult measures, such as increased taxes and major cuts in public expenditure - measures which could simply lead to an uncontrolled spiral of economic decline leading to social breakdown. This is the prospect that Greece faces.

At the end of the article Brittan writes:-

Countries in the Middle Ages often operated with two or more currencies: an international one such as the ducat or florin, and local currencies with more restricted use. Could not such a local currency, whether or not called the drachma, emerge in this way with or without the sanction of the Greek government? It would surely be better than being crucified by the international financiers.

This, of course, is an idea that Transitioners in Totnes, Lewes and Brixton have already put into practice, except that they are operating on a more local level than a country the size of Greece. Moreover, the local currencies launched by Transitioners are aimed at making local economies more self-contained - in effect, de-globalising. De-globalisation is not yet a project dear to the hearts of mainstream economists, who have yet to grasp that resilience is at least as important as efficiency. Nevertheless, it is good to see even faint signs that others will eventually follow where Transitioners lead.

Saturday, January 30, 2010

Moral obligations

One of the difficult issues for small-time campaigners such as myself is how to deal with the moral issues involved with climate change. There are two big issues here: firstly what is moral or immoral in how we deal with climate change; secondly when and whether it is wise or productive to draw attention to the moral issues. This second issue is particularly tricky. The literature on the psychology of dealing with climate change suggests that we will not get very far by stressing to people a moral obligation to make the necessary sacrifices. Guilt is not a great motivator. Although I see enormous moral issues around climate change, the literature suggests that, to be an effective campaigner, I should keep thoughts about them to myself. However, I'm not going to.

Briefly, as suggested in my recent post about aviation, I think we have a moral obligation to seize what opportunities we reasonably can to reduce our greenhouse gas emissions and so reduce the risk that global warming renders the lives of our great-grandchildren nasty, brutish and short. That raises some awkward questions, such as what is a moral obligation and how do we strike an equitable balance between our own interests and those of future generations.

I am ill-read on the subject of morality so my comments from now on will no doubt seem naive or banal to anyone who has studied moral philosophy. I don't believe in a concept of absolute right and wrong. On the other hand, if we can agree on a few axioms, then we can have a rational discussion on what is moral or immoral. A typical axiom might be that if we treat other people the way we would wish to be treated ourselves, we are acting morally. However, I prefer to fall back on the idea of "moral sentiment". Most of us have some sense of what we regard as moral or immoral and we can at least share with others what that sensibility suggests.

When I look at the way so many people carry on as though global warming was not an issue, I am tempted to condemn them as immoral. Some people attempt to rationalise their unconcern. There seem to be many non-scientists prepared to take sides in a scientific argument and claim that the mainstream science on climate change is wrong. The argument will sometimes rely on a conspiracy theory - such as that the message on global warming is merely an excuse to raise more tax. This approach ignores the risk, which must be virtually undeniable, that the mainstream science may be right. Therefore I see no scope for an intelligent, moral non-scientist to take this line, though a ignoramus, with insufficient intelligence to recognise the limits of his or her understanding, might do so and escape the charge of immorality on the grounds of diminished responsibility.

Others are silent on the science but claim that there's no point in trying to do anything about it because any efforts we make will be swamped by growing emissions in China. Hence, the argument goes, we shouldn't feel obliged to make any sacrifices ourselves until the Chinese show some willingness to do so also.

Some attempt no rationalisation but quietly carry on as normal, while perhaps regarding as eccentric any serious attempts by other people to reduce their carbon footprint. Yet others appear almost to take pride in their immorality and laugh off their unconcern.

I have reached a number of tentative conclusions. Firstly, though most of us are endowed with some moral sentiments, those sentiments vary greatly from person to person and often have to compete with other sentiments - such as the urge for oneself or one's country to be a winner rather than a loser, or to be "cool" rather than a nerd or a prig (I'm probably both). Being moral isn't a short-cut to being popular - the amiable rogue is often a more attractive character than the obviously moral person. I'm reminded of Alan Clark, whose diaries I am enjoying reading at the moment. He writes for Boxing Day 1994: "We went to midnight carol service... it was pleasing. All the good tunes, and perfectly sensible message of reassurance about the resurrection .... and not one mention, from start to finish, of the Third World or the need to 'combat' racism or homelessness or poverty or any of that [expletive deleted]."

Secondly, what seems moral can be very much conditioned by what is normal - and I am reminded that the Latin word "mores" means "customs" rather than "ethics". In other words, if people behave as we expect most people to behave, we accept their behaviour as moral, or at least not immoral. The threat posed by global warming is unlike any other threat we have faced. For most adults living in countries like the UK, global warming is a threat to others - future generations and people living in vulnerable locations - not to themselves. The notion that we may need to make sacrifices for the benefit of future generations is novel - and so falls outside any ready-made framework of accepted morality.

Thirdly, there is in any case no general consciousness of a need to make sacrifices. The prevailing idea is almost the reverse - that by promoting economic growth, from which we ourselves will benefit, we will also be raising the living standards of future generations. There seems to be a general notion that economic progress, like time, is essentially one-way and unconstrained by any limits posed by our finite planet. Current concerns are about recovery from what is expected to be a temporary economic setback. Ideas of future belt-tightening are more about the need to reduce public sector debt than about the threat of global warming. There is virtually no message from the political sphere that people should be considering serious sacrifices because of global warming. Advice to the public is only about near-painless measures, such as switching to energy-saving light bulbs and not leaving televisions on standby. Government policy still seems geared to enabling rather than resisting the growth in aviation. With this general climate of discourse, combating global warming probably doesn't emerge for most people as a moral issue.

Given that general climate, it's difficult to condemn as immoral the mass of people who are quietly carrying on as normal and doing virtually nothing to reduce their carbon footprint. I do, however, tend to condemn the politicians and journalists who are creating that climate.

Fourthly, there is a rational case for not making sacrifices. Conventional economic theory from the time of Adam Smith has emphasised that by acting in our own best interests, we are generally doing the right thing for others. Except in time of major war (not Iraq or Afghanistan), we are not normally called on to make big voluntary sacrifices for the general good. We generally expect people to act in their own best interests. If people are generally conditioned by conventional economic theory, we shouldn't naturally expect other people to make sacrifices to combat global warming. The Indians and Chinese often confirm to us our expectation that they will not, in the short term, sacrifice economic growth in the interests of combating global warming, while hopes of serious engagement by the US Congress seem to be fading. Hence there is a rational expectation that sacrifices by people in the UK will be rendered futile by failures to make sacrifices elsewhere in the world. Can we condemn as immoral a failure by some people to make sacrifices that can reasonably be expected to be futile?

I have three answers to this fourth concern. My first answer is that the expectation could well be proved wrong. Just as there is no certainty about how devastating global warming is likely to be, there is no certainty that sacrifices we make will be futile. Furthermore, by not making the sacrifices ourselves, we will be helping to ensure that sacrifices will not be made by others. It is potentially a self-fulfilling expectation.

My second answer is that if a number of medium-sized developed countries like the UK make major cuts in their emissions, this alone will reduce the probability of catastrophic global warming and will not be a futile sacrifice. Individually, countries like the UK look almost insignificant in their contribution to global warming, but collectively they are significant. Hence, if there is a reasonable probability that China, India and the USA will at some future point start cutting their emissions, then it makes sense, in the interests of reducing the risk of catastrophe, for blocs such as the European Union to forge ahead and cut their emissions unilaterally.

My third answer is about "fair shares". To get to the point at which we are not adding to the threat of runaway global warming, we need to reduce emissions worldwide to something in the order of one tonne of CO2 per person. In the UK, even by conventional measures, we were on something like 9.4 tonnes per person in 2006 whereas the Chinese were on 4.6 tonnes. It seems natural that the Chinese would look to us to make sacrifices first. This is even before we recognise that the problem of global warming arises mainly because of the accumulation of past emissions, from which it is mainly we, rather than the Chinese, who have benefited economically.

To sum up so far, in my view an intelligent, well-informed person in a developed country has a moral obligation to make some effort to reduce his or her carbon footprint. That leaves a big question: how much effort is required to cross the line between immorality and morality? The answer is that there's no line. The more effort we make, the more moral we can claim to be and that's all we can say.

Personally I have got through the last few years (since 2006) without flying. However, it was exceptionally easy for me to give up flying. I don't have close relatives living on other continents and my flat is half an hour's tube or bus travel from the main Eurostar terminal at St Pancras. I enjoy rail travel and giving up flying was a small sacrifice for me. It would be a bigger sacrifice for most other people. Hence I'm circumspect about condemning other people for the occasional flight but when I hear of people flying off from the UK for a weekend shopping trip to New York or for a week's holiday in Thailand my blood pressure does tend to rise.

Getting rid of my car (ten years ago) wasn't an enormous sacrifice either. I'm a few minutes' walk from two Tube stations and lots of useful bus services and about fifteen minutes' walk from two main-line stations. My car used to stand outside my flat for three weeks at a time without being used and it was something of a relief when I got rid of it.

In my flat, my energy consumption is about a third of the national average per person - but I have neighbours above and below me helping to keep me warm.

Generally speaking, I agree that preaching about the morality or otherwise of different people's carbon footprints isn't going to be productive. But the moral dimension of the global warming issue is hugely significant all the same.

Friday, January 29, 2010


Back in December a report entitled Meeting the UK aviation target – options for reducing emissions to 2050 was published by the Committee on Climate Change (CCC) to suggest that UK demand for flights could increase by 60% by 2050 and stay within the Government's emissions target of no increase above 2005 level.

This is at odds with what I have been saying about the need to reduce rather than increase flying. How come I seem to be at odds with the CCC?

Firstly, the report was commissioned to report on the feasibility of containing aviation emissions in 2050 to 2005 levels. The thinking is that if the target of total UK emissions cuts of 80% is to be met, no cuts in aviation emissions are required if non-aviation emissions are cut by a correspondingly larger amount - say by 85%. I don't find this argument very persuasive. Suppose that by 2040 we have achieved an 80% reduction in non-aviation emissions. By then we will have found all the easy ways to cut emissions. What will remain will be the most difficult. Between 2040 and 2050 we will have to cut emissions by 25%.

To my knowledge, there is no official strategy for how the UK will achieve the emissions cuts beyond what we achieve by 2020. My gut feeling is that getting non-aviation emissions down beyond 80% will involve some fairly serious sacrifices in living standards and I wonder what sort of sacrifices people will be willing to make in order to be able to fly thousands of miles for their holidays. In any case, my 85% figure may be conservative. It is predicated on a 6% figure as international aviation's share of UK emissions. However, the 6% figure is for departures from UK airports, not for UK residents departing and arriving. Because more UK residents than foreigners fly to and from British airports, UK residents' emissions from international aviation would be higher - the CCC estimates 7-8%.

Secondly, the target for containing emissions is for 2050. Hitting our 2050 targets is important but more important is the the quantity of greenhouse gases we emit between now and 2050. The sooner we can reduce our emissions, the better chance we stand of avoiding catastrophic climate change. It will take time to decarbonise the basics of life - keeping ourselves fed, warm and clean and travelling to work. By contrast, cutting down on flying is something we can do immediately. Most flying is discretionary in the sense that we don't need to do it in order to carry on our normal daily lives. We can take holidays in Europe rather than in Florida or Thailand and we can travel by train to most places in Europe. Flights obviously vary in importance to the flyer but I have a strong feeling that a great deal of flying could be eliminated for a very small sacrifice in human happiness. The existence of a government target for 2050 that can be met with some increase in flying does not, in my view, relieve us of the moral obligation to sieze what opportunities we can to reduce our flying and hence reduce the risk of climate catastrophe.

Thirdly, the CCC left out any factor for the increased global warming potential of greenhouse gases emitted at high altitude. Its terms of reference were to report on the feasibility of the emissions target itself, not on its global warming effect. However, the report flags up a need to take into account the full effect of aviation on global warming in future targets. This suggests that the overall message from the report would have been very different if the terms of reference had referred to the total global warming effect rather than simply the emissions. In 2005, international aviation might have accounted for between 12% and 16% of the UK's total impact on global warming.

Overall, this report doesn't change anything for me. A cursory glance at the report may suggest that it's OK for us in the UK to increase our flying by 60% but that's not how I see it. Cutting down on flying is an opportunity to reduce the risk of future catastrophe and we have a moral obligation to seize it.


For simplicity's sake, I ignored the fact that the target for UK emissions reductions is from the 1990 figure, not 2005. On the basis of Kyoto methodology, which excludes international aviation, the UK had already achieved a 16% reduction by 2005. The relevant figures are as follows:-

Total UK greenhouse gas emissions, million tonnes CO2 equivalent:
1990: 773.0
2005: 652.8

Source: downloaded 13.1.2010. Click on "Annex A" on page 1 to download the relevant statistics as a spreadsheet.

These figures are as defined for the purposes of the Kyoto Protocol and include emissions from domestic but not from international aviation. According to the Government:-

"In 2005 aviation represented 6.3 per cent. of UK emissions, calculated as a proportion of emissions in the UK inventory plus emissions from international aviation and shipping departing the UK....

"As the 'Future of Air Transport Progress Report' (December 2006) noted, aviation emissions arising from the combustion of kerosene include carbon dioxide, water vapour, nitric oxide and nitrogen dioxide, particulates and other compounds. These give rise to “radiative forcing” impacts. The total radiative impacts were estimated by the EC TRADEOFF project to be approximately twice those of carbon dioxide (excluding cirrus cloud formation).

"Using a radiative forcing multiplier of two, emissions from flights departing the UK contributed approximately 13 per cent. of total UK emissions in 2005. However, the figures for non-aviation sources do not include any radiative forcing attributable to them, as conclusive figures are not available."


According to the CCC report (Box 1.3 p39), domestic aviation accounts for about 0.3% of UK emissions - hence the figure I have used of 6%, which 6.3% for total aviation quoted in the Parliamentary answer above, less 0.3% for domestic avaiation in the CCC report.

Unfortunately I have so far been unable to find a suitable figure for aviation emissions in 1990. Without that figure it is difficult to provide more than a highly simplified analysis. It is common knowledge that UK aviation has grown substantially since 1990 and hence, once we have taken aviation into account, total reductions in ghg emissions between 1990 and 2005 will be less than the 16% I have quoted above.

Also, the Kyoto methodology ascribes emissions according to where they are produced. It is common knowledge that between 1990 and 2005, a great deal of UK manufacturing production was, in effect, "outsourced" to developing countries, particularly China. Hence if we calculated emissions on the basis of consumption by UK residents, we might see no reduction at all, and possibly an increase, between 1990 and 2005.

A similar consideration applies to international aviation. Flights originating in the UK can be considered part of UK "production". Flights by UK residents can be considered "consumption". The report suggests a figure of 7-8% (Box 1.3 p39) as a figure for emissions from flights by UK residents.

Perhaps it is now obvious why I have had to confine myself to simplified, indicative figures.

Thursday, January 28, 2010

The Impossible Hamster

I recently put a long post on the Transition Horsham Forum .

My post continued a discussion about a bit of YouTube video posted by nef (the New Economics Foundation). It's about a hamster that carries on growing at its early growth rate until it's one year old and reaches a weight of nine billion tonnes.

Here is my bit (very slightly improved):-

Andrew Simms, the author of the hamster, is a genius at explaining things graphically. For a fuller explanation of why economic growth eventually won't be possible see this very recent nef publication entitled Growth isn't possible by Andrew Simms, Victoria Johnson and Peter Chowla.

The logic seems impeccable. The big question in my mind is: for how much longer can growth continue? Technically, I think the answer is for quite a few more years, particularly in the developing world. For a while, more and more subsistence farmers will be entering the money economy and so contributing to the figures on GDP. This may not mean an increase in real wealth - if a subsistence farmer becomes a farm labourer and starts getting paid and buying his food instead of eating what he grows, he may be no more productive but he will increase GDP.

In the developed world, an increasing price of oil and other resources will tend to depress economic growth. However, for a while, we may invest heavily in renewable energy and this investment and the jobs it creates may more than offset the reduction in GDP that flows from worsening shortages of raw materials. If investment becomes a major driver of the economy at the expense of consumption, this could mean that GDP goes up while material living standards for households go down. We may see falling material living standards before we see falling GDP. This is one example of how GDP is a poor indicator of human welfare, a point forcefully made in the nef publication.

At the same time, rising oil prices will steer us away from resource-crunching consumption. We may fly off on holidays less and use the money we save to go to the theatre more. Then we'll see fewer people employed as EasyJet cabin crew and more as actors and stage hands. This change in the way we spend our money could help keep GDP up for a while.

Thirdly, technical progress may allow us for a while to get more value for less energy. The nef publication is particularly informative on this, drawing attention to the practical ways in which the Second Law of Thermodynamics sets limits to what can be achieved by technical progress.

Setting out the principles is much easier than making reliable estimates of what will happen and when. I accept that economic growth can't continue indefinitely - unless we are prepared to start paying each other handsomely for services that don't involve using much external energy - reading poetry to each other, teaching each other maths or philosophy?. However, if you were to ask me when it is likely that economic growth will come to an end because we have reached the physical limits of what earth's resources can support, I would have to say that I haven't a clue whether it's in five years, ten years, twenty years or fifty years. I don't suppose I'll ever answer that question to my own satisfaction, but I can recommend the nef publication for the very useful pointers it gives.

Lastly, the issue of whether and how long economic growth can continue is only important because lots of people think it is and public policy is structured round that view. Ask yer average politician and he (the average politician is more male than female) will say that we need growth to keep jobs and to pay for public services and pensions. In the developed world, I think we could sacrifice a huge amount of GDP without an overall sacrifice of human welfare - but it would have to be a well-managed descent. While others fret about how to keep economic growth going as long as possible, some of us are thinking about how we can manage our ultimately inevitable economic retreat - avoiding chaos, mass unemployment and a collapse in public services and trying to create an enhanced quality of life in spite of (and partly because of) falling material living standards. The Transition Movement has a big part to play in all that.