Timmy doesn’t like wind turbines, or, indeed, anything of the other solutions to climate change which are subsidised. This is fair enough; it’s entirely coherent for any classical liberal to dislike any prospect of rent-seeking that appears to impose costs on the rest of society. In a post on Forbes yesterday, he endorsed a letter from an engineering professor to the Telegraph which criticises ‘premature’ technology deployment – i.e. the deployment of technology before it reaches a level at which it can compete successfully with established tech.

Solar panels, he points out, are frequently described by their advocates as likely to be cost-competitive with coal plant in at most ten years’ time. If this is the case, he argues, then why do we need to spend money subsidising their production? Surely we could just wait ten years and reap all the benefits of clean energy without having to shell out millions of pounds of bill-payers’ money? In fact:

“Another way of making the same point is that instead of deploying subsidy requiring energy production systems now we should be, assuming we are going to do anything about climate change, be putting those resources into the R&D of renewable systems so as to get them to economic efficiency that much the faster.”

On the same day as this post went up, Timmy put the following up on a post about the NHS:

“For there’s something we learned in the short 20 th century, that period betweem 1917 and 1991. Market based systems improve total factor productivity better than centrally planned systems.”

Put simply, markets are the best tool we have for procuring something that we want more cheaply. If we want good quality healthcare that’s free at the point of use, then the cheapest way of ensuring that is by permitting competition within the NHS. If we want cheaper wind turbines and solar panels, we need a market. We need a bunch of people who want to buy these things, and people who compete to sell them to them.

I feel confident enough in this to make the following prediction: solar panels will be cheaper in ten years’ time if we fund a market in them than if we spend the same money throwing boffins at the problem. This is because the market will pay people to spend money on boffins too, boffins with stronger incentives to make the solar panels better.

Now, you can argue whether the current market we have in green energy is the correct shape to properly incentivise  increasing productivity. What you can’t do is say that we should have a thing and then say that the best way to get that thing is to fund experts to think really hard about the problem, and then say the exact opposite about another thing. I’m quite frankly shocked that Timmy has decided to eschew his own economic knowledge for that of engineer on this point.

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George Monbiot is continuing to provide a source of disappointment for me personally. Given that I’ve based significant chunks of my opinions on decarbonising the economy on his book Heat, the mistakes made in his current attempt to bring the entire economy under his analysis are somewhat dispiriting.

Another example is out today. George is – in an entirely laudable fashion – pointing out to the people marching with the TUC that they should probably be in favour of something too rather than simply against anything they don’t like. Hilariously, he’s already got some blowback from comedy leftie Cath Elliot, whose main purpose in life appears to be to fulfil every Daily Mail stereotype of a slightly ridiculous uber-feminist. She – without realising it – has demonstrated to George why his endeavour cannot possibly succeed, as the people he’s talking to want to be against specific bad things without ever having to make hard choices about how they work. This is a genuine quote from the piece:

“I’m marching because I support nurses, teachers, care assistants, Sure Start centres and libraries. For the voluntary and community sector, for hospitals, midwives and schools. I’m marching because I believe that the state has a responsibility to take care of all of its citizens – not just those who can afford to pay but everyone, no matter who they are or what they’ve done. I’m marching because I’m for universal benefits from the cradle to the grave, and because I believe that disabled people, the young and the elderly have just as much right as everyone else to live lives free from poverty and stigma.”

I’m sure Cath believed this sounded ever-so-inspiring when she wrote it. However – and quite typically – it glosses over any possible distinction between types of provisions of services. There’s actually nothing in there that Cameron or Clegg would disagree with, it’s that vague.

This unthinking emotive response to policy is what George is up against in trying to persuade the ‘radical left’ in having some concrete policies they could fight for. Tim Worstall has already done an evisceration from the classical liberal perspective, but there’s one thing I’d like to pick up on. It’s this bit:

“…with a commensurate reduction in the income tax and national insurance paid by people with low earnings.”

Tim notes with glee that George is endorsing a policy of the Adam Smith Institute and UKIP, all haters of the notion that the State should compel you to take out insurance. NI, as originally conceived, is the contribution you make towards any benefits you might require from the state – Jobseekers’ Allowance, the state pension, Bereavement Allowance and so on. It also partly funds the NHS. Although it’s drifted away from its original intention, it still represents an important – and liberal – principle – that everyone should pay to look after themselves.

It’s a fund to which everyone contributes and to which everyone is entitled as a consequence. The private alternative – unemployment insurance – would be unaffordable to the least well off, as their premiums would constitute a significant fraction of their income. However, an insurance model based on universal contributions ensures that an affordable safety net exists for everyone, regardless of income.

George wants to turn this into a de facto redistributive tax, which will only serve to decrease support for the principle of universal contribution to a hedge against universal risk. It’ll send a message to those who aren’t the worst off, but are getting there, of ‘Don’t worry about looking after yourself – there are people better placed than you to decide how you should be looked after’. I’d argue, by contrast, that National Insurance should be extended to a greater fraction of PAYE contributions and be used as a true universal form of health insurance. Labelling it ‘regressive’ is to miss the point – insurance is something you do because you need to guard against risk, and if working with other people can reduce your costs in this regard, then it’s a great thing for everyone. The only thing I’d add in this regard is the provision of different packages of benefits – the ones listed above may not be appropriate for you, as you may get more value out of a system of vouchers. You should have the option to hedge against differing types of circumstance, rather than having those circumstances mandated from on high. This may involve some kind of private provision, but as long as the risk remains distributed across the population, shielding high-risk groups from excessive premiums, that’s no bad thing.

The Universal Fallacy

October 5, 2010

I honestly don’t understand the argument being put forward in Labour circles that the curtailment of child benefit at the upper tax band will cause the welfare state itself to fall into disregard amongst the middle classes. It’s not a universal benefit. You only get it if you have kids. In the same way, you only get Jobseekers’ Allowance if you’re out of work. The distinction is between universal (everyone gets it regardless of circumstance) and conditional (you only get a benefit if you meet certain conditions).

What’s important is the principle that the welfare state is always there to provide a safety net if things go wrong. Child benefit will continue to be paid if you earn below a certain amount, in recognition of the fact that children are costly*. The state should be able to make that economic judgement. What it shouldn’t do – as Polly Toynbee claimed it should do on Newsnight last night – is say that having children is something that is valued. That’s up to the individual, not the state or society.

In general, for those benefits like income support and NHS prescriptions which do have an income-based element public support remains strong. No-one in contemporary British politics wants to scrap the welfare state entirely. What they do want to do – and which I would applaud – is to make sure we can afford it not just for the present generation, but forever.

*The way in which this has been implemented – which uses individual rather than household incomes – is stupid, I agree.

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