The Paradox of Walden

July 17, 2012

Yesterday, watching Paul Kingsnorth and Tim Worstall spar on Twitter over the price of milk, I was struck by two notions. Firstly, it’s fun to watch people who are wrong for different reasons argue. Secondly, the reasons for their disagreement are so fundamental that such a debate is pointless; there’s insufficient common ground for any kind of resolution to be reached.

Tim is a neoliberal, while Paul fancies himself as some kind of neo-Thoreau. Tim describes neoliberalism using the following:

“[Neoliberalism] does rather assume that individuals maximise, to the best of their ability and knowledge, their utility. But as any fule kno, utility and profit are not the same thing. Utility leaves room for feeling better about contributing to the care of others for example, something that profit doesn’t.”

This is actually an astonishingly weak claim; all it’s saying is that individuals aim to achieve their goals, whatever they may be, and however short-term they are. I can maximise my utility by buying either a full-fat meaty burrito this lunchtime, or a healthy snack consisting entirely of fruit, depending on my preferences and objectives. As such, it’s so tautological as to be almost entirely uninteresting: claiming that ‘people aim to achieve their aims’ is not going to set the intellectual world on fire.

The interesting claim is the second half of neoliberalism: ‘and markets are frequently the best way of enabling people to maximise their utility’. Tim might contrast this with an alternative, which is getting the Government to decide how best you maximise your utility. Certainly, it seems clear that you have a better understanding of your preferences than a far away civil servant in Whitehall, and that being able to decide which product or service that will be better at meeting your needs can be a preference in itself.

However, there is a problem with this approach, and it relates to the idea of untradeable goods. In deference to Paul’s position, let us consider this in the context of Thoreau’s Walden, accounted one of the greatest American novels and a forbear of modern environmentalism. Walden is a pond near Concord in Massachusetts by which Thoreau spent two years of his life in an effort to develop his understanding, intellect and spirituality through the tenets of the contemporary philosophy of transcendentalism.

Transcendentalism holds that society and its institutions corrupts the purity of Man, and that a true community can only be derived from self-reliant and independent individuals. In Walden, Thoreau goes a little beyond this to discuss the role of nature and wilderness in the introspection necessary to cultivate the spiritually self-reliant individual.

The self-reliant man creates the goods he needs to maximise his utility himself, and his utility is maximised because he created them himself. The utility provided by these goods is therefore not wholly intrinsic, but rather their extrinsic quality of being untraded.

It is this value – that a good being untraded provides maximum utility – that presents a problem for neoliberalism. If a good has utility because it is untraded, then this form of utility cannot be maximised by a preference expressed in a market. Thoreau expresses the price of the components of his hut at Walden in dollars, in order to demonstrate how cheaply it is possible to live a fulfilling life, but the actual cost of the hut should include the labour he spent creating it. If Thoreau were to buy such a hut on the open market, it would have a value, but because the utility of the hut to Thoreau is given by it being his own creation, the two are incommensurable. The paradox is that the market value of the hut is simultaneously zero and infinite: zero, because it is not offered for sale, and infinite, because no amount of money would persuade Thoreau to part with it.

This value presents a problem to neoliberalism because any dispute over a good to which some ascribe utility as a result of its non-traded status must necessarily be solved by politics. That is to say, when some members of a society ascribe value to a good as a result of it not participating in a market, the resolution of a dispute over its use can only be carried out within an agreed political framework, as the alternative is violence. If trade or negotiation is impossible, then the only way of resolving a problem is through force, whether in person or via the Government. Therefore, the Government must have a role to play in determining how we maximise our utility if such disputes cannot be resolved within a community. Moreover, if you ascribe value on the basis of goods being non-traded, it is preferable to have Government resolve disputes than leave it to the market.

It is worth noting that the wisdom of ascribing value as a result of a good’s non-traded status is not considered, I merely observe than there are people who do so. Paul’s attribution of non-tradeable extrinsic value to small-scale ‘uneconomic’ dairy farmers is something about which Tim will never be able to persuade him. I therefore suggest that both gentlemen resolve this issue in an appropriate fashion, with duelling pistols at dawn.

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.

Tim Worstall is simultaneously wrong and right:

“We don’t actually give a shit about which technology provides us with low carbon power. We care only that we get low carbon power. So, of course, incentives and subsidies should be simple and unique. One system for all.Onshore wind should get the same deal as offshore wind, as solar PV, as tidal, as wave, as nuclear, as hydro. For what we actually want to have is that low carbon power in the most efficient manner possible. So set that one incentive and may the best system win.”

He’s absolutely right that we should aim to ensure that every single type of power generation gets the same deal for its power, to ensure that we move towards a low-carbon grid at the lowest cost possible. Unfortunately, the Government’s reforms to the energy market probably won’t achieve that. It’s because the electricity market is hellishly complicated, because balancing the electricity supply is hellishly complicated.

Let me give a (very) brief overview of how it works. The National Grid, every half hour, announces how much electricity it thinks it’s going to need in half an hour’s time. Generators then bid a certain price to supply that power, and NG picks the cheapest ones (not always, because of something called the merit order, but generally). They agree a contract that says in half an hour’s time they’ll supply that amount of power. This happens 48 times a day, every day. In the event that National Grid gets it wrong, it either has to pay generators a premium to produce less or to produce more. Somehow, this all works, and our lights stay on – we’ve never had a total grid failure since the National Grid was set up, although NG engineers are still required to train for what to do in the event of a wonderfully dramatically named Black Start.

Demand varies throughout the day, by around 20GW, or around twenty Sizewell B-sized nukes. Obviously, when demand is higher, the price that generators can bid with is higher. And herein lies the problem with the Government’s preferred option for supporting low-carbon energy.

It’s based on something called ‘Contracts for Difference’. Basically, a low-carbon generator agrees a long-term contract with the Government to supply a certain amount of energy over a given period, say, a year. They’ll still sell their electricity on the wholesale market as above, but they’ll have it ‘topped up’ to an agreed level if it goes below a certain rate. It effectively sets a guaranteed price floor for low-carbon generation.

This is great for nuclear, because nuclear is always on. At night, when demand and prices are low, their generation is topped up. During the day when prices are high, they can extract a premium. However, it could very easily bone variable renewables, like wind, because they have no control over when they produce electricity and could find that the majority of their income comes at night, on the lower rate. This privileges nuclear even if wind is cheaper at the point of production.

Now, Tim might want to come back and say that’s great, because it’s a clear incentive for nuclear plants to produce more during the day, getting us our low carbon electricity more cheaply. The problem is that nuclear is incapable of responding to that market signal – you can’t ramp nuclear up and down with incurring significant expense, which to make economic would require another incentive payment for flexible response. The Government is also considering something called ‘capacity payments’ which are broadly payments intended to deliver that sort of flexible response services, but they’ll be pitched at a price which would only be worthwhile for gas, rather than nukes. It’s an example of a Government intervention in a market which requires further Government intervention in the market after they cock up the first intervention, and this is what Tim Yeo is getting at.

If you want low-carbon electricity, then you can pay a premium for it or tax carbon-intensive generation more heavily. The Government is doing both, but cocking up the former.

The Schismatic ‘We’

March 18, 2011

Consider the following two sentences:

“First, the tax that is avoided through loopholes in tax law, could be collected. This, quite extraordinarily, is the easiest solution to the problem we face.”

“The corporation tax burden is borne by workers and owners. We should tax those owners in a consistent way and not in an arbitrary way.”

The first is from a report called ‘The Great Tax Parachute’ by the Green New Deal Group of prominent lefties, while the second is from a report called ‘UK Uncut Unravelled’ by notorious rightey Tim Worstall. What I want to highlight in this post is the way in which both sentences apparently use ‘we’ in exactly the same way while coming to very different conclusions.

To begin the discussion, let me tell you a little story. Once upon a time I went for a job with a prominent charity, which shall remain nameless. I was asked the question – the quite notorious interview question – ‘What does teamwork mean to you?’ I responded, ‘Teamwork to me means ensuring that everyone’s role on the team is well understood, and ensuring that everyone has a part to play in achieving our shared objectives.’

I didn’t get the job. I called up for feedback, and was told, ‘We felt that you weren’t a team player. You should’ve put greater emphasis on helping out your colleagues when they needed support.’

I was somewhat flabbergasted. For me, working as a team meant working with people towards a shared goal, rather than providing mutual support. I assumed that my colleagues would be competent enough at what they did to not require any support from myself. Later, as I moved between organisations and started working in teams that did in fact consist of highly competent people, I understood that teamwork required mutual support – but not because of someone elses’ weakness, but because in practical terms some priorities will require more hands than others at different times, and everyone on a team has to be ready to pitch in.

This sort of distinction – between unconditional support and support founded upon a recognition of the competence of others – is what I’d like to highlight. In both of the sentences above, the word ‘we’ is used to refer to society, and the recommendations made are made in the understanding that they will be taken as recommendations for how we move society forward. They both implicitly assume that the reader is engaged with society; that they do not stand outside it, looking in at an internal struggle. They assume that society refers to the social and legal structures that comprise the United Kingdom. Even with this apparently identical use of ‘we’, they come to opposing conclusions.

Why should this be the case? Surely, given that both sides possess the same understanding of society, they should move towards the same conclusions? After all, UK Uncut is not claiming that the likes of Vodafone are outwith society; quite the opposite, that they are within society and are not paying their dues to it. What’s implied with this division of ‘we’ is a division in their conceptions of the individuals who comprise that society.

The following sentence:

“We’re all in this together.”

has come into common use, especially in relation to the cuts. The differing ways in which it is used are telling, because it’s impossible for the ‘we’ in that sentence to be ambivalent in the  same way as those in the sentences above. Its rejection by some points to it referring to a conception of individuals within society which is unacceptable. What is that conception?

It seems clear that, to those who reject the sentence, individuals within a society are not simply autonomous; rather they have a duty to support others within that society as a condition of membership. It is that failure to provide support that leads to the moral rejection of the actions of Vodafone; their actions have sent them on a path to their ejection from society, and it is in this sense that the UKUncut protests are understood by their activists. They are protesting a social transgression, rather than an illegality. However, social transgressions and illegality are easily conflated, which is why the protests have used language indicative of illegality when referring to Vodafone. In doing so, they have run into conflict with people who hold a quite different conception of individuals within a society.

As discussed above, I have always conceived my colleagues as autonomous individuals responsible for their own wellbeing and for their own area of work. I recognise competence rather than fulfilment of duty. In this sense, I am a member of a society composed of individuals whose responsibility is to their work, rather than to each other. To me, ‘We’re all in this together’ means that all our work will be impacted – bankers will be fined, less efficient staff will be fired, and less important projects will be cut. In this sense, an individual transgresses against society if they fail to work while being able to do so and so require others to provide for them; this is the area in which duty is applied. Other matters are handled via the legal system; via the series of social conventions around democracy and debate that go towards determining the formal rules of society.

It is therefore clear that under the latter sense of ‘we’, tax avoidance is largely irrelevant in terms of duty; there is no shirking of work involved. However, under the former there is a question of duty – duty to contribute to society beyond productive work. This distinction in the uses of ‘we’ is why, when engaging with opponents, it is vital to ensure what they’re actually saying rather than what you think they’re saying. Much as I enjoy Tim Worstall’s blog, his report for the IEA is going to make no difference to those who don’t use ‘we’ like he does. Similarly, the man to which Tim is Nemesis, Richard Murphy, might as well not bother responding to Tim unless he’s going to shift his ‘we’ onto his turf. Until both sides are talking the same language, debate cannot take place.

What do the New Economics Foundation and noted libertarian MP Douglas Carswell have in common?

They both want to end the system of fractional reserve banking we use to ensure there’s enough liquidity in the economy to slosh into any investment opportunities that open up.

“…we simply require that banks keep safe the money which customers wish to keep safe, and invest only the money that customers wish to invest.”

Someone should perhaps tell NEF that they already do that; that’s why safety deposit boxes exist. Of course, you have to pay to use them, but why should someone look after your money for free?

I like Tim Worstall’s blog; partly from a sense of lefty guilt at the dreadful business of taking money from people and calling it ‘taxation’, but mostly because it provides very snappy high-level analysis and is funny while doing it. A case in point is today’s post on the liberal-lefty reaction to people purposefully flouting a phosphate soap ban in Washington state; Tim points out that it had the unintended consequence of people smuggling in phosphate soaps from out of state, with all the environmental impacts inherent therein – more petrol used and so on. Cue lefty outrage at these dreadful people subverting a moral principle.

This makes a post by Charlotte Gore, also today, especially hilarious. She’s taking aim at the sense of entitlement displayed by many lefties and poor people with regard to public services, and arguing that it makes no sense to her that they would think it’s fine to just take other people’s money to service their own lives. But why would a libertarian find it surprising that if you promote selfishness, greed and individualism, people would become more selfish, greedy and individualistic, and care significantly less about the impact of their actions on other people? It’s almost as though moral principles about not harming other people aren’t separate from from moral principles about actively caring for other people, and if you get rid of one you lose the other too. Cue rightey outrage at these dreadful people subverting a moral principle.