Should Lord Stern remember some economics?

After Lord Stern’s comments about becoming a vegatarian to save the plant, I suggested he should be consistent and become a vegan. A post by Martin Livermore on the Adam Smith Insitute blog got me thinking that maybe Lord Stern would be advised to remember some lessons from economics. After all, as an economist, Lord Stern was employed to do a cost benefit analysis of tackling global warming. The report was only able to reach its conclusion that we should do something now by taking an extreme view of future temperature change (thus overstating the benefits of any remedy) and seriously understating the costs. Mostly this was by failing to apply an appropriate rate of discount to future costs and benefits.

Since then Lord Stern has become increasingly alarmist. If instead, he applied some of the tools of his profession he would conclude the following.

 

1. Most of the largest greenhouse gas producers are things that have an inelastic demand – such as petrol and fuel to heat one’s home. Therefore the costs will tend to exceed the benefits.

 

2. There are diminishing returns to emissions reductions. Small decreases can be achieved easily. At home most can save a bit by better insulation in the loft, or by turning town the thermostat by 1 degree. Car fuel consumption can be reduced by driving more economically. Bigger savings are less easy, without fundamental changes in lifestyle, which for the majority would mean a significant drop in living standards. For instance,

- switching from frozen and chilled foods to dried and tinned foods.

- switching foreign holidays to camping in the back garden.

- From travelling by car to work to spending three times as long going by public transport, or catching pneumonia cycling.

 

3. Large government projects tend to overrun on costs, and under-perform on benefits. The bigger and more idealistic the project, the larger the (proportionate) discrepancy between plan and outcome. International projects tend to overrun more than national one, as consensus is only achieved by compromise fudging. For the greatest trans-government project of all time, this risk alone should lead to the complete abandonment.

 

4. Complex models tend to fail most in their forecasting when you need them most. Consensus economic forecasts made in 2006 for 2009 would have predicted growth, not biggest slump since the 1930s. Yet compared to economic, climatology is more complex and still in its infancy as a subject. Further there is no competitive market in forecasting to encourage improvement and revision in the light of new data. In economics reputable  forecasting is a valuable commodity. In Climate Science, one is paid to agree with the consensus.

Should Lord Stern now go Vegan?

According to the Times, Lord Stern has gone Vegetarian in an attempt to save the planet. The simple reason is that methane (which cattle and pigs produce in vast quantities) is 23 times more potent as a greenhouse gas than CO2. We therefore need to cut back drastically on the quantity of cattle. But hold on a minute. We also get milkfrom cows as well. Should we be switching to Soya milk and synthetic cheese? Lord Stern

“predicted that people’s attitudes would evolve until meat eating became unacceptable. “I think it’s important that people think about what they are doing and that includes what they are eating,” he said. “I am 61 now and attitudes towards drinking and driving have changed radically since I was a student. People change their notion of what is responsible. They will increasingly ask about the carbon content of their food.”

So when the eco-fanatics start attacking the meat counter of Tescos and sabotaging the school milk deliveries, we will know who to charge with incitement to commit acts of criminal damage and terrorism. Make a change from them dumping manure and sabotaging tyres ot 4x4s.

Is recycling rotting food hygenic?

My local council now says that I can put waste food in the green recycle bin. Oh lovely! Imagine the green bin after having the remains of a chicken carcass and all the juices after putrifying in the hot summer. Especially with some solidified milk on top. Remember the swill bin at school. Now imagine if were only emptied once a fortnight and you get the idea.

My own view is to continue with what I currently do. Double-bag the solid food and swill the liquid or jellified material down the sink with a good dose of detergent.

I will change if some will volunteer to clean out the green bin occasionally. It needs doing as the grass cuttings in the bottom are well composted. But the flies and stench from the rotting fruit put me off at present.

MCC Waste Food

Nationwide and Halifax house price recovery is fragile

The recovery in house prices reported in the Nationwide and Halifax indices underlies a significant issue – that many existing borrowers would see a much higher rate of interest if they moved mortgages. As an example, my own repayment mortgage is currently 1.9% annual interest rat, or 1.4% above base rate. If I moved house Nationwide’s best deal on a tracker is 2.44% above base rate for 2 years and the reverts to 3.9%. There is also a nearly GBP 900 fee. Halifax are similar- 2.69% above base rate for 2 years, then reverts to 3.5%. A GBP 1200 fee here.

These are the cheapest deals, for a loan less than 60% of the house price and are competitive in a thin market. Halifax reports August 2009 approvals were 51% lower than in August 2007. The Nationwide’s measure of private housing sector turnover rate is now 4% , from a peak of 7% and a low of 3%.

As the driving force for the Housing Market is people upgrading to a better house, there may be a considerable number of people delaying moving house for this very reason. It is better to save for a new house by paying down existing borrowings than move to the more expensive house.

Paradoxically, a rise in base rates may prompt a narrowing of this differential and therefore perk up the housing market. The reason being that the marginal cost of moving will have diminished. However

-  there are other reasons for the low levels of housing activity – uncertainty over jobs and the need to pay off debt.

- a rise in interest rates may tip many existing hard-pressed borrowers towards selling. In particular buy-to-let landlords who have seen rents diminish this year.

Post Briffa Yamal paper collapse, is the 0.5% chance of <2oC C21st a good bet?

One of my favourite blogs is Political Betting, not because I am a punter, but because (principally) Mike Smithson aims to give an assessment of how political opinion is moving ad the events that move it. One of the areas to bet on is spread betting, where (in the UK) the blog comments on bets on the number of seats that will be gained by the political parties in the forthcoming general election.

At Wattsupwiththat.com, it reports on some MIT academics producing a fortune wheel.

It is interesting that these chaps from MIT only see a 1 in 200 chance of temperatures not rising above 2 degrees. It is a shame that the forecast is for so long in the future as (where gambling laws allow) it would seem a pretty good wager.  It may be possible to still create a betting market in this with something known as spread betting – a sort of futures market in the gambling industry. For political elections it develops a valid consensus of people “putting their money where their mouth is.” It turns out to be a more accurate assessment of opinion than opinion polls. If the people from MIT represent to popular consensus, then it may be a chance for the skeptics to make some money. As the forecasts of catastrophe fail to materialize, the skeptics will be able to sell their positions at a healthy profit, at the expense of the consensus,who will lose their shirts. My forecast is that the consensus will suddenly become all moralistic about such an idea. Why? Because they would believe that the betting would be far less alarmist than the supposed consensus. This is particularly relevent since MIT have not taken account of the undermining of Briffa’s paper on tree-rings as proxies for temperatures in the Yamal Penninsula.

For those not following the recent climate change debate, Steve McIntyre at Climate Audit has taken apart another hockey stick (See Here, here, here & Here for Climate Audit, or here & here for a Layman’s summary from Bishop Hill)

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