Trump is wrong on China Global Warming Hoax but right on the policy consequences


  • Donald Trump’s famous tweet that Global Warming is a Chinese Hoax is false, but the policy implications are correct.

  • Total proposed climate policies under the Paris Agreement will not stop global emissions rising, but the policy aim is to have global emissions falling rapidly after 2020.

  • The Rio Declaration 1992 exempted developing countries from a primary obligation to constrain, let alone reduce, emissions. 

  • By 2012 the exempted countries accounted for 64% of global emissions and over 100% of the global emissions growth since 1990.

  • The exempted, countries will collectively have emissions rising for decades to come.

  • The most efficient policy is a carbon tax, applied globally. But even this is highly inefficient, only working by making fossil fuel use unaffordable to all but the very rich. That is morally unacceptable in developed countries, whilst would stop developing countries developing, likely leading to civil wars.

  • Actual climate mitigation policies are less efficient and more costly than a carbon tax.

  • Pursuing mitigation policies in just the developed countries harms the poor disproportionately and harms manufacturing. Such policies may not even reduce global emissions.

  • Even if catastrophic global warming is true, the policy reality is the same as if it were a hoax. In either case they are net harmful to the policy countries.

  • Like with utterly ineffective drugs that harm the patient, the rational response to climate mitigation policies is to ban them.



President-elect Donald Trump infamously claimed on Twitter

The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.

I believe that statement to be totally false. The Chinese had nothing (or essentially nothing) to do with the climate alarmism that the Western intelligentsia (especially in the Anglosphere) seem to religiously accept as a series of a priori truths. But the policy implications of believing such a false position are pretty much the same for a policy-maker that (a) accepts as truth catastrophic global warming hypothesis, (b) puts their country first (but still values highly people in other countries, with an emphasis on the poor and the oppressed) (c) but understands the realities of global policy-making, along with the full economic impact of mitigation policy.

The Realities of Actual Mitigation Policy

The hypothesis is the basic form is that global human greenhouse gas emissions (mostly CO2) are resulting in rising greenhouse gas levels. This is forecast to cause large increases in global average temperatures, which in turn, many believe, will be catastrophic to the climate system. The major policy is to reduce the global greenhouse gas emissions to near zero.
The UNIPCC AR5 Synthesis Report, Summary for Policymakers 2014 tried to the maths very simple. They only looked at CO2 for the ballpark figures. Using the central assumption of a doubling of CO2 gives 3 degrees of warming, then 2 degrees comes when CO2 levels hit 450ppm. At end of 2016 it levels were about 404ppm, and rising at over 2ppm per year. Only is some warming from other greenhouse gases, so we are well beyond the 420ppm. That gives maybe 15 years tops. Somehow though figures seem to have been stretched a bit to give more time, something I will look at in a later post.
The UNFCCC – the body that brings all the countries together to cut emissions to save the planet – had an all-out bash at COP21 Paris in December 2015. In the lead-up all countries (excluding the EU countries, who let the masters in Brussels take the lead) made submissions on how they would contribute towards saving the world, or at least make a start up to 2030. Many were so vague, it was difficult to decipher the “ambition”. This was done to appear like the countries were doing something substantial, when in fact the proposals were often so insubstantial, that targets could be achieved by doing nothing at all. The UNFCCC put all the INDC submissions together on a global emissions graph.

The graph is very simple. Before the INDCs, emissions were forecast to follow the thin dark orange arrow. With the INDCs, the thick light orange forecast is still tracking upwards in 2030. The least-cost 2C scenarios is the blue arrow. This is going down by 2020, and by 2030 is substantially lower than today. The graph gives a very clear message – the whole exercise is pretty much an expensive waste of time. 40,000 people attended the meeting at Le Bourget airport North of Paris, including the vast majority of World Leaders. Rather than be honest, they went through the usual format with a breakthrough at five past midnight. Then they sent the “experts” away to think up yet more scary scenarios to get better proposals in the future.


Little More Policy will be Forthcoming

If they actually read the 1992 Rio Declaration, like Robin Guenier did in October 2015, they would have found out why. In particular Guenier draws attention to this statement in the declaration.

“The extent to which developing country Parties will effectively implement their commitments under the Convention … will take fully into account that economic and social development and poverty eradication are the first and overriding priorities of the developing country Parties.” [My emphasis]

These non-Annex 1 developing countries have had phenomenal economic growth, with driven by rapid development of cheap energy from fossil fuels. Guenier quotes some CO2 emissions figures. Instead, I have used the broader estimates of greenhouse gas emissions from the European Commissions’ EDGAR database, grouping the figures into the Annex I countries (the rich OECD countries, like the USA, Japan, European Union, Canada, Australia etc.); the Annex I Transitional economies (basically the ex-Soviet bloc in Europe); International air and shipping; and the Non-Annex, rest of the world.

The figures are quite clear. The growth in emissions in 22 years was greater in the Non-Annex developing countries than the world as a whole. But this is just the developing countries starting to catch up. The breakdown of the Non-Annex developing county emissions is below.

This “developing” part of the world now has 84% of the global population, but in 2012 was just 64% of the greenhouse gas emissions. India and China each have more than 4 times the population of the USA, Africa 3.5 times and S&E Asia 3 times. Whilst in China emissions growth will peak soon, in India emissions growth is only recently taken off.  In S&E Asia and Africa emissions growth has yet to really take off. No matter what the USA and a few other developed countries do, it will not make a big difference to the long-term outlook for GHG emissions. Now compare the global emissions to the UNFCCC graph of INDCs of the target emissions reductions for 2030. The UNFCCC scale is in billions of tonnes, whilst the scale I use is in millions. The least cost 2C scenario is lower in 2040 that the total non-Annex countries in 2012. Even without emissions growth in the non-Annex countries, the Annex countries could cut emissions by 100% and still the 2C limit will be breached by the 84% who live in countries with no obligation to cut their emissions.
But maybe the USA should cut emissions anyway? After all it will not cost much, so these developing nations will be brought into line. I only recently realized how wrong this view was. Economics Prof Richard Tol it one of the World’s leading climate economists, who (unlike me) happens to believe in the moral case for cutting greenhouse gas emissions. In a recent paper, “The Structure of the Climate Debate”, Tol explained how a global carbon tax was theoretically the most efficient means to reduce global greenhouse gas emissions. Use regulation, or rationing, or subsidies of renewables, and it will be more expensive – less bang for your bucks. However, I objected. He seemed to be saying that the carbon tax necessary to cut global emissions worked out at less than the taxation on gasoline in Britain. At over $3 (a level that is similar in much of Europe) there are still quite high levels of fuel usage. I can still remember my high school economics teacher, in teaching about elasticity of demand, said that a good example of inelastic demand were the “sin” taxes on booze, alcohol, tobacco and petrol (gasoline). You could have quite high taxes without impacting on demand. Well, after a few exchanges at cliscep blog turns out Tol (in the more technical Tol 2013 paper) was recommending a $210 tCO2 tax to be imposed in 2020 globally, plus an escalator of 5.5% a year forever. It would eventually make fossil-fuelled energy use unaffordable to all but the Hollywood A-listers. I showed British readers in GBP would that would mean, but for the US readers $210tCO2 is about $1.83 per gallon of gasoline. There would be uproar if it was introduced, and people might get more fuel efficient cars. With the escalator that would rise to over $3 a gallon in 2030, $9 2050, $35 in 2075 and$132 a gallon in 2100. There would also be similar hikes in electricity from coal and gas. This might not be fast enough to achieve the reductions required by the UNFCCC, but would not be sustainable in a country with democratic elections every few years.

But actual climate mitigation policies, are far less effective that the carbon tax. This includes subsidies or loan guarantees to speculative and unsustainable businesses, or flash renewable technologies that fail to deliver,

The carbon tax might be harmful to the poor and middle classes in America, but think of what it would do to the living standards of the poorest half of the world. Countries where parents are hoping that their children might enjoy cheap energy for cooking, lighting or heating, would see those hopes dashed. For billions of people their children or grandchildren would never have a family car, or be able to travel by plane. If the Governments of India, China or Indonesia tried to impose such high and escalating taxes there could be economic collapse similar to that of Greece, and likely civil wars.

Should the Rich countries still do something?

So maybe the United States, and other rich countries, should still adopt policies regardless. After all, they should pay for the (alleged) harms that are leading to disaster. But if the proposers had any understanding of the real world, they would know that just as economic growth has been propelled by abundant supplies of cheap, available and reliable energy. In international trade what is “cheap” is a relative concept. In the nineteenth century steam power was very expensive compared to electricity today. But at this point in time, when developing countries are make power more available and driving their unit energy costs down. Steam power was much cheaper, and more available than water power, which in turn was cheaper than human or animal power. Yet implementing emissions reduction policies, the rich countries are driving those unit energy costs up just as developing countries have been driving unit energy costs down and making power more available. The USA and EU countries are generating a comparative disadvantage. But, as the developed nations tend to be more energy efficient, the net effect on global emissions may be to increase them, despite the policy countries decreasing theirs. That net effect is unlikely to be as large as any actual savings in the policy countries. What is more, the costs of policy will fall on the poor, and those areas of employment with high energy usage and that compete internationally.

An argument for climate mitigation is that it is to make small sacrifices now to save future generations from the much larger costs of future catastrophic climate change. That is only true if global emissions are cut significantly, at a cost lower than the actual harmful impacts that would have occurred without policy. As policy to cut emissions will makes very little difference to global emissions, then the sacrifices could be of a small benefit in non-policy countries, but be to the net disadvantage of future generations in the policy countries. The biggest burden of the costs of policy will fall on the poorer sections of society and manufacturing in the policy countries.

The Moral Case Against Climate Mitigatiom

If the medical profession insisted on patients taking drugs that did not work and had harmful side effects, then in litigious America they would be sued for all they had, and likely jailed. But when the climate alarmists, back by the liberal establishment, insist on policy that cannot work and causes substantial harms they are not held to account. Indeed, so pervasive are the beliefs in climate alarmism, it is an act of heresy to even question this false policy. Now the tables are turned.

The first thing that should be done with harmful drugs that cannot work is to ban them from sale. For an incoming President, the first thing to do with harmful and useless policies is to rescind them.

Kevin Marshall


Britain Stronger in Europe Letter

I received a campaign letter from Britain Stronger in Europe today headed


Putting the “RE:” in front is a bit presumptuous. It is not a reply to my request. However, I believe in looking at both sides of the argument, so here is my analysis. First the main points in the body of the letter:-

  1. JOBS – Over 3 million UK jobs are linked to our exports to the EU.
  2. BUSINESSES – Over 200,000 UK Businesses trade with the EU, helping them create jobs in the UK.
  3. FAMILY FINANCES – Leaving the EU will cost the average UK household at least £850 a year, and potentially as much as £1,700, according to research released by the London School of Economics.
  4. PRICES – Being in Europe means lower prices in UK shops, saving the average UK household over £350 a year. If we left Europe, your weekly shop would cost more.
  5. BENEFITS vs COSTS – For every £1 we put into the EU, we get almost £10 back through increased trade, investment, jobs, growth and lower prices.
  6. INVESTMENT – The UK gets £66 million of investment every day from EU countries – that’s more than we pay to be a member of the EU.

The first two points are facts, but only show part of the picture. The UK not only exports to the EU, but also imports. Indeed there is a net deficit with the EU, and a large deficit in goods. It is only due to a net surplus in services – mostly in financial services based in the City of London – that the trade deficit is not larger. The ONS provides a useful graphic illustrating both the declining share of exports to the EU, and the increasing deficit, reproduced below.

No one in the UK is suggesting that Brexit would mean a decline in trade, and it would be counter-productive for the EU not to reach a trade agreement with an independent UK when the EU has this large surplus.

The impact on FAMILY FINANCES is based upon the Centre for Economic Performance, an LSE affiliated organisation. There is both a general paper and a technical paper to back up the claims. They are modelled estimates of the future, not facts. The modelled costs assume Britain exits the European Union without any trade agreements, despite this being in the economic interests of both the UK and the EU. The report also does a slight of hand in estimating the contributions the UK will make post Brexit. From page 18 the technical paper

We assume that the UK would keep contributing 83% of the current per capita contribution as Norway does in order to remain in the single market (House of Commons, 2013). This leads to a fiscal saving of about 0.09%.

The table at the foot of report page 22 (pdf page 28) gives the breakdown of the estimate from 2011 figures. The Norway figures are gross and have a fixed cost element. The UK economy is about six times that of Norway, so would not end up spending nearly as much per capita even on the same basis. The UK figures are also a net figure. The UK pays into the EU twice as much as it gets out. Ever since joining the Common Market in 1973 Britain has been the biggest loser in terms of net contributions, despite the rebates that Mrs Thatcher secured with much effort in the 1980s.

The source of the PRICES information is again from the Centre for Economic Performance, but again with no direct reference. I assume it is from the same report, and forms part of the modelled forecast costs.

The BENEFITS vs COSTS statement is not comparing like with like. The alleged benefits to the UK are not all due to being a member of a club, but as a consequence of being an open economy trading with its neighbours. A true BENEFITS vs COSTS comparison would be future scenarios of Brexit vs Remain. Leading economist Patrick Minford has published a paper for the Institute of Economic Affairs, who finds there is a net benefit in leaving, particularly when likely future economic growth is taken into account.

The INVESTMENT issue is just part of the BENEFITS vs COSTS statement. So, like with the PRICES statement it is making one point into two.

 In summary, Britain Stronger in Europe claims I need to know six facts relevant to the referendum decision, but actually fails to provide a one. The actual facts are not solely due to the UK being a member of the European Union, whilst the relevant statements are opinions on modelled future scenarios that are unlikely to happen. The choice is between a various possible future scenarios in the European Union and possible future scenarios outside. The case for remain should be proclaiming the achievements of the European Union in making a positive difference to the lives of the 500 million people in the 28 States, along with future pathways where it will build on these achievements. The utter lack of these arguments, in my opinion, is the strongest argument for voting to leave.

Kevin Marshall


Copy of letter from Britain Stronger in Europe

ASI on the Minimum Price for Alcohol

Uncharacteristically, the Adam Smith Institute has made a serious error in its economic analysis. The idea of alcohol being a Giffen good is certainly a contestable one. There are a couple of pertinent areas here. The first is whether alcohol in the UK meets the requirements of a Giffen good. The second is whether the pattern of discounting is such that installing a minimum price will create the Giffen good conditions.

The Conditions for a Giffen Good. (Descriptions here and here)

  1. A staple on which people spend a significant part of their income.
  2. Applies to the very poor.
  3. There are no close substitutes

The current state of play in the UK market.

1. The major supermarkets concentrate their promotions on premium brands. Most of the promotions for cider & beer are for premium brands. The wine promotions similarly are mostly for the more expensive (& often branded) varieties. Own brand (especially the budget brands) are less frequently and less deeply discounted.

2. Many promotions do not involve a gross loss for the supermarket. By allocating space for high volume promotions a small gross margin can generate a larger net profit than the full price low turn product. It is all about overhead absorption.

3. Promotions made more profitable by promotional & volume discounts from the suppliers.  As I regularly shop at more than one major supermarket I notice similar promotions across different supermarkets.

4. Many promotions are partly spurious. For instance I recently noticed a bottle of standard Cava at half price. The full price would significantly more the vintage variety. Or compare the undiscounted price per litre for large packs of beer with the smaller pack sizes. You will find the “undiscounted” price is often more expensive, indicating the discount is exaggerated.

5. Many people pay the top prices at clubs and pubs in city centres. Cheaper prices are obtained at local pubs (known as bars in the USA & on mainland Europe). Much cheaper still is the supermarket. So for English bitter beer, you pay £5 per pint (568ml) in a club in town centres, £3.50 in a local pub, £2 equivalent for a 500ml bottle, £1.40 for a 4 pack cans and £0.99 for the best offers of 3 x 8 440ml can packs. Therefore, there are many close substitutes without change of brand, though the quality and ambience may not be the same! Higher prices lead to the next best substitute, which is why many choose to drink at home, or on the street, rather than in the more sociable public houses.

6. The UK is a rich country. In spending power (purchasing power parity) is at least 35 times richer than in 1750 (or modern day Ethiopia). In nominal terms at least 200 times richer. Someone on the minimum wage with the proverbial wife and two kids, will have in excess of £1200 per month disposable income. If an alcoholic drinking the cheapest booze – 3 litres of 6% cider (at £1 per litre) a day, they would spend just 10% of their income on booze. At 70p per unit minimum (10ml of pure alcohol) they would see this rise to a third of income. This is the most extreme case. In practice, most problem drinkers consume less and do not get the cheapest alcohol from the cheapest source. There are opportunities for substituting to cheaper forms of alcohol and reducing other forms of consumption.

In its flawed analysis the ASI actually understates the case against the minimum price of alcohol. Any proposed level of pricing would simply be ineffective in reducing alcohol consumption.  It will merely serve to hasten the decline in pubs and drive people down market. Most of the discounting in supermarkets is aimed at getting consumers to move up market, where the larger profits reside. The only effective levels of seriously reducing alcohol consumption would be far above the bounds of political acceptability.

Risk, Volcanic Ash, Regulation and the Leaders debate 2

John Redwood today makes some brilliant observations on “Bash the banks and Praise the Regulators”. His comparison with the ash cloud and the banking regulation is particularly apt. But it is not just the cost of inappropriate regulation that there is a similarity. The leaders’ debate of tonight showed crystallised the issue for me. It is how do the authorities deal with an unprecedented situation? The risk-averse say let us do nothing until there is full information. On the financial system, nothing was done to control the excesses. On the ash cloud everything was stopped until the scope of the problem could be assessed by the experts.

There is a way of going into the unknown without full information. You set general rules and assess the magnitude of any problem.

–         On the ash cloud, you compare the risk with the size of the eruption, the size of the particles and the distance from the volcano. From this, you would have found no evidence of large jet aircraft getting into emergency situations 1,000 miles from an eruption, in an ash cloud that is hardly visible.

–         From the financial system, the situation was evident that house prices and consumer borrowing was going to unsustainable levels on an unprecedented scale from 2003 onwards. The 0% interest credit cards and the large discounts for changing mortgages were evidence of this in the UK. The sub-prime boom, with mortgages deals agreed whereby in 3 years the borrowers could not meet their repayments was evidence of this in the USA. It was the very magnitude of the problem that should have merited special attention. The action should have been to raise interest rates and increase cash requirements for banks.

On the surface the action was the opposite – One to stop what was already happening, the other that immediately stopped anything from happening. But the cause is the same – by requiring detailed rules and acting on how others will perceive our actions, the authorities took wrong course of action.

 The Leader’s debate crystallised it for me. There was one leader who stood out. His reaction to any problem is not to take any risks.

–         He will not risk safety by letting planes fly.

–         He will not start cuts now to risk the recovery.

–         He will not risk banks ever getting into trouble again.

–         He will not risk a foreigner being unidentified.

–         He will not risk existing jobs.

–         He will not risk offending our European neighbours by disagreeing with them.

–         He will not risk independent MPs, by banning them from second jobs and monitoring every penny they spend.

–         He will not risk independent thought, by stipulating what religions should believe.

–         He will not risk diversity in education by allowing independent schools to be formed in the state sector.

 In so doing, after another 5 years of his leadership we will have no recovery; we will have no decision-makers in government – just be taking orders from Brussels and the IMF; we will have no risk-takers in business as most will not want to overcome the ever-higher regulatory hurdles for achievements that are taxed away and vilified.

We will also have no future.

Financial Regulators are as fallible as the rest of us

John Redwood, in defence of the banker’s, asked whether the regulator’s in the part four years has engaged in socially useless activity.

Unusually, I came to the defence of the regulator.

Regulators, even if nominally independent, work within the current political & economic climate. They would not have called for increasing capital requirements during the boom, as there was no visible reason to do so. After all, we had “ended boom & bust” – due to the prudent handling of our economy by the then Chancellor. Where was the risk factor that justified such a measure?

 If a Regulator had called for tougher rules, he would have been lambasted by the press, and criticized by most expert economists. Financial Experts would say capital requirements could be lower, as risk was now diversified throughout the global financial system.  Politicians would have said that such unilateral action would jeopardize London’s position as the World’s No.1 financial centre. If the Regulator had sufficient stature, then the £ would have gotten a bit jittery, and some shares in the banking sector would have taken a tumble. A government spin doctor would have come out we a speech saying “what I think you will find the Regulator actually said was .…” – and then say something that was the opposite, or renders the comments meaningless.

After a few days of ducking the issue, the Chancellor would have given his full support, followed the next day with the Regulator’s “voluntary” early retirement (or movement sideways).

A similar picture was with the Central Banks. By cutting interest rates after the bubble burst and again after 9/11 we obtained an asset price bubble. The US or the UK were not going to call a halt by raising interest rates, as it would have been both politically unpopular and raised exchange rates. The normal market adjustment, with a mild recession was averted. The long-term consequence was system imbalances becoming so large that the eventual correction nearly wrecked the financial system.

 The lesson to be learnt is not tougher and/or more detailed regulation. It should be a humility concerning our powers to intervene, as they can have consequences that we cannot foresee. Furthermore, markets have rushes of exuberance that will, sooner or later, be corrected. Avert the market correction and you build up trouble for the future.  Interventionism does not cure the problem of imbalances, merely delays it.


Alan Greenspan convinced everyone that he had achieved this status, but turned out, in the long run, to be wrong.

The biggest current imbalance is in the housing market. The slide has been halted by near zero interest rates, but will resume when those rates get back towards normality. Why do I say this when average house prices are around the long-term average of four times average earnings? Because interest rates are well below their long-term average for existing borrowers. When they revert to around 5% that new borrowers are paying, and when unemployment peaks at 3 million plus (with some coming from the state sector), then the supply of houses will exceed demand.

Climate Change Camp – for good or evil?

The Tax Payers alliance have a posting on the Climate Change Camp set up in Blackheath.


Here is my comment:-


The comment you make is a fair one. Before proscribing a painful and potentially harmful course of treatment, an ethical doctor would

–         check the diagnosis is accurate – both in type and to the extent.

–         Make sure that the treatment is likely to improve the condition of the patient.

In a similar vein

–         The assessment of the extent of the climate change is not helped by failing to examine validity of the data or statistical analysis.

–         Nor by ignoring contrary science.

–         Nor by ascribing every bit of extreme weather to anthropogenic factors.

–         Nor by ignoring the benefits of warming (e.g. less old people dying in the winter cold)

–         Nor by assuming that a global policy is both the best available and that it will improve the situation.

–         Nor by ignoring the harmful effects of oppressive taxes and regulation. You could reduce economic output and bankrupt the government. This could lead to the collapse of public services (with many dying as a consequence) and millions permanently unemployed. In the emerging nations, reduced output will lead to the mass hunger from which many have just escaped. It will also lead to an increase in wars.


To establish that climate change is the “biggest threat the world has known” needs substantiation. In the last century the cause of every major famine was either caused authoritarian government policies or by war. On the other hand, global growth ensured that, for the first time in human history, the vast majority of the worlds population can live free from hunger as a normal state of affairs, and each generation can look forward to better livings standards than their parents. For those who believe in peace and helping the poor should make sure that these achievements are not reversed.

Think! child seat advert lacks thought

The latest of the Government’s information video on child car seats lacks thought.

A mother straps her child into the car, whilst quoting a statistic that “300 children are killed or seriously injured in cars every year”. This is trying to impute that by obeying the law you are avoiding putting your child at risk of death or serious injury. The advert is misleading and should be withdrawn.

What the current law does not recognise is the following.

1. The differance between obeying the law and not will make very little difference to the probability of your child be seriously injured. The probabilty is insignificantly different from zero.

2. The probabilty of a child joining the 300 is more significantly changed by the way the vehicle is driven than how securely the passengers are belted in. Drive like a lunatic, or fail to concentrate on the road ahead, or drive under the influence of drugs and alcohol will all increase the probablity of an accident. Drive at moderate speed for the road condition, keep a safe distance and an awareness of other road users abd the probability of an accident is near zero.

3. It discriminates against smaller children. The height limit for using a booster seat is 135cm. The taller children attain this at their 8th birthday, whilst shorter children can only reach this height when then are leaving primary school. Shorties can be incredably sensitive about this issue.

4. It attempts to limit a very low probability horrific event, by causes a very high probability of discomfort for the child. One of my children would usually fall asleep on a journey of more than twenty minutes after a day out. They would slump against the seatbelt, and then awaken with a severe pain in the neck. Being on a booster seat would exacerbate this. I would claim that my boring (smooth and gentle) style of driving is what sent them to sleep.

It is a case of a law causing a net loss to society. If such exaggerated and unfounded claims were made for vitamins or medicines, the claimant would be rightly prosecuted. Infomertials should, at least morally, be bound by the same rules.

Regulation that only harms the honest

Burning out money has a post on the hurdles to open a new savings account. Introduced to help prevent money laundering, it

“there is not a single case of any would-be launderer being caught by this system. As you’d kinda guess, real launderers are quite capable of cobbling together the necessary fake docs, and ticking all the right boxes.”

Like with government expenditure, in regulation, the areas be scrapped are those where government activity does net harm to society. This anti-laundering legislation looks to be one of them.

The Adjunct to Cutting Government Expenditure

I have already posted about the need to cut government expenditure is a more rounded way through focusing on 7 major areas. There is an important adjunct to this. The ability of the economy to climb out of the recession will be hampered by

 1)      High Taxation

2)      Onerous Regulation

 The burden of these twin factors was able to be borne in the boom. They may have reduced profitability, but other factors such as low interest rates and the ever-increasing public expenditure more than offset these factors. In addition, the house-price bubble was helped by the planning constraints on new-build. This shortage of supply increased the house price inflation. Coupled with easy money and low interest rates it also helped the consumer boom.

The opposite will apply in the recovery. This is through,

 1)      The high costs of the regulation will limit the ability of firms to lower prices, whilst still remaining profitable – break even is higher.

2)      More importantly, the time taken in meeting regulatory requirements, whether in house building or in putting in place new investments, means that the payback period is lengthened.

3)      Regulations to protect workers rights means that taking on new employees is similarly discouraged (Protecting the employed in the good times means protecting the unemployed from gaining employment after the bad times – see much of Western Europe during the 1990s).

 Sustained recovery with real jobs will therefore be impaired.


Reducing the deficit requires not only cuts in government expenditure. It means removing the impairments of the private sector to adapt and grow.


John Redwood seems to be grasping this point when he recognizes that the car scrappage scheme just offsets some of the high taxes on the car industry. Here is my comment posted earlier.


Mr Redwood,

 You make a very valid points here about trying to undo the harm of  high taxes on the car with a subsidy for new car purchases. However, I would take issue with you on the government having encouraged new housebuilding. You have said before that house buying was encouraged house buying in the past with low interest rates from 2000 to 2005 (only then to raise them too high). However, tough planning laws have meant that during the boom the numbers of new homes being built were at record lows, with much of the new build being in apartments and not the more desirable houses. This shortage of new build when demand was (artificially) strong, further exacerbated the house price inflation.

 However, you do point to a general principle for a quick, sustainable and affordable recovery – Undo the harm done by higher taxes and more regulation.

In the boom, these extra costs were largely absorbed. They have encouraged a steeper downturn and the increased costs will slow down and diminish the recovery.