What’s the safest way to fight climate change: by centralized planning or through the market?

Sir, Tim Harford writes: We should do more to encourage innovation that attacks the climate change problem… The most obvious first step (among several worth trying) is a stiff tax on carbon dioxide emissions” “Let’s innovate a way out of our climate crisis” October 13.

I agree 100% with that. The real question though is what is to be done with the revenues of such stiff tax? There are different options. 

The first to allow governments to manage these, setting it up for good results, but also a quite likely having it much captured by the war-on-climate-change profiteers. 

The second to share out these revenues equally among all citizens, like by helping to fund a Universal Basic Income, and so that it is the market that will take the decisions on what’s to be done.

Of course there are also pseudo market solutions, like those carbon emission permits trading that handed over to speculators, a market in non-transparent carbon emission indulgences.

Sir, I am totally for the sharing out all those tax revenues among the citizens option. That would minimize the distortions, and align everyone’s incentives in the fights against climate change and poverty.

PS. In May 2016 you published a letter I wrote on how to fight the pollution in Mexico City, which was based on these arguments.

http://ourpiedaterre.blogspot.com

@PerKurowski

Having experienced Saudi-Venezuela’s Plan, I know Saudi Arabia’s “National Transformation Program” will fail

Sir, Jason Bordoff writes about Saudi Arabia’s “National Transformation Program, a bundle of targets and initiatives designed to deliver the “Vision 2030” plan to diversify the country’s economy and reduce its reliance on oil revenue… head-spinning 543 initiatives and 346 targets… laudable focus on concrete targets, measurable outcomes, transparency and accountability, along with a strong focus on boosting the education and skill levels of Saudis.” “Saudi Arabia’s reform slowdown reveals its painful dilemma” September 12.

That sounds so much like Venezuela’s ambitious plan of how to deploy the booming oil revenues, plus all that indebtedness that oil riches stimulated, during Carlos Andres Perez first presidency, 1974-79, a time that even became known as that of Saudi-Venezuela.

That plan provided clearly insufficient results, something that later helped clear the road to power for populist Chavez. Chavez and Maduro, in about 15 years, then managed to turn an even greater oil boom into the current pure minuses.

What amazes me is that Bordoff seems to imply that there is a possibility that the NTP could work. It does not! Centralized oil revenues, topped up with “$100bn for a public investment fund”, all managed by “a complex government bureaucracy” is a recipe for disaster. And if by any chance they got something right, that could be so easily wiped out by new generation of besserwisser government technocrats.

Before my two years as an Executive Director of the World Bank, 2002 2004, my only experience with the government sector was as the first Diversification Manager at the Venezuelan Investment Fund set up in 1974. That gig lasted me only two weeks because, when pressured by politicians for a fast approval (one week) of a US$ 2 billion pet project (Plan IV Sidor), I knew the system would not work and, as I told the Fund’s board members when I resigned, I was too young to risk being hanged if that or other projects failed.

@PerKurowski

If a citizen of an oil-cursed nation, like Nigeria, would you like a FT lending support to its central besserwissers?

Sir, you write “If the government were to reduce its stakes in the oil joint ventures to a minority it would not only raise some $20bn towards achieving other objectives. It would liberate the oil companies to invest, providing the country with a more realistic chance of raising production” “Nigeria’s recovery plan gives grounds for hope: A burst of reform will help Africa’s most populous nation to fly again” March 9.

Is that really so? Could it not be that its government would then just waste the $20bn obtained now against the loss of future oil revenues; and that a future populist could easier come to power exploiting a re-nationalization platform? By the way, for how long is the extraction of a non-renewable natural resource be described as “production”

Sir, you know that Nigeria, like Venezuela, are oil cursed nations in which oil exports represent 90% or more of all the exports, and the revenues governments receive from oil 70% or more of all fiscal revenues. And yet you seem to indicate that with a correct recovery plan, which means centralized government bureaucrats still calling the shots, perhaps with somewhat less ammunition, there is “grounds for hope”. 

Sir, if you were an oil-cursed citizen, I am sure you would not like a renowned international financial paper lending such support, to those powerful local oil bureaucrats, vulgar redistribution profiteers, that insist they should manage oil revenues, since they are much more experts and therefore know much better than you what good for you and your family.

Or is it perhaps that you are too beholden to all governments that do the oil-revenues spending?

@PerKurowski

Is Mr Robert Picciotto a closet central planner?

Sir Robert Picciotto a Council Member of The United Kingdom Evaluation Society in a letter titled “Competition will not cure rating industry ills” July 27, writes: “Objective evaluation is a quintessential public good that is unlikely to be generated by the market”.

I sure hope Mr Picciotto is defending a business interest of his own, because the alternative would make him an extremely fanatical and dangerous central planner. How can he write such nonsense precisely in the midst of an economic crisis that resulted directly from the global bad risk information that was requested by those financial regulators who believe that our financial markets should be guided by some very few experts?

“Objective evaluation”? Hah! They have not even agreed what exact risk is to be evaluated or for what purpose exactly.

It might neither be time for an international symphony orchestra

Sir you hold that a global financial crisis requires global co-operation and therefore it is “Not a time for a one man-band” January 22. But, whether we are able to stimulate the right kind of projects that will serve sustainable growth, or hand out the most efficient tax-rebates that produce the most suitable demand that will all, at the end of the day, no matter how much international cooperation there is, depend almost exclusively on the very local capacity to implement. Of course it cannot be a one-man band; it has to be a very well rehearsed local symphony orchestra.

I cannot refrain from reminding you again that I bet my last shirt on that we would all have been better off without that international cooperation called the Basel Committee. Of course “no country will escape this storm on its own” but that is no valid reason to jump all in the same life-boat. That each country while implementing their own rescue plans needs to consider the international implications carefully, that is a totally different question.

Having considered the Financial Times a defender of free financial markets, by which, just in case, I do not mean unregulated markets, I find it somewhat bewildering to see it championing global financial central planning. Should we not better reserve that for the fight against climate change?

The central planners´ vendetta.

Sir Chrystia Freeland in her "Fixing the flaw", December 31 proposes as one cause of the current crisis that “perhaps the total discrediting of central planning was one reason the champions of the market developed such an infallibility of their own system”. May I suggest an alternative take, namely that the humiliated central planners decided to avenge their defeat by surreptitiously entering into the reign of the Basel Committee and fouling up capitalism by convincing the bank regulators to empower the credit rating agencies as their commissars of risks. The trick they used was to sell the idea that since the credit rating agencies were private they were true representatives of the market.

Of course, as had to happen with any central planning initiative, sooner or later, the credit rating agencies put up their triple-A signs pointing into the wrong direction and led the world over the precipice of the lousily awarded mortgages to the subprime sector. The central planners are currently laughing their heart out. Boy, what a vendetta!

There is a cultural war looming on the financial front

Sir Gillian Tett writes that the “Era of leverage is over” September 23 but sort of mulls over the fact that leverage is not an absolute financial value but only another dimension of risk, since a zero leveraged investment in something risky could be more risky than a 100:1 leveraged investment in something less risky. The problem, as always, is who is to determine the risk.

When Gillian Tett mentions that “Basel Two capital rules will now force banks to hold more capital against esoteric assets” it is a great moment to remind ourselves how extraordinary little esoteric those lousily awarded mortgages to the subprime sector really were.

In the US there is a lot of talk about a cultural war breaking out on the political front but the stage is also set for a cultural war on the financial front; between those who believe that markets should be allowed to freely determine risks and those who believe in soviet-styled-central-planning and feel that, even having to face the current disaster, this is best left in the hands of official risk-kommissars, which is what the outsourced credit rating agencies really are.

How the Financial Times got duped

If the Bank of England had decided to appoint some bureaucrat to rate credits for the purpose of deciding how much capital the banks needed to set aside in order to be allowed to give any credit I am sure the Financial Times would be up in arms screaming something about a bloody central planning. But by outsourcing these exact same functions to the private credit rating agencies, the central planners managed to dupe the Financial Times into believing that this was indeed the voice of the market.

In the letter from Michael Djordjevich “The lessons of the sad demise of bond insurance” February 19, we read “Rating agencies that held the key to the future of this industry accepted this concept of intertwining two basically incompatible risks”. I wonder what it will take for a Financial Times to realize that a bureaucrat is still a bureaucrat and a human is still a human prone to human error no matter if he is in public or private employment.

Sir, please help us to get the central planning monopolies that the outsourced credit rating agencies really are out of the financial world. In just a few years the credit rating agencies have managed to turn themselves into one of the biggest systemic risk the world faces.