Governments best take big decisions, when there’s no conflict of interest, no stupid groupthink, and contestability.

Sir, I come from an country, Venezuela, where privatizations of public owned utilities were based not on who would provide us citizens the best services, but on who would provide the state with the highest upfront payment… an anticipated tax revenue for the government, to be paid later by us citizens by means of higher than needed tariffs, for decades to come. And, to top it up, that was accused of being odious neo-liberalism product of the Washington Consensus. 

That’s why when I read Martin Wolf’s “Big energy decisions are best taken by government, not the market” of September 16… I immediately reacted… “Hold it there, take it very easy!”

If government is going to take big decisions, as it should, we must make sure all its possible conflicts of interest are removed, and that the decision process is transparent and guarantees contestability, and not just the result of a small mutual admiration club of technocrats/bureaucrats.

For instance, allowing bank regulators to impose their statism of a 0% risk weight for the Sovereign and a 100% risk weight for “We the People”, was wrong.

And allowing bank regulators to impose risk weighted capital requirements for banks based on the ex ante perceived risks of bank assets, and not on the ex post risks conditioned on the ex ante perceived risks, was utterly stupid. What’s the chance of something really bad happening from something perceived as “safe”, and what is it for something “risky”?

Wolf lectures us: “Rational risk-taking by individual financial businesses will create substantial threats for others. This, too, is a spillover, or “externality”. Financial regulation has to internalise such externalities, thereby reducing the likelihood of crises and making them more manageable when they arrive. One way to do so is to raise capital requirements far above what profit-seekers would wish”

I argue that much more important than that, is to get rid of the credit-risk weighting of the capital requirements that only distorts the allocation of bank credit to the real economy while serving no bank safeness purpose, much the contrary. Wolf, in spite of hundreds of letters I have sent him over a decade on this issue, has yet to understand that.

And Wolf ends “The government must have the courage to make… difficult decisions and the wisdom to make them well.” Yeah, yeah, yeah, but what if the decision makers are dumb and we are not allowed to correct them… because so many want to suck up to them nevertheless (like in Davos)… or because some are interested in exploiting that dumbness? 

@PerKurowski ©

When raising carbon taxes, let’s try to keep the war against climate-change and the redistribution profiteers at bay

While the crude oil price index fell from 100% in 1980 to 18% in 1998, the products price index on the consumer level increased in the UK in constant terms from 100% to 247%; a result of that taxes on petrol went from 85% added value in 1980 to a confiscatory 456% in 1998. And the tax increase, similarly applied in other European countries was predicated on environmental reasons… even though for instance Germany and Spain, were simultaneously subsidizing coal. And when consumer protested the increase of petrol prices the blame was laid on the sheiks.

And now Tim Harford argues for the need to “raise the price of carbon-dioxide emissions, using internationally coordinated taxes or their equivalent [because] such a tax would make renewable energy sources more attractive – as well as encouraging energy-efficient technologies and behaviour”, “Alternative energy’s power struggle” July 30. 

Sir, even though I come from an oil extracting nation, Venezuela, that is something with which I could agree, but only under two conditions.

First that all the taxes and subsidies in the energy sector need to be absolutely transparent so that there is no hanky-panky going on.

And second, so that this do not just enrich many of the war against climate-change profiteers, all those tax revenues should be distributed equally to all citizens by means of a variable universal basic income. The beauty of it all is that doing so, would equally help, somewhat, to keep the many redistribution profiteers at bay.

PS

Per Kurowski

John Dizard has provided us with a very important wakeup call on energy storage batteries

Sir, I think that everyone that wants to fight climate change, but feels that is best done by keeping the climate change profiteers at bay, need to be very grateful for John Dizard’s “Lack of economic rationale is a feature of battery-storage hype” April 4.

I myself am guilty of having preached, to friends and family, the benefits of new energy storage batteries without really checking up on their real costs. I will immediately go silent on this without further checking up.

@PerKurowski ©

R.E.S.P.E.C.T.

Sir, in “An exit will have to come, but not yet” July 20, by reducing us to some “sick” jokers worrying about inflation when there is so much “excess capacity and high and rising unemployment” you show utter disrespect to those of us who do worry about inflation resulting from hitting serious energy, public debt and climate change bottlenecks. 

I would say, whoever wrote this editorial must be a baby-boomer, living up to the motto “Après moi, le déluge”.

That said, on the theme of quantitative easing, let me remind you that just as a company repurchasing its own shares, its main problem is that while doing so, it really does not know how much the market values its shares.

But foremost we need a new direction for our growth

Sir Martin Wolf writes that “Sustaining growth is the 21st century’s big challenge” June 11 but as the article is set in the perspective of the environmental and energy limitations that the world now faces and that Jeffrey Sachs has written a book on a better title would have been “Re-direction growth so as to make it sustainable is the 21st century’s big challenge”.

Now how do you do that? First of all by measuring growth in terms that makes more sense. That a dollar used to buy the family’s third car in a developed country should count as much as the dollar used to pay for the vaccine for a child in Africa does somehow not seem to give us the right compass bearing we need.

A necessary though not so welcomed reminder

Sir Martin Wolf’s “The dangers of living in a zero-sum world economy” December 19 is a splendid, necessary but of course quite unwelcome aide-memoir for all of us that feel that we have been somewhat unworthily blessed with peace and prosperity during our life time and worry that we will not be able to guarantee the same for our children.

I fully agree that we will have to count on human ingenuity to save our descendants from the dark ages that already lurk close (hugo chávez), but to that end we also need to keep on believing that goodness and badness does not add to a zero-sum human condition

Energy is not allocated on a first come first served basis

Sir your editorial “Dark side of the hunt for energy” December 12 is really questionable on the grounds that the US energy consumption is seven times that of China on a per capita basis, and there is nothing to tell us that energy should be allocated on a first come first served basis.

Financial Time’s Hillary Clinton interview

Sir the following is my reaction after reading the interview of Senator Hillary Clinton, conducted by Financial Times ’s Washington bureau chief Edward Luce.

Protectionism: Full fledged competition in a globalized world would have eroded the profitability of many companies had we not awarded them the protection of intellectual property rights, and invested some serious money in making that shield mean something. Can you imagine Microsoft in a world where efficient software copiers are free to roam?

Therefore since most of labor have not been furnished similar new protections, and some old ones have in fact been taken away, it should not come as a surprise that the share of labor income as a percentage of GDP is dropping, and that this is, certainly and rightly, creating a source of conflict.

So what’s to be done? There are only two choices? Either we award to labor similar protections which would set us all on a de-globalization route, a lose-lose proposition; or we must require that the beneficiaries of intellectual property rights give back some extra of their quasi-monopoly based extra earnings to the society. As an absolute minimum, this should represent the direct cost of enforcing and defending their rights. Is this protectionism? No at all!

Review of existing trade agreements: Absolutely. In some of the US bilateral agreement some prohibitions were imposed on developing countries because at the time they were considered as appropriate, but hindsight has led to other conclusions and so these clauses need to be revisited. For instance some US trade agreements prohibit any restrictions on capital movement even though now these restrictions are deemed quite good at taking away some of the excessive volatility that the waters of the global financial oceans can have on local bathtubs.

Energy and environment: “the most important thing is getting the US focused on energy efficiency, on clean renewable energy, combating global warming on raising gas mileage etc.” Just like the recent Nobel price recipient Hillary Clinton does not have the courage of spelling out what is primarily needed to really alter the energy and environment realities in the US, namely a substantial tax on gasoline consumption.

Housing crisis: Just like the US can sometimes use a Strategic Petroleum Reserve I would suggest the government buying a large amount of the houses currently involved with subprime loans; at a price below the current outstanding mortgage; financed by the current mortgage holder; and giving the current debtor a option to repurchase his house in a couple of years at a price that would keep the tax-payer form being harmed. That’s what I would do… but then again I am no PhD and so I could be wrong

Consumers...hedge your energy bets

Sir in “Potential Energy” June 27, you state as a fact that Europe’s citizens would best be served by full liberalisation. I agree, but although you bring up two minor caveats, I must warn you that the final results has a lot to do with how that liberalisation is implemented and how later all the market imperfections are managed. In case you are not that certain of the final results, you could also suggest all the European consumers that they hedge their bets and take a position in the resulting energy companies, with the caveat to make certain that all the potential benefits are not captured by the financial intermediaries. Capicce?

Sir Samuel Brittan’s blackout

Sir, Sir Samuel Brittan in “Towards a true price for energy” June 8, speaks up for the UK climate change levy and ends by saying “And if Opec made disapproving noises we would know that we were really on to something”.

He must be suffering from memory loss. In late 1998 early 1999 when oil was around $11 per barrel and according to some pundits (The Economist) heading for $5, then the distribution at the pump was 85 per cent for the UK taxman, 5 per cent for distribution and only 10 per cent for the producer who gave up for ever the non renewable resource that we should remember oil is. And sure did Opec produce noise, among others oil at $70 and Chavez.

If only at that time, Sir Brittan would have suggested fair long term take up contracts at $30 dollars per barrel, I can almost swear we would not be living the current extreme market tightness, and so reading him now suggest that the “proper reply to threats from Opec against the development of biofuels is to tell them to take a running jump” is just sad.

By the way, on biofuels, for the sake of our children, please let us not take a running jump, just to run our cars a couple of miles more.

Energetic inflation possibilities

Sir, On June 28, Martin Wolfs ends his “Why the energy revolution will continue to power ahead” with an “anybody who thinks it will be easy to reduce energy consumption is simply dreaming”. He is wrong, as an economist he should know that it is a question of prices. Next to his there is an article by Francesco Giavazzi and Charles Wyplosz titled “When facts change so should central bank intentions” that verses on the oxymoronish issue of the transparency of central banks and comes in quite handy as a reminder that changed facts are most often not too transparently discussed.

As Wolf reminds us about, the average US consumer uses ten times more primary energy than an average Chinese, which set against a large economic growth rate in China and a limited increase in energy supplies should put extraordinary pressure on energy prices, as simple as that! In these circumstances, the US Fed, and the American leaders at large, should be speaking out to their fellow citizens telling them that if they do not reign in their consumption of oil, inflation will take off, they will have to raise interest rates, and then they will have to see jobs and property values all go, as simple as that! But Wolf might still be right, since expecting a central banker to acknowledge that other forces are more powerful than his and his buddies, or a leader to lead and not follow polls, well that could really be dreaming.

Francesco Giavazzi
Charles Wyplosz

So many servants and not even one maid or one butler!

Sir, Martin Wolf in his “Why the energy revolution will continue to power ahead”, June 28, makes a little side tour quoting the Danish scholar Bjorn Lomborg from the Copenhagen Consensus on “if we think for a moment of the energy we use in terms of ‛servants’, each with the same work power as a human being, each person in western Europe has access to 150 servants (and) in the US about 300”. On that Wolf comments, sort of smugly, that the energy revolution has brought about the (almost complete) disappearance of both slavery and serfdom . . . ended servitude and liberated woman from daily household drudgery.”

Well, Mr. Wolf’s home might be very well staffed, but to state that man or woman has been liberated from daily household drudgery is that sort of daring statement when most of us given a choice would gladly exchange at least 10 of those cold energetic Lomborg servants for a warm human body to help us out.

We agree fully with Mr. Wolf that slavery and serfdom is horrible, but let us not forget that serving other people is something very honorable and, if we forget that, we will soon risk be all out of jobs and twiddling our thumbs, when the machines with their Lomborg servants will be doing all the manufacture and the agriculture for us. So many countries with income per capita income over 40.000 US$ per year, and most of the households cannot afford a maid or a butler! Comes to show how this energy revolution Wolf talks about could instead be running out of steam.

Lomborg
Copenhagen Consensus