Bruno Prior's blog

For numerous reasons (some set out on other posts on this site), heat is a huge, vital, yet ignored sector of our energy systems. It is responsible for nearly half the carbon emissions from the energy sector. It is the reason we are so dependent on imported gas. Twice as much of our gas goes to producing heat as producing electricity. Europe could replace all its gas-fired electricity generation, and would still be as badly affected as this winter if there were further interruptions to one of its major gas supplies during a cold spell in winter.

Despite this, the British government has so far done almost nothing to reduce our carbon emissions and insecurity in the heat sector. Indeed, policy to date has been to keep gas heating so cheap that alternatives are not viable. As a result, we have grown steadily more dependent and inefficient (no point spending money or changing habits to conserve something so cheap).

The Government has finally proposed to consult on a possible support mechanism for green heat, but unlike the simultaneously announced policy to support largely-irrelevant micro-generation, it has refused to commit to a timetable to introduce the heat mechanism by April 2010. It will be 2011 at the earliest, they say.

The eagle-eyed may spot a slight problem with that: 2011 will be after the next election. In current circumstances, a promise by a Labour government to implement a mechanism in April 2011 should be more heavily discounted than a Ukrainian bond. It is unlikely that any new government, possibly apart from another Labour government with a big majority, will place support for green heat at the top of its legislative agenda. Most flavours of government (of the options likely to result from the next election) would not be likely to implement a green-heat mechanism in the form developed under this government. The upshot is that it is unlikely that any effective action on heat will be taken before 2012 at the earliest.

As it follows from this that Tory policy on green heat is likely to be more important, I went to see what they had to say. They have put so much effort into Energy and Climate Change that I had first to look up who their spokesman was. It is Greg Clark. (Readers may be equally surprised to learn that the LibDems' spokesman on the brief is now Simon Hughes. The Minister, Ed Miliband, has at least achieved a degree of visibility in presenting his brief to the public.)

Clark regards the DECC policy consultations on heat and energy efficiency as both "a knock-off copy" of Tory policy, and as "dithering" (which says what about Tory policy?). Instead of dithering, he wants the Government to "adopt the green policies outlined in our plan for a low carbon economy".

The only component of those plans, announced by Cameron in January, to deal with green heat are to "enable biogas, methane produced from farm and food wastes, to replace up to 50% of our residential gas heating". It looks like National Grid's bullshit has not been in vain, but has been swallowed whole by the Tories. In fact, the Tories have gone further, probably because they didn't read or understand the National Grid paper (perhaps because they only saw a pre-publication draft), which at least assumed that some of this gas would have to be ACT (advanced combustion technology) syngas, not just biogas.

Our company knows a bit about green heat and anaerobic digestion (AD, the process that produces biogas). One of our subsidiaries is the largest AD business in the country, producing more power from biogas than the rest combined (it's a big fish in a small pond). Another is a leading supplier of wood pellets for heating. I am the heat man, my brother is the AD man. What follows is my first stab to demonstrate how absurd this Tory "ambition" is. I will probably post again later with refinements based on more detailed and accurate figures from my brother, but the following figures are not unreasonable for illustrative purposes.

Don't take the following the wrong way. AD and green heat both have an important contribution to make (we wouldn't be leading the efforts to develop them if we didn't believe so). I am pointing out that they cannot contribute what the Tories think they can contribute, not arguing that a more achievable contribution from them would not be valuable. There is a strange perversion of logic in political circles, where something is only interesting if it can solve the whole or most of the problem on its own. Dismissing options that only make a partial contribution is like dismissing carrots because they only make a partial contribution to our diet. But it is an attitude regularly exhibited by politicians of all colours.

Anyway, with that said, let's proceed to the preliminary assessment of the Tory policy on biogas heating...

Residential gas consumption in the UK is around 350 TWh p.a. (more than total electricity consumption in all sectors). So the Tories' target is around 175 TWh of biogas. (1 TWh = 1,000 GWh = 1,000,000 MWh = 1,000,000,000 kWh or units.)

All the landfill gas produced and captured in the UK each year would provide around 1% of that target. Our sewage gas would provide another 0.2% or so. Just another 98.8% to find, then (and that's assuming these two sectors stop producing electricity).

If we need around 400 m³ of biogas for a MWh, 175 TWh for heating would need 70,000,000,000 m³ of biogas p.a. That's around 8,000,000 m³/hr.

A m³ of good putrescible waste @ 12.5% solids produces around 175 kWh. So to produce that much gas, we will need around 1,000,000,000 m³ p.a. of good putrescible waste.

Most waste isn't good putrescible waste of course, and one of the largest categories on which they hope to rely - agricultural slurry - produces little gas and needs a much higher ratio of waste and tank space to volume of gas produced. We could grow more, but we would need vast areas of land sacrificed to production of energy crops, which wasn't exactly a success recently even at smaller scale (proportionately) than required by the Tory policy. But for the sake of simple calculation, let's assume for a moment longer that this much waste of this quality could be found.

A m³ of digester tank can process around 13.5 m³ of waste @ 12.5% solids in a year. So we will need 74,000,000 m³ of digester tank to achieve their target. That's 9,260 Holsworthys (our AD plant in Devon - comfortably the largest plant in the UK, responsible for half of all UK biogas production outside the water industry); one for every 26 km² and every 6,480 people.

And this assumes that no biogas is consumed or lost in the process of clean-up for grid-injection, and that no biogas is used for other purposes (e.g. electricity generation). Nor does it consider what we would do with that volume of digestate (nitrate vulnerable countries, anyone?).

The upshot is that we'd better grow and eat one hell of a lot of food if the Tories get in; an utterly impossible amount, in fact. Our current obesity epidemic has nothing on what they have in mind for us.

The reason they've gone for this technological "winner", of course, is that it seems painless (as all magic bullets do, until you have to explain why you missed the target), and it is promoted by a big company (National Grid), supported by a report from a big consultancy (Ernst & Young). Plus ça change, plus c'est la même chose.

We have tried to engage with political parties on these sorts of subjects. But as we won't encourage their delusions, but will actually challenge them, they find that the best approach is to ignore us and cling to their delusions.

There is no point small companies, or others of independent mind, trying to engage directly with major political parties. They are not interested in the truth. They are blinded by money and power, and deaf to reason. It doesn't matter which flavour, they are all the same, other than in the choice of which interests to favour and lies to believe.

Gordon Brown wants us to make a mental connection in some way between our financial troubles and the competitive tax regimes in countries like Switzerland.

I have just come back from Switzerland, where we are looking at investing. The attractions are many, but include the fact that Switzerland is not in the EU (and if the opinions of my contacts are representative, are likely to remain so), the stability of the economy, the security of one's money from expropriation, the more rational attitude to planning, the highly devolved nature of its democracy, and the relative restraint they show in government expenditure.

The Swiss tax-take as a proportion of GDP is a good five percentage points lower than ours. When you consider the obstacles they face in the provision of public services, and the much higher quality and better value in those services, that is amazing.

Imagine how expensive British government would be if every village had to be reached by miles of winding hairpin bends up precipitous slopes, assaulted with snow and salt in winter, and Mediterranean temperatures in summer.

Imagine what the bus services would be like.

Imagine how our trains would run, and what they would cost, if most of our major cities were separated by vast mountain ranges requiring tunnels many miles long. 

Imagine the excuses of the politicians for the state of an economy that enjoys few natural resources, no direct access to the sea for trade, and wholly surrounded by a mammoth competitor determined to inflict the costs of its social model on you.

And yet, with few of our advantages and many disadvantages, the Swiss run a more successful economy, with better public services, lower taxes, a higher quality of life, and greater social cohesion, than we can dream of.

How do they do it? Gordon would like us to believe that it is because money is pouring in from abroad because of the tax regime. And the tax regime in parts of Switzerland is certainly cheaper than ours (each canton sets its own tax levels in significant aspects, so there is no universal rate). In particular, inheritance tax can be low (zero in some areas) and tax on employment is generally lower than ours. That may have something to do with their high levels of commercial continuity and reinvestment of capital, and high levels of employment.

But those low taxes are not particularly funded to a greater extent by inward capital flows than are our more plentiful government extortions. As one of my contacts pointed out when I compared the level of investment in Austrian and Swiss ski resorts, the Austrian government has ploughed hundreds of millions of schillings and euros into supporting investment by their tourist industry, and yet find themselves facing a repeat bill as the equipment ages and needs replacing before the nation has begun to recover its costs. The Swiss, if they want to build a lift, have to raise the finance privately. Hence, they build less, but they try to build only what is viable. That (and similar attitudes across the economy, other than in agricultural support, where they are more profligate even than the EU) keeps the tax bills down, at the cost of placing a greater responsibility on the Swiss population not to be self-indulgent at taxpayers' expense and only to pursue investments that can be justified in hard economic (rather than woolly social) terms. How unreasonable of them to make themselves an attractive destination through the illicit means of prudence and hard work.

In any case, Gordon shouldn't be throwing stones in his highly-elaborate fiscal glasshouse. Under Gordon's watch, Britain enjoyed a huge surge of inward "investment", largely based around the City's financial services to Russians, Arabs and others who had been notably successful in exporting the loot from the expropriation of their countries' natural resources.

Two sure signs of massive in-flows of wealth into a country are asset-price bubbles and a strong currency. On that basis, until the bubble burst, the UK was clearly being more successful (with the help of monetary, fiscal and regulatory policy) at attracting dodgy money into the country. While our property prices were nearly doubling to reach absurd levels, Switzerland's property values increased on average by under 20%.

The reality is that Gordon and his European pals are not motivated by righteous indignation, but by the pressing need to eliminate the few examples of countries whose more prudent economic management stands as a glaring reproach to our Great Leader's incompetence.

And this is the man that some European and British politicians are reported to want to make leader of an international financial regulatory body. In earlier, better times, he would have been left in a quiet room with a loaded pistol for what he has done to our country. Can we at least not reward the greatest incompetent in our political history with an extension of his powers? Surely there is some unoccupied Scottish island, from where he can cause no more trouble, on which he can be dumped and left to rot?

Bishop Hill has a shocking exposure of how local government in the fire-hit regions of Australia prevented locals from taking actions that would have reduced the risk to their properties and lives.

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action... No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times.

Barack Obama in a couple of years' time? Gordon Brown now, if only (as he surely thinks would be best) he were running America too?

No, Herbert Hoover in 1932, talking about the magnificent programme of government-intervention that had prevented the Crash from deteriorating into a Depression.

When our intelligentsia talk about the current circumstances being the result of laissez-faire and the cure being a massive dose of interventionism, we appear to be in the "second as farce" iteration of history.

John Prescott has just repeated, on Newsnight, the Labour party's favourite myth, barely challenged by the opposition, media or academia. According to the myth, the Labour government ran the economy successfully for the decade preceding the onset of depression, as evidenced by low inflation, low unemployment and uninterrupted growth.

We all know the fiddle on unemployment statistics, incentivizing people to move on to Incapacity Benefit, and then trapping them there. If we take the number of people of working age not in employment as the measure, rather than the number of people collecting Jobseekers Allowance, then it is not true that we had low unemployment.

That illusion attracts a fair amount of criticism. What is rarely challenged is the claim that the Labour government must have been managing the economy well because they achieved continuous growth with low inflation. That depends how you define inflation. If you define it as increases in an arbitrary price-index, then it is true. But if you define it as increases in the broad money supply, it is not true.

from http://www.keele.ac.uk/depts/ec/Research/s_research/Milas%20M4%20growth%20and%20UK%20inflation.pdf

The price-index school dominates the economics profession. Although I believe it is a mistaken focus, I don't intend to get into a sterile debate about the semantics. What is interesting is (whatever terms and definitions your use), how useful the concepts they describe are as indicators and predictors of stability, risk, prosperity, etc.

To most economists and commentators, the low CPI and relatively-low RPI figures prove that all was well with the economy, and that what we are suffering now is a blip unrelated to previous events. Interestingly, this is a close reflection of the debate over the lead-up to the 1929 crash and the Great Depression. Central banks, then as now, were focused on maintaining a stable price level. The US Bureau of Labor Statistics Index of Wholesale Prices was 93.4 in June 1921, rose to 104.5 in November 1925, and fell back to 95.2 in June 1929 (Murray N. Rothbard, America's Great Depression, Ch.6). Consumer prices were similarly stable. On the other hand, capital goods prices (particularly stocks and real estate, but also food and farm products) rose significantly. And, as Rothbard details, the total (broad) money supply increased from $45.3bn to $73.26bn.

Monetarists would say that everything was fine in the 1920s expansion and that it was only the wrong policies implemented from 1929 onwards that caused the ensuing crash and depression. Austrians would say that the monetary expansion caused imbalances in the economy that would inevitably have to be corrected at some point, and that the crash was inherent in the previous development. They would agree with the monetarists that the correction was unnecessarily prolonged and exacerbated by policy, but they would not agree on the nature of some of the policy mistakes.

The monetarists' main criticism is the failure to counteract the monetary contraction from 1929 with an expansive/inflationary monetary policy. We are in the process of testing this theory. A couple of articles, one at DollarDaze and one at ZealLLC demonstrate the extraordinary extent to which Bernanke is trying to reflate. And, in broad money terms, the UK is expanding more dramatically than the US or any other major economy, at 16.3% p.a.

We will find out in due course whether it is a good thing for central banks and politicians to intervene to steer the economy like this. They may or may not succeed in the short-term, and if they fail, we may say that they fell at the first hurdle. But even if they draw us out of recession quicker and with a less severe contraction than expected (say bottoming before the end of the year and with house prices, stock markets and GDP down by less than 20%, 40% and 2% respectively from their peaks), we will then find out if their medicine is more deadly than the disease. We will have to see if they can prevent a stronger surge of inflation when the upturn comes (or worse still, before that, in the form of stagflation), due to the huge expansion/devaluation of money. And just as the monetary inflations of the 1920s and 2000s manifested themselves in capital not consumer prices, we should keep an eye out during the period after the retrenchment is halted, not just for the consumer price indices, but for wherever the extra money may create a bubble.

If the expansionist policies that currently unite the Keynesians and monetarists either fail to have the desired effect or have painful after-effects, perhaps the majority of the economics profession will acknowledge that there is a problem with their paradigm, and that they ought to give more consideration to the Austrian approach. (Probably not, on past performance, but one clings to hope of the resurgence of reason.) After all, it was the Austrians who succesfully predicted the Great Crash and the Credit Crunch (and other crises). The interventionists repeatedly claim that no one could have seen it coming (ignoring the fact that some did) and without any embarrassment then proceed to tell us what we ought to do about the problems that their models failed to predict. And if they try to cling on regardless, perhaps natural selection (i.e. their paymasters' shortage of real cash) will do what their consciences fail to do.

A huge contraction in the number of interventionist economics "experts" - now there's a deflation to look forward to.

Prices in the EU Emissions Trading Scheme (EU-ETS) have hit new lows in Phase 2 (just over €10/tCO₂). The mechanism became worthless in Phase 1. It looks likely to do the same in Phase 2 (as some of us predicted). It is not providing sufficient incentive for anyone to invest in any carbon-reducing projects. But it is still handing nice rents and market-protection to the beneficiaries of the allocation process. Uncertainty about its value, so vulnerable to political whim and economic fortune, is a significant factor in the reluctance of power companies to invest not only in renewables, but even in new coal, gas and nuclear stations, because their relative competitiveness depends on EU-ETS prices, and any investment can therefore be made uneconomic in the tap of a legislators' pen.

Naturally, Stavros Dimas (EU Environment Commissioner) has taken this confirmation of the irrationality and harmfulness of the scheme as a signal to try to draw others, particularly America, into a global ETS.

Robert Cialdini, in his book Influence, briefly recounts a real incident that was witnessed and analysed by the social scientists Leon Festinger, Henry Riecken and Stanley Schachter, recorded in their book When Prophecy Fails. The details are hilarious and illuminating in equal measure. I highly recommend you to read Cialdini at least, if not Festinger et al. But I will try to precis here the already potted version in Cialdini. A doomsday cult formed around a man with a long interest in mysticism, the occult and flying saucers, and a woman who claimed to channel messages from extra-terrestrial spiritual beings via the device of automatic writing. These messages started to foretell a disastrous flood that would engulf the world. However, they also reassured the members of the cult that they would be rescued by flying saucers that would be sent  a few hours before the flood was due to commence. During the period leading up to the appointed date, the members of the cult retreated into themselves, making little effort to warn others of the impending disaster. Of course, the spaceships failed to materialise, as did the flood. In the immediate aftermath of the non-appearance, there was silence, then introspection and despair, then signs that the group was starting to dissipate. At this point, the woman received a message from the extra-terrestrial spirtual beings, telling the group that "the little group, sitting alone all night long, had spread so much light that God had saved the world from destruction." A second message instructed her to publicize this news. The group set about contacting newspapers and trying to persuade as many people as possible of the truth of their experience.

Festinger et al and Cialdini provide a convincing explanation for this bizarre switch from secrecy to proselytization, at precisely the moment that it had become obvious that their beliefs were unfounded. The members had invested hugely in the cult's belief-system. The psychological cost of admitting it had been for nothing was too great to contemplate. Yet the evidence clearly indicated that it had indeed been a foolish waste. To avoid the spiritual cost of facing reality, they needed another way of maintaining their belief. Their best hope was in persuading others to share their views, for, if enough people agreed with them, it must (psychologically) be true, whatever the evidence seemed to suggest. The proselytizing was not a sign that they were now more confident of the truth of their beliefs, but precisely the opposite - it was the conscious response to the subconscious awareness of their folly.

Of course, people outside the cult could see the flaw in their beliefs, and the desperation that underlay their efforts. Not a single new member was attracted. Let's hope that those in the White House and elsewhere can spot the equally obvious evidence of the failure of the EU-ETS, and the motives for Mr Dimas's promotion of the cult of carbon-trading.

The latest spate of humbug surrounded the "British Jobs for British Workers" strikes.

Even the application of the term "strike" was a piece of humbug. The protesters didn't work there, so how could they go on strike? This was secondary picketing, but no one dared to call it by its real name.

Why has there been no comment on whether there were issues over foreign workers at the sites where sympathy action was taken? If so, were these contracts excluding local workers suddenly awarded in a spate at power stations around the country? Or had no action been taken at these sites previously because (a) there weren't many foreign workers there, and (b) people didn't have a problem with the foreign workers at those sites until they were prompted by the protest at Lindsay? Unless there was a very strange set of coincidences going on, weren't the sympathy actions entirely illegitimate secondary action, against companies unrelated to the Lindsay strike, by people with no previous inclination to protest against those companies, with no obvious achievable objective at those locations?

And what about the original letting of the contract to the foreign firm? Several contractors bid for the work. Labour costs would have been a major component of their bids. Cost and expectations of quality of work would have been major factors in Total's decision. The foreign firm was able to put in a winning bid because, by employing foreign workers, it was able credibly to promise a decent-quality job at lower cost than the British contractors who priced in the costs of using British workers. Should we be surprised about this? Should we criticise Total for taking the obvious business decision? Or should British contractors and British workers be asking themselves if they aren't overpricing themselves? If most of the politicians, commentators and businessmen involved hadn't been so feeble in failing to point about this fundamental reality, this could have been a painful but useful lesson in the realities of the labour market in an economic contraction. Instead, our "leaders" behaved as though they believed the protests to be justified, and allowed it to become a debate about how much and what type of action should be taken to try to buck the market.

All the same, I have sympathy with the protesters and the vast majority of British people struggling to make ends meet: not because there is an iota of sense in the claims that we should somehow try to ring-fence jobs and rates for British workers at a time when the economy is collapsing (the fastest way to repeat the 1930s experience in America, which seems to be the direction of policy in most countries anyway); but because they have been slowly trapped, by 15 years or more of lousy policy and hopeless management of the economy, into a situation where the average British worker can barely afford to live on the average British wage. Many of them were, of course, complicit in this development, not only because they voted for the idiots who mismanaged our affairs, but also because they happily racked up the debts, luxuriated in the bloated public services, and developed a sense of entitlement from the vast amount of over-protection provided to the under-deserving by the state. But whether or not they were complicit (and those who were not are in no better a position than their profligate compatriots), their situation is almost untenable now, and that is not anything you would wish on anybody, let alone a whole nation.

Just consider one component of the economic choice of the contractors. Look at the barge that the foreign workers are living on, and compare it with the typical cost of rent or mortgage to live in a British house. Of course the foreign workers can afford to bid a lower price for their labour. We have created a situation where we can't afford to work at wages that would be competitive even against other developed nations, let alone developing nations. We can't afford to take lower wages, but we can't compete at the wages that we need for even the most menial quality of life.

No wonder the pound has collapsed, and thank goodness it has and that we have a currency that allows that adjustment. Without realising it, every Briton has in the past year effectively taken a 40% pay cut, in international terms. And the value of all our assets, including our homes, have been similarly cut, even before we take into account the falls in prices. Yet, even now, we are not competitive. Does that give some idea how fat, complacent and lazy we had got? And of the pain we are in for if (as looks likely) the pound now strenthens again, and with it the costs of our labour and assets increase?

I won't go in to the stupidity of Gordon's use of the term "British Jobs for British Workers", and the disingenuity of his claim that the phrase was intended to be interpreted as referring solely to the question of training. Nor will I discuss the absurdity of the internal debate within the Labour party and parts of the media about whether European law is to blame, is right or wrong, and ought to be changed, knowing full well that there is not a hope of changing it, and that plenty of Britons have been on the other side of this fence and taken advantage of these freedoms. These true but somewhat facile points have been well-dissected by our commentariat.

But I am tempted briefly to point out that this yet again demonstrates that the supposed "far-right nationalists", to whom our struggling working classes are supposedly attracted by this sort of problem, are actually far-left nationalists. Lefties are always amazed that it is their voters who most easily cross over to the BNP. Like Billy Bragg on tonight's This Week, they claim that these people have leapt across the political spectrum, from Labour on the left to the BNP on the right, for some reason not pausing en route to consider the LibDems and Conservatives who supposedly lie in between.

Of course, to those of an Austrian persuasion, who define the left-right political spectrum as being from more (on the left) to less (on the right) bureaucracy, authoritarianism, and expectation that the state is all-seeing, all-knowing and will make everything right, the step from Labour to BNP is an easily explicable, small progression for people to make. By voting Labour, they expressed the hope that government could solve all their problems. When government fails to do so, they look for other parties who claim that still more draconian government action is needed. They take for granted that their travails are other people's fault and other people's job to put right. If other people (i.e. the government) try but fail to put things right, it must be because some evil forces are preventing the government's interventions from working. It has nothing to do with the unsuitability of the government's measures, the impossibility of achieving these ends by these means, or the individual's failure to help himself. It is all down to powerful, mysterious, external forces. And who are more mysterious, external, and easy to blame than people who are different to us?

The far-right extreme is not fascism, it is anarchism. Fascism and communism sit side-by-side on the authoritarian, socialistic extreme left (remember, the Nazis were National Socialists). They are distinguished mainly by their emphasis on a nationalist or internationalist scope to their ambitions, not by any fundamental differences of philosophy. But our intellectuals (in the Hayekian sense) persist in placing them at opposite ends of the spectrum, and then create all sorts of convoluted arguments and analogies (perhaps the spectrum isn't a straight line, it's a circle or a cross) to try to explain away the repeated anomalies thrown up by their failed paradigm. Some do it from simple intellectual laziness, others do it to justify their socialistic bias (after all, anything that is opposite to fascism must be right, mustn't it?). But whatever their motivations, it is pure humbug.

Between the points that the media have picked up on, and those that they never would, the analysis of this dispute was a real pick-and-mix of glistening, tooth-rotting, bloating, nutritionless confectionery.

How desperate do you have to be to set "wood pellets" as one of your keyword combinations in Google AdWords, if you are in the business of selling furniture?There is nothing in your product range that is remotely related to wood pellets. There is nothing that might match if this were a mis-spelling. And there is no reason to think that people looking for wood pellets would also be looking for furniture. Smacks of desperation to me.

The dispute between Russia and Ukraine is yet again demonstrating the bleeding obvious that our Government manages to ignore because the big energy companies would rather look the other way.

Our Government, opposition politicians, most pressure groups, commentators, leading businessmen and the rest of Hayek's intellectuals persist in focusing on our electricity supplies when discussing our dependence on Russian gas. Policy is structured around it.

Of the reports you have heard from the countries currently suffering shortages because of Russia's actions, how many have focused on the electricity supply? None, in my case. They all focus on the risk that people will go cold. And rightly so, because gas is far more important to our heat supplies than our electricity supplies.

But the same organisations to whom it is currently obvious that this is a heat problem more than an electricity problem, will go back to focusing on electricity policy as the be-all-and-end-all of energy policy, and even use the latter term to mean the former. They will support draconian yet ineffective interventions in the electricity sector, while tacitly accepting (usually because of the fraudulent concept of "energy poverty") continued inaction on, and even positive underwriting (e.g. through low tax-rates and minimal carbon valuation) of our complete dependence on gas for heating.

The reality is simple. If the Russians turn off the taps, we don't have to worry about the lights going out, we have to worry about people freezing. Can we all wake up to the reality that energy ≠ electricity, please?

If you want to get a clearer picture of the reality of our energy systems, have a look at the insert I put together for our wood-pellet supply business.

In this week's Spectator (3 Jan), Robert Salisbury, reviewing Michael Stuermer's book "Putin and the rise of Russia" says "We have an interest in a stable and peaceful Russia and, even if we cannot hope to impose our own ideas of government on a proud and humiliated nation, we should insist that the rules under which we trade with Russia are transparent and up to Western standards, and the the rules of investment, both outwards and inward, are of an equal rigour".

Amen to the first part of the sentence (though it is the sort of statement of the obvious that doesn't really need saying, and gives us not a clue how to achieve it). But the second part is not only a non sequitur, but it seems to indicate that Mr Salisbury has been living in a cave with no form of outside communication for the past 18 months. Rules of trade and investment "up to Western standards"?

Not that the Russians would ever have been so completely suckered, as our intelligentsia were, by the pin-striped brigade. Nor that Mr Salisbury is wrong that rules (of all kinds) in Russia are more honoured in the breach than in the observance. But they certainly won't be listening now (other than for laughs) to Western exhortations to live up to our standards in trade and investment.

Is this not an example of exactly the limp-wristed European attitude that Mr Salisbury rightly castigates? How are we to force our trading partners to honour any particular rules? We must be prepared to walk away from trades with them. And the Russians believe, probably rightly, that Europe is not ultimately prepared to walk away from trading for their energy, mineral and agricultural resources.

Reputation is hard won and easily lost. The West has a hard slog ahead of it to regain the moral high ground.

Bishop Hill has rightly pointed out that the current weather is casting the Met. Office's claims of technical superiority in a bad light. But let's not limit it to the Met. Office. It is also making a monkey of wind fanatics.

The current weather presents an interesting challenge to proponents of wind-power. Jeremy Paxman just asked Mike O'Brien how much power is currently being produced by renewables (assuming in standard BBC-style that renewables would deliver power on demand regardless of conditions), to which O'Brien answered truthfully "very little".

Even that is an exaggeration for wind at this precise moment. Just when our needs are greatest, because of the cold weather, our output of wind-power must be less than "very little", because of the same high-pressure system that has caused the cold weather.

Wind-fans argue that if we had better networks, the wind will always be blowing somewhere. But it would need to be a big network, with massive redundancy, in conditions like this. The UK is not remotely big enough. Western Europe wouldn't be big enough. In these conditions, we would need a network that stretched from Scotland to Greece and from Spain to Estonia, to achieve reasonable smoothing through geographical diversity. It would need to be a completely new, DC network because of the losses on AC over that distance. It would need massive duplication of wind capacity over that network. The cost would be immense. And the geopolitical insecurities huge. Hardly an answer to our energy-security problems.

The reality is that wind-power cannot serve much more than the 20% of our electricity demand (7% of our energy demands) that always used to be assumed (before the Renewable Energy Directive made it necessary to lie), and needs standby thermal generation capacity equal to almost the whole of the wind capacity. Like a pan-European HVDC network, keeping those power-stations available but idle won't be cheap.

On Radio 5 this afternoon (5 Jan), Seb Coe said something like "It is often forgotten that, between now and 2012, the Olympic preparations will make up around 5% of economic activity in the capital".

It is one example of a common refrain in support of any public expenditure: "this project is contributing X (pounds or percent) to the economy, so it must be good/adding something to the economy." In fact, it seems all public works have to be justified in that way nowadays, along with the linked claim that they are creating Y jobs, and will be displacing Z tonnes of carbon.

It is a staple of classical-liberal criticism to point out that the money for this activity had to come from somewhere, and that this is therefore not adding to the economy, but simply moving expenditure from one place to another. The money taken from taxpayers to pay for the Olympics might otherwise have been spent on all sorts of consumer goods, or saved. The producers of those consumer goods, and the producers of the second-order goods that contribute to the production of the consumer goods, etc. will lose as much as the recipients of public funding to build the Olympics will gain. Additional savings would have helped to reduce the structural imbalances that our consumer society developed over the past decade and more.

But this argument, though true, has two weaknesses. It doesn't seem to sum up the full economic inadequacy of the claim. And it is at the same time unpersuasive to those who believe in public expenditure. What additional responses might help to tackle the fallacy?

The credit crunch and weakness of the Pound have made the Swiss project a remote prospect. As this cannot be a full-time occupation for now and we are short of management resources for our other investments (in the UK), I have volunteered to run one of our other businesses (supplying wood pellets for heating) - based in Britain and as dependent as ever on policy, politics and public opinion. Hence I am confronted by as much idiocy as ever, and am more irritable than ever as a result. So I am back to posting, though I cannot say how often, to let off steam and as a cathartic exercise.

I notice that I am particularly provoked by throw-away sentences. Many of my posts will be attacks on these sentences. Very often, those attacks will be unfair, in the sense that the author of the irritating words probably did not give much thought to them, and they were not a fundamental part of the author's narrative. Very often, indeed, they will be from people who commonly speak a lot of sense. The words may well have been surrounded by a lot of sense. And indeed, the sentence may even convey a valid sentiment, badly argued.

It may be, reading my nit-picking, that people think that I am critical of everyone, a clear trait of the irredeemably arrogant. That's probably a fair assessment of me, but I would claim in mitigation that I respect the views of many of those who I criticise, and agree with many more of their pronouncements than the few with which I find fault. I am just not usually provoked to write about things with which I agree.

I will also be open to the accusation that the focus of these random targets is purely negative and a sign of an unconstructive mind. But I hope there is a consistent philosophy behind the analysis, and that the posts will help not only to explain why the alternative philosophies preferred by most people nowadays are wrong, but by a process of falsification, show that only the classical-liberal (or nanarchist) philosophy is consistent with logic and experience.

I've been beating a fairly solitary path on this for a while, and in the process making myself unpopular with the major players in the electricity industry (which provides another clue to the huge rent-seeking potential of cap-and-trade) and their representatives. But, judging by this article in this weekend's Sunday Times, it looks like others may also be coming to share my view.

My policy of paying no attention to the news had been going well, and then the boss decided that we simply had to respond to an article in The Times. So it's temporarily back to banging my head against a brick wall, as you may have guessed from the appearance of this post.

The article in question was a Guest Comment by Sam Laidlaw, Chief Executive of Centrica, whose heading summarises his argument pretty well: "Put a price on carbon, but not a tax". This might seem to be a reasonable, even a liberal argument. Unless you are close to the energy industry, you would probably not realise how this was just another example of the way that energy policy has become a plaything for the energy corporates to try to gain commercial advantage. The Government's policy is practically being dictated by the positions of companies like Centrica, who are very clever in dressing up self-interested positions as plausible, apparently impartial and principled arguments. I will let the letter I sent to The Times explain how so in this case:

Sir,

Sam Laidlaw says that we must "put a price on carbon". He does not differentiate between sources of carbon, and rightly so. Our climate does not, and neither should we.

One of the many failings of cap-and-trade, unlike a carbon tax, is that it is not practical for highly-fragmented markets, such as the very large market for domestic heating. The domestic consumer of 'natural' gas (or heating-oil or LPG in remote areas) is therefore not "forced to pay", which reduces incentives for householders to act sensibly and to consider alternatives like renewables.

Mr Laidlaw opposes the intervention of government(s) in setting the price of carbon, but in fact such interventions pervade the system of cap-and-trade. In the absence of a carbon-tax, the only other levers that the Government can pull in the domestic sector are either partial, bureaucratic and poorly-funded grant-mechanisms (such as the Low-Carbon Buildings Programme, in which Centrica’s subsidiary British Gas has been given a privileged position), or regulations and obligations (such as the Energy-Efficiency Commitment, in which again only the major energy suppliers, such as Centrica, can participate).

Mr Laidlaw presumably prefers these mechanisms to a tax that is the only practical way of pricing carbon equally across all types of consumers, large and small, but he then must accept that most of his customers are insulated from the cost of carbon, an approach that he says is wrong. Policymakers and consumers ought also to be concerned that those measures embed the power of the incumbent energy suppliers, and inhibit innovation and competition from new entrants.

Yours,
etc.

It was not published, of course. I have no complaint - that is their prerogative. But more strangely, I also tried, when it wasn't published, to post this message (in two parts, because of the 1000-character limit) to their website, but it hasn't shown up there either. Another message that I posted afterwards, in response to another poster who suggested we should have a government-subsidised investment fund rather than carbon-pricing, has appeared, which makes me wonder why the earlier posts didn't show. Was this a technical hitch, or was it moderated? It seems unlikely to be a technical issue, as the later post got through fine, and it is strange for both halves of the first message to suffer a technical glitch that other messages did not experience. My guess is that it was moderated, but why?

Apologies to the regular visitors to this site (both of you), for the abrupt termination of posts, and then the more recent disappearance altogether (a technical hitch that went uncorrected because I wasn't paying attention).

A combination of factors led me to give up on the site.

• It was taking up too much of my time.
• I was increasingly aware that I was either preaching to the converted or trying to convert people whose minds were as made up as my own.
• Most political debate nowadays has nothing to do with philosophy or even reason, and everything to do with vested and selfish interests, or maintaining whatever fiction is necessary to avoid losing face or having to rethink one's prejudices.
• I still accept Hayek's arguments that it is necessary to change the intellectual climate before any change in the political landscape is possible, but it is clear that the blogosphere does not provide as useful a way of circumventing the control of most avenues of public communication by the New Elites (as accurately described by George Walden) as I thought it might.
• Recent examples of being ignored, circumvented and sometimes shafted in the policy debates in the field in which our company were pioneers and major investors have come so thick and fast that the latest example broke the camel's back - I now believe that our political system is so corrupt in its corporatism that it is beyond redemption. We can only wait for our 1979, and I fear, even though the consequences are already apparent of the complete intellectual bankruptcy and failure of the wet, interventionist approach that has been the hallmark of British (and indeed, most Western) government since 1992, that we have at least a decade to go before people realise how many wrong turns have been taken. It is better to wait until people are ready to hear the message than try to force it down their throats ahead of time.
• At the same time as I despaired of the British economy and polity, an opportunity came up to develop a new aspect of our business in Switzerland. PL was the outlet of frustration at trying to operate in the British political and economic environment. When the latest incident destroyed any illusion I had that things might change in the near future, or that reason might prevail, I experienced a Lao Tzu-style awakening that greater peace and happiness could be found in resignation than in continuous hopeless struggle. Switzerland has shown both how bad Britain is, and how much more pleasant and useful it is to work on something practical that is not so dependent on political initiative.

It may yet happen that I am forced back in to working full-time in the British economy (which naturally means the British political sphere, as there is barely anything left of our economy that is not heavily influenced by government policy), in which case PL will probably be revived as an outlet for my frustrations. But I hope to God not. I am so repulsed by the shallow, self-deluding, self-serving and yet naive (in their failure to understand the bigger picture) machinations of most of the figures who are put forward as being worth listening to (whether politicians, civil servants, academics, journalists, lobbyists or "captains of industry") that I have developed an aversion verging on allergy to all topical "debate" in the media. It usually only takes a sentence or two before my head feels like it will explode and I am wanting to throw the TV, radio, or paper out of the window. Life is too short to waste on continuous uphill struggles, and likely to be all the shorter if I do. So for now, I am signing off, and if I never sign on again, you will know it is for the best.

Haven't had time to post for the past few days, thanks to preparing our response to the latest in the never-ending stream of consultations the Government has been running to make it look like they are listening, before proceeding to do exactly what they always intended to, however stupid the idea was shown to be in the responses. The deadline was yesterday, but now I'm off to Switzerland until Wednesday, so it will be more radio silence until then. JG is keeping things ticking over nicely, but apologies to those who have posted comments.

There was a flurry of triumphant snorts on Friday when some libertarian blogs picked up a post from earlier in the month, which had commented on the recent paper by William Nordhaus on carbon-pricing. The ASI got it from voluntaryXchange, who got it from Newmark's Door, who had spotted the original post at ReasonOnline. The excitement was because Nordhaus, described variously as "perhaps the world's leading expert on the economics of climate change" and "the economic expert on global warming", had done some modelling of the optimal profile of carbon-pricing, and had concluded that, as the ASI put it, "the suggestions of both the Stern Review and Al Gore don't cut it". Rather, Nordhaus estimates that the optimal level in 2010 for the price of carbon is $34 per tonne (tC), equivalent to around 9 cents per gallon of petrol (i.e. bugger all in the grand scheme of things).

Just a couple of points:

1. Apart from the original article (Reason) they conveniently forgot to report that Nordhaus was not advising a static price, but one which should increment in real terms by around 2.5 per cent per year, to $42/tC in 2015, $90/tC in 2050, and $207/tC in 2100. Those later prices would be felt more keenly, if it weren't for the likelihood that they will be dwarfed by higher fossil-fuel prices by then.

2. More importantly, although Nordhaus's paper dresses the analysis up in a great deal of elaborate academic clothing (and very much more substantial clothing than Stern and Gore, it has to be agreed), it all pretty much boils down to the usual culprit - the discount rate. If, like Stern, you believe that it is wrong, on moral grounds, to discount the costs of future disaster, then you choose a very low (almost zero) discount rate and end up with enormous present costs for future risks attributable to global-warming, and therefore a rationale for taking strong, immediate action based on a high present cost of carbon. If, like Nordhaus, you believe that close-to-zero discounting is irrational, you set a modest discount rate which, over the timescales over which the impacts of global-warming might be felt, reduces the present costs of even catastrophic events to quite low values and results in a steady-as-she-goes policy prescription.

The funny thing is that both Stern and Nordhaus can present simple illustrations that demonstrate the irrationality of the opposing perspective. Stern can say, as paraphrased by Nordhaus, that "a positive time discount rate would lead societies to ignore large costs that occur in the distant future." In other words, if one combines economists' willingness to put a value on life with a modest discount rate, one can end up with a low present value for the deaths of even millions of people sufficiently far in the future (and thanks to the wonders of compounding, not that far into the future). It follows that it isn't worth doing much now to avoid large numbers of deaths, even if our actions make those deaths inevitable, provided that those deaths are not too soon.

On the other hand, Nordhaus gives his "wrinkle experiment" illustration of the absurdity of Stern's use of minimal discounting. "Suppose that scientists discover a wrinkle in the climate system that will cause damages equal to 0.1 percent of net consumption starting in 2200 and continuing at that rate forever after", he muses. "How large a one-time investment would be justified today to remove the wrinkle that starts only after two centuries? Using the methodology of the Review, the answer is that we should pay up to 56 percent of one year’s world consumption today to remove the wrinkle. In other words, it is worth a one-time consumption hit of approximately $30,000 billion today to fix a tiny problem that begins in 2200."

So we have two competing approaches, both of which yield absurd results. Should we just choose the version of absurdity that we prefer? Or argue that, in medio veritas, the truth must lie somewhere (but who knows where) between two absurd positions? Or should we stop and consider whether the problem lies with what these two approaches have in common?

What this is telling us is that we have reached the limits of the usefulness of mathematical economics. Though it came to dominate economics over the course of the twentieth century, it was always a dead end. Now we see exactly how sterile and ridiculous is the idea that you can model human action with numbers and formulae. Climate-change theory turns out to be the perfect reductio ad absurdam test of neo-classical, welfare economics. And it fails.

Mark Wadsworth (whose blog is one we recommend in our blogroll) managed to get a long (by their standards) letter published in yesterday's FT, criticizing John Redwood's focus on reducing corporation tax, when in Mark's opinion greater emphasis should be placed on reducing VAT and National Insurance (NI). Well done for getting published, Mark. You are half right.

You are right that some taxes need reducing more urgently than corporation tax, and that NI is one of them. On the other hand, Redwood is nevertheless right that we need to cut corporation tax (if not as a priority above other cuts), and you are wrong about VAT as a priority.

I say this with some confidence, because I happened, the day before, to be browsing the latest version of Taxation trends in the European Union - Data for the EU Member States and Norway, from Eurostat, the EU's statistics office (yes, I am that sad). The figures in there do not support Mark's argument in its entirety.

Corporation tax needs cutting because, although our biggest competitors have higher rates, we are not only in competition with them, but with the 20 other European countries that have lower rates than us. Not to mention the BRICS countries, and other developing nations. Your principal competitors change according to who is competing most aggressively. The best way to lose your competitive position is to focus complacently only on your old competitors.

(Having said, that, one does need to be careful about what one means by "competitiveness", as Samuel Brittan, pointed out in yesterday's FT. But the conditions that influence where businesses choose to invest and to book more or less of their profits does seem a legitimate area for international tax competition.)

It also needs cutting because high rates of corporation tax distort investment decisions, as companies structure deals and decide their levels of borrowing and saving in order to minimize their tax bills rather than because of the fundamentals. And because experience in countries (particularly in Eastern Europe) in recent years suggests that high rates are at an inefficient point on the Laffer Curve, and that cutting rates to below our current level can increase (or at least, not significantly reduce) revenues.

Although the comparisons for consumption taxes indicate that the UK's rates are already pretty competitive, it would be misleading for me to suggest that we are in competition over rates of VAT in the same way that we are in competition on corporate tax. Most of us do not have much option to go to another country to consume our goods. The costs of doing so are likely to be very much greater than the tax benefit. Nevertheless, it does raise doubts as to whether further reductions in VAT should be an urgent priority.

VAT does not have much impact on costs of production, thanks to the offsetting of VAT on purchases against VAT on sales. It is effectively a tax on final consumption. Apart from the case of one-to-one transactions involving personal services (e.g. paying in cash for your gardener or cleaner), it is relatively unavoidable. Nor is it so high (at 17.5% nominal, 11% implicit, i.e. taking into account lower rates and exemptions) that it will be deterring significant levels of economic activity, relative to other taxes whose rates are significantly higher. Consequently, a reduction in VAT is likely to have a near-proportionate impact on tax revenues - there is unlikely to be a significant Laffer-Curve benefit.

Mark argues that "VAT does not just increase the price paid by the consumer; it also reduces the net price received by the producer. Thus low-margin producers are forced out of business and output is reduced quite significantly." Well, yes, it will be a bit of both, though the combined effect will remain 17.5% (or whatever rate of VAT applies to the good). The balance between one and the other will depend on commercial decisions, which will be heavily influenced by price-elasticity of demand. If demand is inelastic, producers should be able to pass on most of the cost to consumers without dramatically affecting volume, and therefore profits. If demand is elastic, producers will have to choose between passing on the costs to consumers and accepting a lower level of demand, or absorbing the cost to maintain volume, but reducing margins/profits. Their balance of fixed vs variable costs will play a significant part in that decision.

The net effect, as Mark says, is that some marginal products are not brought to market, the volumes of some other products are reduced, and the prices of goods that are essential or at least strongly desired, are higher than would otherwise be the case. But this is not different in effect to other taxes. Corporation tax also affects either the level of profits or the price at which the company's goods must be sold in order to deliver the return on investment necessary to persuade people to invest (or retain their investment). At the margins, it will also cause businesses not to be setup or to divert their funds into more profitable activities, which reduces the range of products available and the volume of transactions, and increases the price of goods for which demand is inelastic. And income tax and NI increase the cost of producing goods with a significant labour input, causing fewer of those sorts of goods to be produced and increasing the cost to consumers of essential, high-labour goods. All taxes have this sort of effect - it is a question of striking a balance between their impact on the economy and the need to raise revenue. In that regard, 17.5% (or 11% on average) on consumption could be expected to have a less significant impact than 28% on profits or 40-50+% on employment.

It is that latter figure that seems a particularly strong disincentive to something particularly desirable. NI, of course, is part of the tax on employment, and the most regressive part at that. I am in agreement with Mark on this, and yet the European figures once again do not appear to support us. The only countries in Europe with lower implicit (i.e. weighted average) tax rates on labour, including income tax and employer/employee social security contributions (SSCs, i.e. NI in the UK) are the tiddlers of Greek Cyprus and Malta. It seems that the UK government is taxing labour relatively lightly. Moreover, our SSCs are a relatively low proportion of the whole (less than half the average) compared to most of our neighbours, whereas our income-tax rates are higher than average, which might suggest that NI isn't even the place to start if one were reforming UK taxes on labour.

And yet, it is still true that our employment taxes are too high. Eurostat knows it too:

"Despite the presence of a number of low taxing countries, taxation on labour is, on average, much higher in the EU than in the main other industrialised economies. The effective tax rate on labour in the United States was estimated at just 23.9 % in 1999, compared with an EU-25 ITR of 36.3 % for that same year. Carey and Rabesona (2002) estimated a 24.9 % average effective tax rate on labour for the United States in 1999, i.e. 12 percentage points less than the estimate for the EU-15; the difference with Korea (13.9 %) was even more than 20 percentage points. Values for Japan (23.0 %), New Zealand (23.0 %), Australia (25.3 %), Canada (30.3 %), and Switzerland (31.1 %) were far below the EU-15 average, too. Martinez-Mongay (2000) found broadly similar differences between the EU and the United States and Japan. Indirectly this is confirmed by OECD data on the tax wedge."

And that's just the industrialised countries. The comparison with the developing nations will be even less favourable.

In this case, like corporation tax and unlike VAT, there is an element of international competition, as labour can move, if not as easily as capital. We see the effect in the inflow of Eastern Europeans to the UK at the moment (they could equally have gone to Sweden rather than Britain or Ireland, but the numbers were proportionately lower to the high-tax country that opened its doors) or the numbers of French already here, and the outflow of Brits to countries like Australia and the USA. The only country with higher taxes (and then not much, and not in terms of the proportion paid by the employee) to which there are major flows of Brits is Spain, and most of those are going there to retire.

The universal impact of taxes - of preventing some goods being produced, of reducing the volumes of other goods, and of pushing up the price of goods for which demand is least elastic - applies to taxes on employment as much as any other. But it manifests itself in specific and particularly harmful ways. The goods that are not being produced or are produced in lower numbers or are being made more expensive (without the producer benefitting) are jobs. The only way that high employment can be balanced with high taxes on employment is if people are prepared to accept a lower level of take-home pay. But as take-home pay has a significant impact on the sustainable level of demand in the economy, even that would not prevent high employment taxes from having a deleterious impact on the economy and people's wellbeing. And in practice in Europe, there is strong resistance to rebalancing levels of pay to take account of the cheaper labour and lower taxes that can be found elsewhere. The result is predictable and borne out by experience - high unemployment and low growth.

We may look smugly at the relative, official levels of unemployment and growth in Germany, France and the UK and believe that we are doing better than them. But while we undoubtedly have been doing better on average than those of our neighbours who have been slowly strangling themselves for the past decade or more, we are not so much better as the official figures might suggest. Our (un)employment figures are massaged by moving an incredible number on to disability benefit, and our employment figures are entirely dependent on the vast number of additional public-sector jobs (for which demand is unaffected by employment taxes because their "customers" - taxpayers - have no option until election-time but to pay the extra) that have been created since 1999. Worse still are our effective, marginal rates of tax (taking account of means-tested withdrawal of benefits), which provide a strong disincentive for those on benefits to seek work, unless they can jump straight into a high-paying job. We may only be mutilating rather than strangling our economy, and hiding our self-inflicted wounds better than our competitors, but it does not diminish the long-term impact, which is that competitors from outside Europe are catching us up or leaving us behind.

The first priority is clear, and I don't think would be in dispute between Mark, John Redwood and myself (though it would appear that Redwood's party, like the others, would dispute this). We must reduce the size and cost of government as much as possible, so that we are able to reduce the burden of taxation in general. But it will not be possible to reduce taxation to a level which has little impact. Priorities have to be chosen with regard to where the burden of the state should fall. As that burden is effectively a disincentive, it is, in significant part, a question of what one is least reluctant to disincentivize: jobs, profits or consumption (to limit ourselves to the three options considered by Mark). Though it is not ideal to discourage any of these, it seems to me that the least harmful of the three to deter is consumption, then profits, with employment being the least desirable thing to penalize. As things stand, the priorities are in exactly the reverse order. Redwood would rebalance it in favour of profits. Mark would rebalance it in favour of employment and consumption. I would rebalance it in favour of employment and, to a lesser extent, profits.

It seems that Mark and I agree on one other thing, though - perhaps more important than the levels of taxation, to complement the emphasis on reducing the level of tax on employment. Nominal rates are all very well and a worthy target for reduction, but what really matters are effective and marginal rates. This brings into play other factors, such as personal allowances and benefits. In comments on Mark's post, Vindico (a fellow individualist whose blog is now added to our blogroll) suggested that a flat tax be combined with a Basic Income (BI) to achieve a more efficient balance of effective and marginal rates of taxation. Mark agreed enthusiastically, and so do I.

I have been trying to promote BI as an efficient, liberal, compassionate alternative to welfare, and not necessarily a left-wing policy as many seem to assume, for some time. All reforms of the tax system, fiddling with the calculations for means-testing benefits, and sounding tough about forcing people back to work, will have little effect on the draconian levels of effective, marginal rates of taxation on low-earners that keep many of them out of work. Only a Basic Income can solve this. It is a sine qua non of genuine tax and benefit reform. If UKIP were to make it part of their programme, as Mark says they are considering, they would gain at least one more supporter.

GdF is an energy company, Suez operates in the energy and environment sectors. They want to merge. The French government is intervening to tell Suez that it must divest itself of its environment division if the merger is to go ahead. Why is that?

Is it on competition grounds? Quite the opposite. The competition threat comes not from the merging of Suez's environment division with GdF's energy activities, but from the merging of the two companies' energy interests. But the French government is not only unconcerned about creating an energy behemoth, it is actively encouraging it as the desirable outcome. They want to create another "national champion".

Is it because there are few synergies between the energy and environment sectors? Suez obviously doesn't think so, and as it is the active partner, protecting the tasty morsel that is GdF from the terrible fate of being swallowed by a foreign competitor such as Italy's Enel, Suez's opinion ought to count. And there are indeed obvious synergies, for instance in the potential for the use of waste as a source of energy, and in the environmental impact of energy-generating and -supplying activities. The French government has not tried to justify its intervention on these grounds.

No. It is because the French government wants to retain in the merged group the share of influence that it currently has over GdF. As Sarkozy said, "I proposed to Suez that it merge its energy activities with Gaz de France... to build a big gas and electricity group with... the state as principal shareholder."

Let's not worry that its influence has proved so effective that it has made GdF a target of acquisition. Nor that the group in which the French government has less influence (Suez) has been doing better than the group in which it has more influence (GdF). This is not about commercial logic and the good of the businesses in question. It is about power and making sure that the French state has the biggest finger in as many big pies as possible. Commercial logic and competition be damned. The inevitable result of political involvement in commercial activities.