Sub-prime carbon - government failure?
This will be a teaching topic I return to in the spring, but Radio 4 today carried an excellent report by Roger Harrabin from the BBC on criticisms of the EU’s carbon trading scheme. The report focuses on new research from Friends of the Earth that is highly critical of the emissions trading scheme. “FoE says most trades are done not by polluting industries, but by speculative traders packaging carbon credits into complex financial products similar to those which triggered the sub-prime mortgage crash.” More here from Friends of the Earth which included a link to their report (in pdf format).
Here is the link to the Radio 4 discussion - CEO of the European Climate Exchange Patrick Birley and the author of the FOTE report, Sarah Jane Clifton, discuss the rise in the carbon trading market.
Government legislation week
In time for the start of term, there is lots of legislation coming into force this week. There’s the third rise in petrol duty in nine months, starting today, with the return of VAT to 17.5% at the end of year to come – is this the price of going green, or the price of a budget deficit?
read more...»Government Failure: Thai Rice Buffer Stock
Over the last twenty to thirty years, buffer stock schemes introduced by national governments or collectives of producers have been riddled with problems. The fiscal costs of buying the storing products purchased at guaranteed minimum prices have come to haunt many governments including those in the EU who paid billions of euros for inefficient and inequitable farm support policies. Here is another example of a misguided price support scheme - the Thai rice mortgage scheme introduced a couple of years ago when global food price inflation was at its most severe.
According to this excellent piece from the BBC, “The Thai government is now sitting on a vast stockpile of rice that it bought at peak prices. As the country is such a big supplier to the world market, it cannot sell all this rice without depressing prices even further.” And the gains have been unevenly spread...."rich farmers in the central plains are in areas with irrigation, so they can grow something like three crops a year.....poor farmers in the north-east, they don’t have surplus of rice to sell, so they don’t benefit from this programme at all.”
Europe Revision: Farm Reform
Revision notes on aspects of farm reform in the European Union
read more...»Revision: Short Note on Government Intervention
A short two pager on evaluation when discussing different forms of government intervention in markets - designed for AS micro
AS_Micro_Govt_Intervention_Evaluation.pdf
Chocolate tax - they wouldn’t, would they?
I don’t want to underestimate the dangers of obesity – there are clearly significant social costs associated with it such as extra cost to the NHS of treating conditions caused by it, as well as private costs for the individual – but I know I am not the only person feeling some horror at the idea of a new ‘sin’ tax on chocolate! I do not consider myself a chocaholic, but I admit that I do indulge in chocolate from time to time. Judging from the responses on TV and radio programmes yesterday I’m not alone in thinking this might be a step too far, and I think there could be a need to persuade the government that they should not consider such a move, by making the economic case against tax on chocolate. This is what I have come up with so far – I am sure there are other points that you could add…..
read more...»Tim Harford takes a dig at green taxes
VAT on gas and electricity too low? Excise duty on petrol and diesel too high? Yes says Tim Harford in his Undercover Economist slot this week. “Green taxes have been fussy and poorly-targeted, by turns too stringent and too lax ... This government – like most governments – likes to use the tax system as a way of expressing its moral views: hooray for pensioners, down with Jeremy Clarkson. Cheap politics for them, less so for the taxpayer.”
The rest of the article is here
Government failure and the Rock
Well here is one for the file on classic examples of regulatory (aka government) failure in the market. The Financial Services Authority (FSA) has admitted that it gave too few resources over to monitoring the problems building up at Northern Rock - covered in this BBC article and also this piece in the Financial Times. The FSA seems to have been assuming that the Bank of England stood ready to bale out the Northern Rock and there were failings in the oversight of the Rock by supervisory teams sent to look at the Rock’s flawed business model. None of this will be any comfort to the shareholders and also to the thousands of Rock employees who will lose their job. Robert Peston is brilliant on this issue - here is his latest blog which lays bare the blundering at the FSA and the shocking incompetence of their senior management.
Jackoby on Government Failure
How government makes things worse - Jeff Jacoby writes about the law of unintended consequences and government failure in today’s Boston Globe. There are spooky parallels with failed government policies here at home.
“WHAT DO ethanol and the subprime mortgage meltdown have in common? Each is a good reminder of that most powerful of unwritten decrees, the Law of Unintended Consequences - and of the all-too-frequent tendency of solutions imposed by the state to exacerbate the harms they were meant to solve.”
Read the remainder of the article here
Unintended consequences of the smoking ban
Any government intervention in the market can give us cause to consider the Law of Unintended Consequences where a policy decision or action leads to fresh actions which might not have been considered by those putting a policy in place. Some of these knock-on effects can be positive, a windfall that enhances the impact of the original decision. Others can be negative leading to fears of government failure and a deepening of an existing problem or market failure. The smoking ban seems to be providing a rich seam of examples of such unintended blow-back effects.
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