Who pays tariffs?
As President-elect Trump weighs up the tariffs he has promised to impose, it is important to understand who will pay them.
There is a popular misconception that when a country imposes tariffs on imported goods, it is punishing a foreign government or foreign firms. This is not a mistake made by economists. The tariff is paid at point of entry, and much of it goes to the government that imposed it. It is paid by the importer, a probable wholesaler, who passes it on in the form of higher prices for his or her customers.
The usual aim of the tariff is to make imported goods more expensive so that people will buy good produced domestically instead. It gives the domestic producer an advantage by making the imported version more expensive. The government that imposes tariffs is punishing its own citizens, not foreign ones. It benefits home producers at the expense of home consumers, with the government collecting the money. It thus has a similar effect to a tax increase, in that money goes from the wallets and purses of its citizens and into the Treasury coffers.
Adam Smith pointed out that ‘By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries.’ Indeed it could. The citizen who buys it gains a bottle of wine for (say) £30. If they buy the imported wine they also have a bottle of wine, but they also have £29 left in their pocket. Buying the cheaper imported good has made them richer.
The domestic government could protect its Scottish winemakers by putting a tariff of £29 on imported wines. This would deny its citizens the opportunity to buy £1 wines, and lead them to buy £30 wine, making them poorer.
Trump’s tariffs will be paid by American citizens. It will make their goods more expensive. True, it might also hit foreign firms and foreign workers be reducing their sales in the US. And their own governments might retaliate with tariffs of their own, making their own citizens poorer.
This is not the way to go. As Adam Smith observed, trade without tariffs makes people richer. The more trade, the more wealth. Tariffs impoverish everyone. They are a bad idea.
MiliEd is making one heck of a bet about dunkelflautes
This is a fairly horrifying chart:
Recent energy generation in Germany - and as noted, this is after Germany has spent €500 billion (we’ve heard higher, perhaps a € trillion) on lots of that lovely renewable energy. Of which there isn’t very much because we’ve a dunkelflaute. A not uncommon (one estimate has this as being a 50/50 chance for a couple of weeks every 5 years or so) event where there’s low cloud and pretty much no wind.
As far as we can tell - it’s always difficult to quite grasp what people are really suggesting in this field - all of that gas and coal needs to be replaced by batteries. Varied Greens, greens and environmentalists won’t allow anyone to build dams and atomkraft is, of course, entirely out, to the extent of being prematurely closed down. So, we can’t use hydro and nuclear.
This is also, as far as we understand it, the intention for this country. That it should be wind and solar and batteries.
Which is a bit of a problem. Given current technologies and the costs of them enough batteries to power the entire country for a couple of weeks would cost more than all the money made by everyone over the entirety of time*.
So, what are people thinking - assuming that there is indeed thought going on? As we say, properly divining what is being thought and said is difficult here. But as we understand it there’s a claim that batteries are going to get much cheaper. The proof of this is that solar did so therefore batteries will. Economies of scale kick in, d’ye see? Thereby making everything so cheap that it works.
Which is to misunderstand how technology works. It is entirely true that solar has got very much cheaper over the decades. About 20% a year, 4% or so a quarter. So, folk point to that and see the correlation with large scale roll out and assume that this will be true of large scale roll out of batteries too. ‘S’obvious, see?
But solar was getting cheaper at 20% a year in the decades before large scale roll out. It’s still getting cheaper at that 20% a year rate. It was getting cheaper at 20% a year during the large scale roll out. Windmills have not been getting cheaper at 20% a year. They weren’t before large scale roll out, they weren’t during large scale roll out and they’re not right now either.
Sure, economies of scale exist. Large scale production of something is likely to become more efficient over time. But the rate at which it does depends upon the specific technology under discussion. It is not possible to look at solar and claim that batteries will do the same. Well, OK, it is possible because that’s what we think people are currently doing so let us amend - it is not sensible to so assume. For it hasn’t happened with windmills, nor many another technology over the centuries.
We’d even agree on marginal efficiency gains through mass production. But not - not necessarily - orders of magnitude improvements carrying on for decades.
Yet - again, as far as we understand it - this is the bet being placed. That the cost curve for batteries is going to be like that for solar. So, all we need to do is insist that capitalism build batteries and she’ll be right. Which is a heck of a bet to be placing. One that really does seem very high risk indeed. Too high risk even.
It could be true that batteries follow the solar cost curve. We’d tend to think not given the limits of what is known about chemistry and so on. But we’re at least willing to entertain the idea. But, umm, what’s the back up plan if they don’t?
Tim Worstall
*Possibly a rhetorical exaggeration but not much of one.
Prices create clarity, d’ye see?
Back in those archaic times that we actually took note of Bill Nordhaus and Nick Stern in our discussions about climate change they were united upon a major point. We have to use prices in order to make our decisions. We have to use prices to make others make decisions too. We can do this through a carbon tax and markets or through cap and trade and markets but prices do have to be the thing. Because only through prices can we actually see - clearly and obviously - what actually is the least expensive method of dealing with the problem.
As an exercise in wishful thinking, Ed Miliband’s response to a new report on his plans to decarbonise the electricity grid within five years would take some beating. He commissioned a body called the National Energy System Operator (Neso) to examine the feasibility of his plans amid widespread scepticism in the industry that it was remotely achievable.
Neso said this accelerated timetable (it was originally planned for 2035) could technically be met but would require a Herculean effort on every front. Nearly 620 miles of new power lines would have to be built at a time when demands for other construction projects were being expanded amid a desperate shortage of workers.
In addition, millions more people would have to be persuaded to turn off their power at night to conserve energy. Most ministers would consider this analysis and conclude that the 2030 target is far too ambitious, even reckless.
Not Mr Miliband. He greeted the report as a “rebuke to those who said it couldn’t be done”. But it hasn’t been done. Mr Miliband is suffering from the zealot’s delusion that simply wishing something would happen will make it so.
It’s not just that. We have no evidence - really, none at all - that Ed’s plans are going to be less expensive than other methods of dealing with the same problem. We have assurances, yes, but that’s all we have. We have our doubts for, fairly obviously, lowering energy prices by using more expensive forms of energy generation seems unlikely.
But say that this will indeed be true. Where, actually, is that proof of the numbers? Once we’ve added in the new grid, the batteries and all the rest?
Which is why the economists were so insistent that we should not have Heath Robinson constructions planned by central bureaucracy but instead must have a system with the clarity of prices. So we know. #
And, yes, this is important. For, as they also note, humans do more of less expensive things and less of more. So, if we decide to deal with climate change in an expensive manner then we’ll do less dealing with climate change. Which doesn’t strike as sensible TBH.
Tim Worstall
How disappointing, AI isn’t going to make us all that much richer
Artificial intelligence could displace between 1m and 3m private sector jobs in the UK, though the ultimate rise in unemployment will be in the low hundreds of thousands as growth in the technology also creates new roles, according to Tony Blair’s thinktank.
Between 60,000 and 275,000 jobs will be displaced every year over a couple of decades at the peak of the disruption, estimates from the Tony Blair Institute (TBI) suggest.
It described the figure as “relatively modest” given the average number of job losses in the UK has run at about 450,000 a year over the past decade. More than 33 million people are employed in the UK.
The aim of economic advance is - always - to kill jobs. Or, to enable us to gain the output without the use of human labour. That’s the same statement. For that means that we can now have that output from the machines, without labour, plus the new output that we devise that newly freed up human labour to. It’s that new output which is how much richer the machines have just made us.
So, when people say that a revolutionary technology will only kill off a couple of hundred thousand jobs that is to insist that the technology’s not, in fact, all that revolutionary.
As we - to excess perhaps - like to point out the tractor is what gave us the NHS. Before the tractor, the basic mechanisation of agriculture, 90% of the population had to work in the fields to feed the 100%. That 10% not up to its knees in mud is what gave us the Navy, cathedrals, the law, books and all the rest. Now we have tractors and only 2% work on the land. That means 98% of the population can work on not-food things - ballet, the NHS, a change of clothes for all and yes, I’m a Celebrity Get Me Out Of Here. The wealth created by tractors is exactly that we’ve the human labour available to now staff the NHS.
“Only a few jobs destroyed” is exactly what proves that the new tech is a bit of a damp squib.
But then this is an estimate from the Tony Blair Institute after all. They’re not even aware that new tech doesn’t, in fact, mean unemployment in the first place. It just means that the newly displaced human labour goes off and does something else - like the NHS.
Tim Worstall
Taxing farmers back into the peasantry seems an odd idea
We tend to think that inheritance tax in itself is a bad idea. That conversion of capital into current spending by government just strikes us as being the wrong thing to be doing if we desire a high investment, high wage, economy. But, you know, views and prejudices abound in such corners of the political scene.
However we really do think that this idea of taxing farmers back into the peasantry has more than just that problem associated with it. Farming is a highly capital intensive business - the price of that land. Farming is where we see considerable to vast economies of scale. The minimum economic size these days starts at about 200 acres by some estimates. Below that it’s a hobby.
The imposition - again - of inheritance tax upon farms and farmland just does militate against that economic efficiency. Worse than that, over time it’ll drive the size of farms below that economic size. A 20% slice off the capital each generation will do that.
We can see that in history. Napoleon insisted upon division of landholdings among all children in order to break up the power of rural grandees. That’s why France still has so many peasant sized farms - for all the joy that causes the European Union’s agricultural policies. The Protestant British in Ireland insisted that Catholic landholdings must similarly be divided each generation. That’s how millions tried to raise families on half an acre of potatoes with those well known effects in the 1840s.
People deliberately went out to break up farms as a manner of political control. No, we don’t think that the current government is doing this IHT thing to kill off the independent yeomanry - but that will be the effect over time.
It gets worse. Those farming as a hobby, those with holdings too tiny to be possibly economic, will not be taxed. Those just growing into economic size start to get hit with the tax. It’s a direct tax upon economic efficiency that is - which just doesn’t strike as a useful effect of taxation policy.
As at the top our preference would be that wealth cascades down generations, increasing over time those with the resources to be independent of government. We really do think that increasing the portion of the population able to tell Whitehall to b’ggr off is a good thing.
But to deliberately tax farming back into peasantry seems rather more retrograde than tax policy should be.
Now add one more stage. Of course farms employ more capital than just the land. So we’ve now got, with IHT, a tractor tax as well. Not only are we to tax economic sized farms, we’re also to tax - the tractors in short - the capital equipment that makes farming economic at all.
As George put it:
Now my advice for those who die (taxman)
Declare the pennies on your eyes (taxman)
'Cause I'm the taxman
Yeah, I'm the taxman
And you're working for no one but me (taxman)
Given that we’ve just spent 500 years getting rid of peasantry it does seem odd to try to insist upon it again through the tax system.
Tim Worstall
Sorry about this but there is no “new economics” to be had
True, it’s The Guardian headline writers who are wrong here but for all that it’s a common enough demand:
Britain cries out for new economics. Labour has given it repackaged Tory ideas
David Edgerton
Sorry about this and all that but there is no new economics to be had.
Sure, sure, there are new economic policies to be had, new, or at least different, political goals to try to reach. But that’s not a new economics.
Economics, as is continually pointed out, a positive, not normative, science. That is, it doesn’t say “it should be like this” it says “it is like this”. So, if we do this here then that over there is going to happen. Or, alternatively, if you desire that over there to happen then you’ve got to do this ‘ere to make it do so. We’d not claim it’s as accurate as the physics of a tennis racket but the idea is the same. If you want the ball to go there then you’ve got to hit it this way here.
That’s also all that economics does. It doesn’t tell you where the ball should go, it doesn’t say where you should want the ball to go either. That’s tennis - or, to haul this back across the net, that’s politics, morals, perhaps even ethics. Economics can tell us the results of what we do, economics can tell us how to gain a goal that we desire - or of course that it’s not possible to gain that goal - but it cannot tell us what we should be wanting; that’s that morals, ethics, politics and all the rest.
The actual claim here:
We now need change rather than growth. Some things should grow, while others should shrink, such as oil production and aviation. We need innovation, but creative imitation more. We need some investments, but not those that will make us less equal and less decarbonised. We need state investment, but we need to stop corporate losers lobbying governments to invest in carbon capture and storage, HS2 and overpriced nuclear power. We do not need “investable” water services, but rather decent water supplies. We should stop thinking of business as being all about entrepreneurship and “wealth creation”, given that many are neither entrepreneurial nor creating shared wealth.
If we want a more equal, more effective, more efficient and happier Britain, we can have it – even with no growth or lower GDP. But we need to want it, and to have a party that is committed to achieving this and fighting those who stand in its way. Most importantly, any form of national renewal needs new thinking, not doubling down on the failed nostrums of the last 40 years.
Maybe those things are good goals, maybe they’re not. But none of them are about changing economics. They’re about changing the goals we pursue informed by that same old economics.
We’d note that Edgerton does not make the mistake the headline writer does. He’s arguing for different goals not a different science.
As to the goals, well, we disagree but then you knew that. Greater equality for example. Wealth inequality is pretty much unchanged this psat 15 years or so. Income inequality - as we delight in pointing out - is lower than it was in 2008. We’ve not noted any great enthusiasm for how the economy has been working this past 15 years so we do tend to think that equality isn’t it - absolute levels of income are more interesting to people. But that, again, is not economics, that’s politics - or morals, ethics, whatever.
Economics is, therefore we can’t have a new one. Sorry and all that but it’s true.
Tim Worstall
It’s the (money), stupid
The punishment meted out last night to the Democratic Party represents a simple fact: pandemic profligacy has bitten Western government's backside. Inflation, rather than employment, now decides elections. For those on the centre-right, there should be some relief that it is Hayek after all, who is winning the debate over Keynes.
The election result, and US economy, is a quandary for foreign observers, and wonks in particular. The US dollar is strong, productivity is at all-time highs, wages have continued to grow, and unemployment is at historic lows. In 1957, Anthony Downs published ‘An Economic Theory of Democracy’, which stipulated that voters will vote in their personal best interests, and even refuse to turnout if things are going well. If Downs’ rational voter theory was right, voters should not be turning out in swathes, especially not to replace the incumbent. So what has caused this great upset?
Inflation - the invisible tax, has buffeted Downs’ predictions.
Inflation is solely a matter of how much money is in circulation and the capacity of the economy to absorb it. Unlike 2008’s Quantitative Easing, which found its way into bank vaults, the $13 trillion printed for the pandemic is still filtering through America’s checkout. From gasoline to household basics, the surge in prices has outpaced pursestrings. US workers might be 26% better off than in 2020 (in real terms!) - but the pain is still there. And that pain was expressed last night.
Americans, regardless of their political alignment, have felt the pinch of the profligacy of unaccountable central banks. But it is in the poorer, Rust Belt areas where that pinch has felt more like a punch. There, inflation has superseded, or just kept up with, pay rises - a heterogenous outcome from the trillions poured into the Midwest with the Inflation Reduction Act. Again, this is despite higher productivity, a strong dollar, and low unemployment.
There are lessons for Brits here, perhaps not yet learned from the General Election. As our Patron Nadhim Zahawi wrote back in July “voters registering their anger about high interest rates and inflation by turning against incumbents is a feature of politics across Western nations…[e]ven in the US, where their economy is greatly outperforming ours.”
£450bn of pandemic printing from the Bank of England, combined with dreadful economic growth, can only end in tears. In a statement to the Lords Economic Affairs Committee last June, former permanent secretary to the Treasury Nic Macpherson said that Bank of England QE let ‘inflation take root.’ He compared it to heroin: ‘The economy gets addicted to it and needs bigger fixes for it to have an impact.’ There must be more accountability for the Bank of England, and greater acknowledgement of its role in Britain’s political economy. If the UK doesn’t register this, there may be further upsets at the ballot box- this time here in Britain.
The planning system makes it impossible to save the planet
We tend to think we’d rather like to save the planet. Polar bears are cuddly, d’ye see? Well, from a distance they are at least. Therefore we’d probably like to do something about this:
A plan to create a clean electricity system by 2030 promised by Labour before the election is “immensely challenging” but still “credible” if ministers take urgent action to fix Britain’s sluggish planning system, the energy system operator has said.
Britain could become a net exporter of green electricity by the end of the decade at no extra costs to the energy system under the plans and bills may even fall if ministers make the right policy changes, according to the operator.
We do tend to doubt the second part of those conclusions. Using more expensive power sources is unlikely to bring power bills down. But the first part, sure, we agree. The planning system does not allow us to build anything in anything less than geological timescales. Therefore, if we desire to do anything in less than those geological timescales we’ve got to change the planning system.
However, if we were to change the system only for socially approved green projects we’d be missing that opportunity to make the country hugely, vastly, better.
For that planning system bans the building of houses that Britons want to live in. That traditional des res with front and back garden is illegal given the enforcement of the minimum 30 dwellings to a hectare idea. The planning system also bans the building of houses where Britons want to live. That’s the whole point of the Green Belt nonsense, that the haute bourgoisie don’t get their views of rolling green acres interrupted by a crib or two for the proles.
The planning system costs of £300 million just on lawyers for a tunnel under the Thames. That’s good for m’learned enemies and an impertience and impoverishment imposed upon the rest of us.
The planning system prevents anyone building lab space around Cambridge, where the beating heart of the nation’s pharma research pumps away…..and on and on.
We’ve a planning system that prevents anyone from doing anything useful that is. It stems from that nationalisation of the use of land incorporated in the Town and Country Planning Act 1947. As ever, nationalisation has made things expensive, bureaucratic and in short supply. Thus that’s the thing we need to change.
Blow up the TCPA - proper blow up, kablooie. No, don’t replace it, just erase it, bang.
That way we can have houses and tunnels and labs and factories and jobs and a thriving economy and just, in general, be a better country - as well as, if we must, save the cuddly polar bears.
Tim Worstall
Smoke-Free Projection Extended by 9 years
As published in The Guardian yesterday, analysts at Cancer Research UK believe the government's smoke-free by 2030 target is doomed. Instead, the charity suggests that the key public health milestone will be reached by 2039.
The report states, “Our updated projections, based on the continuation of recent trends, indicate that smoking prevalence will continue to fall in England, but not fast enough to achieve the smoke-free ambition set out.”
However, with the analysis coming so close to the controversial budget, it’s not altogether clear if 2039 is even feasible. The Chancellor of the Exchequer’s £2.20 per 10ml tax on e-liquids will make vaping less affordable and hurt the UK’s most vulnerable citizens.
When combined with the eagerness of the government and certain organisations to push through the Tobacco and Vapes Bill, we could start to see the destruction of the UK’s greatest “smoke-free” ally, harm reduction products.
When the Department of Health and Social Care says, “The Tobacco and Vapes Bill will be the biggest public health intervention in a generation,” they might be right. The problem is that these proposed rules will intervene in a private-sector solution that has been instrumental in reducing smoking rates in the UK and beyond.
The deprivation gap
The CRUK report also talks about the deprivation gap among people who smoke. They state that sometime next year, the wealthiest 10% of people in the country will hit a smoking prevalence of around 5%, aka “smoke-free.”
However, the situation for the lowest 10% is far less rosy, with CRUK predicting this cohort won’t get to 5% prevalence for another 25 years
It’s been really clear for a while that smoking harm reduction is a class issue in the UK. Finding ways to engage with these communities to help them quit is essential.
Closing the deprivation gap
Closing the deprivation gap should be a priority. However, we already know that the current government has problems communicating with the demographic that is most affected by smoking. So, it’s hard to have faith in their ability to use public messaging, posters, and school workshops to reduce smoking prevalence in these communities. Instead, any solutions must be pragmatic and grounded in reality.
For starters, price matters. A 267% increase in the most affordable product is tantamount to an attack on poorer vapers, especially when tobacco products will not rise at close to the same rates.
Secondly, whether you’re a fan or not, disposable vapes are effective. They’re available everywhere, day or night, and they work right out of the box. That’s not minor when you consider that about 2 in 3 lower-income homes mostly shop in-store.
Finally, studies show that flavours are an important part of satisfaction when using vapes. Anything that makes vapes more appealing to smokers is a good thing.
Final thoughts
The free market has already provided a blueprint for how to help people stop smoking: convenient, low-cost vapes in a range of satisfying flavours. Without these products, smoking rates would be far higher than the revised 2039 prediction.
What Alternative solutions are there then that will help solve the environmental problem disposable vapes cause and also limit underage illegal sales? I have argued in the past the issue is one of enforcing the laws that are largely in place, namely that it is illegal to sell vapes to under 18’s already. The introduction of a vape licensing scheme could bring in £50m into trading standards whose job it is to enforce the rules. This would lead to a huge increase in enforcement resources to tackle the problem, all without using taxpayers money. In regards to the “environment” a deposit return scheme would provide the market incentive for consumers to return their used products for recycling. Instead the Government is taking the route of taxes and prohibition, one that Australia has also taken with terrible results.
Sadly, the government’s decision to punish people who have already quit smoking will have a tragic effect on “smoke free” targets. If the Government realises they just need to get out of the way to solve this problem, it will benefit UK citizens and the NHS.
Apparently government is not very good at doing something
This will, of curse, come as a great shock to readers here - government turns out to be not very good at performing a task. Here the issue is one of giving away free money - they’re really just not very good at this:
Everywhere you look, the richness and abundance of European nature is under threat. Since the 1970s and 80s, even while many environmental indicators in Europe have improved – cleaner air in cities, less industrial pollution, less sewage in waterways (outside the UK) – the story of nature is one of steep and stark decline. Wildlife, trees, plants, fish and insects – the picture is bleak.
Nature is declining. Boo!
It was not supposed to be this way. Since the early 2000s, changes to Europe’s farming practices and subsidy regime – the common agricultural policy (CAP) – have been geared explicitly towards protecting the environment, as well as supporting farmers and food production. The CAP represents a third of the EU budget, coming to about €55bn (£46bn) a year and in return for that largesse, farmers are supposed to meet a minimum level of environmental protection. Taking additional measures such as growing more trees or conserving wetlands can net them extra support.
The more government spends on farming to aid nature, with targets, plans and insistences to farm to aid nature, the worse the effect of farming upon nature is.
Oh, and also:
The European Union gave generous farming subsidies to the companies of more than a dozen billionaires between 2018 and 2021, the Guardian can reveal, including companies owned by the former Czech prime minister Andrej Babiš and the British businessman Sir James Dyson.
Billionaires were “ultimate beneficiaries” linked to €3.3bn (£2.76bn) of EU farming handouts over the four-year period even as thousands of small farms were closed down, according to the analysis of official but opaque data from EU member states.
The money just goes to the rich anyway.
Note that this is the reformed system. The one before that just paid a flat fee per acre farmed - thus benefitting the richer farmers with the more land. Plus making it more difficult for new entrants, of course because as David Ricardo would have recognised, increasing the rental value of land will push up the capital value of land.
The system before that last reform subsidised ripping out the hedgerows and slathering the countryside in chemicals.
Or, as we can put it, European governments have been doing farming for 80 years now, at minimum, and their farming has got worse as time goes on.
Oh well, three generations on the land and government’s just continued to make it all worse. Time to agree that the experiment has been tried and it doesn’t work. Government’s just not very good at farming so government should stop doing farming.
So, the full New Zealand then. Wholly and entirely abolish the rules, supports, subsidies and interference. Just cancel the entire idea and leave farmers be to work out how best to use their own land. It did, of course, work in New Zealand so it will, of course, work here too.
That £46 billion could also be left to fructify in the pockets of the populace instead of being spent by the European Union on making things worse. H, ha, just our little joke of course. For there’s absolutely no way that Brussels would accept a reduction in their exactions even if they did stop spending it on making farming worse.
But, you know, not making farming worse by not spending €55 billion on making farming worse sounds like a plan. For we’ve tried this and tested it - government just isn’t very good at farming. Therefore government should stop farming.
Tim Worstall