How to Never Fight with a Woman

 

A Level Economics 63: Tradable Pollution Permits

Tradable pollution permits, also known as cap-and-trade systems, are a market-based approach to environmental regulation that aims to reduce pollution levels efficiently and cost-effectively. The rationale behind tradable pollution permits is to create incentives for firms to reduce their pollution emissions while allowing them the flexibility to achieve these reductions in the most economically efficient manner.

The main objectives of tradable pollution permits are as follows:

1. Environmental Efficiency: Tradable permits aim to achieve a predetermined level of pollution reduction, which is set by the government or regulatory authority. By capping the total allowable emissions at this level, the system ensures a reduction in pollution over time.

2. Cost-Effectiveness: Tradable permits allow firms with lower pollution abatement costs to reduce emissions further than required and then sell their excess permits to firms facing higher abatement costs. This creates a market for permits and ensures that pollution reductions are achieved at the least cost to society.

3. Flexibility and Innovation: Tradable permits provide flexibility to firms in meeting their emission reduction targets. Firms have the freedom to choose the most efficient pollution abatement technologies or strategies, which can lead to innovation in pollution control.

4. Certainty and Transparency: With a fixed number of permits issued, the total level of pollution is known in advance. This certainty allows for better planning and investment decisions by firms.

Methodology of Tradable Pollution Permits:

The process of implementing tradable pollution permits involves several key steps:

1. Setting the Cap: The government or regulatory authority determines the total level of allowable emissions (the cap) for a specific pollutant for a given period, such as a year. This cap is based on environmental goals and scientific assessments.

2. Issuing Permits: The government allocates or auctions tradable permits to firms, with each permit allowing the holder to emit a specific amount of the pollutant. The total number of permits corresponds to the predetermined emissions cap.

3. Compliance and Reporting: Firms are required to monitor and report their actual emissions regularly. They must hold enough permits to cover their emissions; otherwise, they face penalties or fines.

4. Trading and Market Mechanism: Firms can buy or sell permits on a secondary market, allowing them to adjust their emissions to match their production levels. Firms with excess permits can sell them to those facing higher emissions, creating a market-based mechanism for achieving the overall emissions reduction target.

5. Periodic Reviews and Adjustments: The cap and the number of permits may be adjusted periodically to align with changing environmental goals and industrial developments.

Examples of Tradable Pollution Permits:

• European Union Emission Trading System (EU ETS): The EU ETS is one of the world's largest and most prominent tradable permit systems. It covers various industries, including power generation, aviation, and manufacturing, and aims to reduce greenhouse gas emissions across the European Union.

• Regional Greenhouse Gas Initiative (RGGI) - United States: RGGI is a cap-and-trade program in the northeastern United States that focuses on reducing carbon dioxide emissions from power plants.

• California's Cap-and-Trade Program: California has implemented a cap-and-trade system to reduce greenhouse gas emissions across multiple sectors, including energy, transportation, and industry.

In conclusion, tradable pollution permits offer a market-driven approach to environmental regulation, allowing for cost-effective pollution reduction while providing flexibility and incentives for innovation. By capping total emissions and allowing firms to trade permits, these systems strive to achieve environmental efficiency and contribute to global efforts in combatting pollution and climate change. 

A Level Economics 56: Externalities

Externalities are unintended spillover effects of economic activities that impact third parties who are not directly involved in the transactions. These effects can be either positive or negative and occur when the production or consumption of a good or service creates external benefits or costs to society beyond what is reflected in the market price. Positive externalities result in underproduction of goods or services, while negative externalities lead to overproduction. In both cases, the failure of the market to fully account for these external effects can result in suboptimal outcomes for society, leading to market failures.

Market Failures Due to Positive Externalities: Positive externalities occur when the consumption or production of a good or service confers benefits to third parties. Two main market failures arise due to positive externalities:

1. Underproduction: Positive externalities lead to underproduction of goods or services because producers do not consider the additional benefits conferred on society beyond what consumers pay for.

   Example: The use of renewable energy sources, such as solar or wind power, contributes positively to the environment by reducing greenhouse gas emissions and mitigating climate change. However, producers may not fully consider the environmental benefits when deciding how much renewable energy to generate, resulting in an underproduction of clean energy.

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3. Welfare Loss: The underproduction of goods or services with positive externalities results in a welfare loss to society. If these goods were produced and consumed at the optimal level, the social benefits to society would be greater than the private benefits to consumers.

   Example: Investments in education create positive externalities by improving the overall human capital of society, leading to a more skilled and productive workforce. However, private individuals may not consider the full societal benefits when deciding how much to invest in education, resulting in an inefficient allocation of resources.

Market Failures Due to Negative Externalities: Negative externalities occur when the consumption or production of a good or service imposes costs on third parties. Two main market failures arise due to negative externalities:

1. Overproduction: Negative externalities cause overproduction of goods or services because producers do not bear the full costs imposed on society beyond what consumers pay for.

   Example: The production and consumption of fossil fuels result in air pollution and adverse health effects, imposing costs on society. However, the market may overprovide fossil fuels because the negative externalities, such as pollution, are not fully accounted for in the price of the fuels.

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3. Welfare Loss: The overproduction of goods or services with negative externalities results in a welfare loss to society. If these goods were produced and consumed at the optimal level, the social costs imposed on others would be lower than the private benefits to consumers.

   Example: The production of certain chemicals may lead to water pollution, harming ecosystems and communities downstream. The market may overproduce these chemicals since the costs of pollution are not borne entirely by the producers.

In both cases of positive and negative externalities, market failures arise because market participants do not take into account the full social costs or benefits associated with their decisions. To address these market failures, governments can intervene through various policy measures, such as taxes and subsidies, regulations, and market-based mechanisms, to internalize externalities and promote a more efficient allocation of resources. By correcting these externalities, policymakers aim to achieve a better balance between private interests and societal well-being, leading to a more optimal and equitable outcome for the economy and society as a whole.

A Level Economics Essay 16: Immigration and Labour Markets

Evaluate the impacts of an increase in immigration on labour markets. 

An increase in immigration can have various impacts on labor markets. Here's an evaluation of the potential effects:

1. Increased labor supply: Immigration results in an increase in the number of workers available in the labor market. This can lead to a larger labor supply, which may affect wages and employment levels.

Positive impact:

• Greater labor supply can address labor shortages in certain industries or regions.
• Increased competition for jobs may lead to greater efficiency and productivity as firms have access to a larger pool of skilled workers.

Negative impact:

• In sectors where immigrants are concentrated, increased labor supply may lead to downward pressure on wages, particularly for low-skilled jobs.
• If there is a mismatch between the skills of immigrants and the demand in the labor market, it can result in unemployment or underemployment.

2. Skill complementarity and specialization: Immigrants often bring unique skills and knowledge to the labor market, complementing the skills of the domestic workforce. This can contribute to specialization and increased productivity.

Positive impact:

• Immigrants with specialized skills can fill gaps in the labor market, especially in sectors that face skill shortages.
• Diversity in skills and perspectives can stimulate innovation and entrepreneurship.

Negative impact:

• If there is a significant wage differential between skilled and unskilled immigrant workers, it can create income inequalities within the labor market.

3. Impact on native workers: The presence of immigrant workers can have both positive and negative effects on native workers.

Positive impact:

• Immigrant labor can fill positions that native workers may not be interested in, allowing native workers to pursue higher-skilled or higher-paying jobs.
• Immigrant entrepreneurs can create new businesses and job opportunities for native workers.

Negative impact:

• In certain cases, native workers may face increased competition for jobs, especially in sectors where immigrants are overrepresented.
• Native workers with lower skills or education levels may experience wage pressures or displacement.

4. Fiscal impact: Immigration can have fiscal implications, as immigrants contribute to tax revenues while also utilizing public services and welfare benefits.

Positive impact:

• Immigrants can contribute to economic growth and tax revenues through their participation in the labor market.
• Younger immigrants can help support an aging population and alleviate the burden on social security systems.

Negative impact:

• If immigrants have limited access to social benefits or face barriers to employment, there may be a strain on public services without commensurate contributions.

Overall, the impacts of increased immigration on labor markets are complex and multifaceted. They depend on factors such as the skills and qualifications of immigrants, the structure of the labor market, and the existing economic conditions. Policy interventions, such as ensuring appropriate skill matching, promoting integration programs, and addressing wage differentials, can help maximize the positive impacts and mitigate potential negative effects on labor markets. 

The power of negative thinking

Tim Harford in The FT 

For a road sign to be a road sign, it needs to be placed in proximity to traffic. Inevitably, it is only a matter of time before someone drives into the pole. If the pole is sturdy, the results may be fatal. 

The 99% Invisible City, a delightful new book about the under-appreciated wonders of good design, explains a solution. The poles that support street furniture are often mounted on a “slip base”, which joins an upper pole to a mostly buried lower pole using easily breakable bolts. 

 A car does not wrap itself around a slip-based pole; instead, the base gives way quickly. Some slip bases are even set at an angle, launching the upper pole into the air over the vehicle. The sign is easily repaired, since the base itself is undamaged. Isn’t that clever? 

 There are two elements to the cleverness. One is specific: the detailed design of the slip-base system. But the other, far more general, is a way of thinking which anticipates that things sometimes go wrong and then plans accordingly. 

That way of thinking was evidently missing in England’s stuttering test-and-trace system, which, in early October, failed spectacularly. Public Health England revealed that 15,841 positive test results had neither been published nor passed on to contact tracers. 

The proximate cause of the problem was reported to be the use of an outdated file format in an Excel spreadsheet. Excel is flexible and any idiot can use it but it is not the right tool for this sort of job. It could fail in several disastrous ways; in this case, the spreadsheet simply ran out of rows to store the data. 

But the deeper cause seems to be that nobody with relevant expertise had been invited to consider the failure modes of the system. What if we get hacked? What if someone pastes the wrong formula into the spreadsheet? What if we run out of numbers? 

We should all spend more time thinking about the prospect of failure and what we might do about it. It is a useful mental habit but it is neither easy nor enjoyable. 

We humans thrive on optimism. Without the capacity to banish worst-case scenarios from our minds, we could hardly live life at all. Who could marry, try for a baby, set up a business or do anything else that matters while obsessing about what might go wrong? It is more pleasant and more natural to hope for the best. 

We must be careful, then, when we allow ourselves to stare steadily at the prospect of failure. Stare too long, or with eyes too wide, and we will be so paralysed with anxiety that success, too, becomes impossible. 

Care is also needed in the steps we take to prevent disaster. Some precautions cause more trouble than they prevent. Any safety engineer can reel off a list of accidents caused by malfunctioning safety systems: too many backups add complexity and new ways to fail. 

My favourite example — described in the excellent book Meltdown by Chris Clearfield and András Tilcsik — was the fiasco at the Academy Awards of 2017, when La La Land was announced as the winner of the Best Picture Oscar that was intended for Moonlight. The mix-up was made possible by the existence of duplicates of each award envelope — a precaution that triggered the catastrophe. 

But just because it is hard to think productively about the risk of failure does not mean we should give up. One gain is that of contingency planning: if you anticipate possible problems, you have the opportunity to prevent them or to prepare the ideal response. 

A second advantage is the possibility of rapid learning. When the aeronautical engineer Paul MacCready was working on human-powered aircraft in the 1970s, his plane — the Gossamer Condor — was designed to be easily modified and easily repaired after the inevitable crashes. (At one stage, the tail flap was adjusted by taping a Manila folder to it.) 

Where others had spent years failing to win the prestigious Kremer prize for human-powered flight, MacCready’s team succeeded in months. One secret to their success was that the feedback loop of fly —> crash —> adapt was quick and cheap. 

Not every project is an aeroplane but there are plenty of analogies. When we launch a new project we might think about prototyping, gathering data, designing small experiments and avidly searching for feedback from the people who might see what we do not. 

If we expect that things will go wrong, we design our projects to make learning and adapting part of the process. When we ignore the possibility of failure, when it comes it is likely to be expensive and hard to learn from. 

The third advantage of thinking seriously about failure is that we may turn away from projects that are doomed from the outset. From the invasion of Iraq to the process of Brexit, seriously exploring the daunting prospect of disaster might have provoked the wise decision not to start in the first place. 

But I have strayed a long way from the humble slip base. It would be nice if all failure could be anticipated so perfectly and elegantly. Alas, the world is a messier place. All around us are failures — of business models, of pandemic planning, even of our democratic institutions. It is fanciful to imagine designing slip bases for everything. 

Still: most things fail, sooner or later. Some fail gracefully, some disgracefully. It is worth giving that some thought.

What would negative interest rates mean for mortgages and savings?

Hilary Osborne in The Guardian 

 

You will need to dig out your paperwork to see how low your mortgage rate could go. Photograph: Joe Giddens/PA


The governor of the Bank of England, Andrew Bailey, has paved the way for negative interest rates, saying officials are actively considering all options to prop up the economy.

The Bank’s base rate stands at 0.1%, the lowest level on record, so it would not take much to take it into negative territory. The UK would not be the first country to have a negative rate at its central bank – Japan and Sweden are among those that have done so.

What happens to my mortgage?

If it’s a fixed-rate mortgage, nothing. And most households are on this type of deal – in recent years around nine in 10 new mortgages have been taken on a fixed rate.

If it is a variable-rate mortgage – a tracker, or a mortgage on or linked to a lender’s standard variable rate – the rate could fall a little if the base rate is cut. But the drop is likely to be limited by terms and conditions. David Hollingworth, of the mortgage brokers London & Country, says trackers sold very recently have in some cases had a “collar” that prevents the lender from having to cut the rate at all. Skipton building society, for example, has a tracker at 1.29 percentage points above the base rate that can only go up.

Older mortgages often have a minimum rate specified in the small print. Nationwide building society, for example, will never reduce the rate it tracks below 0% – so if your mortgage is at base rate plus 1 percentage points, it will never fall below 1%. Santander specifies in some mortgages that the lowest rate it will ever charge is 0.0001%.

You will need to dig out your paperwork to see how low your mortgage rate could go.

Will new mortgages be free?

In Denmark, mortgages with negative interest rates went on sale last year. Borrowers with Jyske Bank were lent money at a rate of -0.5%, which meant the sum they owed fell each month by more than the sum they had repaid. There is no reason why UK lenders could not follow suit, although so far there is no sign that any will.

In the meantime, fixed-rate mortgages are getting cheaper and may continue to fall in price. Big lenders including HSBC and Barclays have reduced fixed-rates this week and more may follow. Hollingworth says borrowers now have a choice of five-year fixed rates below 1.5%, with HSBC’s deal now at 1.39%.

Tracker mortgages have been pulled and repriced with larger margins, to cushion lenders against falling rates. If rates are cut again, expect more of that, as well as the collars already seen on some deals.

A negative base rate means banks and building societies have to pay to keep money on deposit, and it is designed to discourage them from doing so and make them keen to lend.

Fears over what might happen to property prices mean they are still likely to lend very carefully, but they should not need to restrict the range and number of mortgages on offer. Some lenders that reduced their maximum mortgages while they were unable to do valuations have started to offer loans on smaller deposits, although the choice of 90% loans is very limited. “Lenders do have appetite to lend,” says Hollingworth.

What happens to my savings?

Savings rates have already been hit by the two base rate cuts in March and most easy-access accounts from high street banks are already paying just 0.1% in interest.

Andrew Hagger, the founder of the financial information website Moneycomms, says he thinks it is unlikely banks will start charging people to hold their everyday savings. “Many would just withdraw cash and possibly keep it in the house, thus opening a can of worms around security and break-ins,” he says. “However, if the Bank of England did introduce negative rates, I’m sure we would see even more savings accounts heading towards zero.”

Rachel Springall, from the data firm Moneyfacts, says: “The most flexible savings accounts could face further cuts should base rate move any lower or if savings providers decide they want to deter deposits.”

She is not ruling out a charge for deposits. “Some savings accounts could go down this path – similar to how some banks charge a fee on a current account,” she says.

Wealthy savers are likely to be the first who would face a charge. Last year UBS started charging its ultra-rich clients a fee for cash savings of more than €500,000 (£449,000), starting at 0.6% a year and rising to 0.75% on larger deposits. And at the Danish Jyske Bank, similar charges apply.

“It could be that super-rich clients in the UK get charged a similar fee as the commercial banks may wish to discourage large cash holdings which they are having to pay for,” says Hagger.

What about loans and credit cards?

Personal loan rates are already low and are usually fixed, so you will not see your monthly repayments fall if rates go down. Credit card rates are usually low for new customers, but rise far above the base rate once introductory periods have ended, so will not be anywhere close to falling into negative territory.

Hagger says he does not expect card or loan rates to plummet in the near future, “as I think banks will continue to tighten their credit underwriting – I think they’ll be more concerned about rising bad debt levels due to a surge in unemployment, for the remainder of 2020 at least.”

This month Virgin Money closed the credit card accounts of 32,000 borrowers after carrying out “routine affordability checks”. It later reversed the decision, but this could be a sign that lenders are reviewing their customer bases and trying to reduce their risk.