“Greece is an example of perhaps the worst case of austerity leading to public health disasters,” Mr. Stuckler explained in a telephone interview.

“After mosquito spraying programs were cut, we’ve seen a return of malaria, which the country has kept under control for the past four decades. New HIV infections have jumped more than 200 percent,” he noted.

Via. This is just an addendum to yesterday’s post trying to personalise it a little.

Reblogged from uneconomical:

As Matt Yglesias points out, although the periphery’s descent into hell is decelerating, even Germany is suffering. It reported only 0.1% quarter-on-quarter growth for Q1 2013. This is what Eurozone economic “growth” looks like versus US growth.

And, although Karl Smith can’t make Eurostat spit out the numbers he wants someone can. Above is growth rates, what that fails to show is the magnitude of the divergence between the US, where fiscal policy is nuts but monetary policy relatively sane, and the EU where everyone’s just gone batshit crazy and decided things need to get worse before they can get better.

Let this be a lesson to you, you can fill a properly instituted legislature with lunatics and by the magic of checks and balances somehow survive, let them into your central bank and you’re doomed.

September 2012 – EPR reactor construction site – Flamanville, France © EDF, Morin Alexis

First of all, nuclear power is a safe and clean energy source. However, building nuclear power stations is really, really hard and they are often delivered over budget and behind schedule. You’d think, since we’re on the verge of building a new one at Hinkley Point, we’d be doing everything we can to make sure it’s done right. Right? Wrong. To incentivise its construction the government and EDF are doing everything they can to destroy any incentive of building to time and budget.

To understand energy investment in the UK today you need to understand the government’s energy market reform. Trust me I’ll keep it short and use bright colours.

The government doesn’t want to, and legally cannot, willy-nilly subsidise energy investment in the UK. One because they’re Tories and they don’t want any spending on balance sheet because they’ve fetishised the UK’s debt and two because EU state aid rules mean they’re just not allowed to subsidise private energy producers. In the next few years lots and lots of power stations are going to be retired because they’re old and nobody wants to replace them without a subsidy. We are at an impasse that leads to an energy crisis. Can an impasse lead somewhere? Yes. Shut up.

The solution is an elaborate system of contacts, payments, counterparties, bargaining, auctions and horseplay that we know as Electricity Market Reform. The system is really simple. You sign a contract agreeing to produce electricity and the government guarantees you for a set number of years a certain price per Megawatt hour. If the market price is below that contracted price consumers receive a surcharge on their bill, if the market price is above it they get a bonus. How often do you get the bonus? Shut up.

Eventually the contracts will be auctioned which should mean that payments to consumers occur roughly as much as payments from them. But to begin with the contracts will be negotiated. Because we’re in such a poor state generation wise we’re getting blackmailed by the French.

Taken from here.

EDF want to build a nuclear power station using a reactor developed by Areva called the EPR. In order to build it is reported that EDF are to receive £93-96 per Megawatt hour. This is more than double the current market price of electricity. To justify the investment EDF claim to need an ex-ante internal return of around 10%. Their problem isn’t that a nuclear power plant is an unproductive investment, they produce a phenomenal amount of electricity. It’s the construction.

Olkiluoto, the first EPR to be built will be 200% over budget and six years late when complete. Flamanville, the second EPR will be about 150% over budget and 4 years late. Linear projects are a fool’s game, but fuck it, at this rate Hinkley Point C will be two years late and double the cost expected. Since the UK is desperate for new, low-carbon generation EDF know they have us over a barrel and a likely cost overrun on their hands. Hence why we’ll be paying them double the market price for electricity.

It doesn’t end there though. If you thought the incentives were bad enough as I’ve describe, it gets worse. To prevent massive windfall profits the government are going to insert a clause into the agreement which will allow for excess profits to be clawed back. Mull that one over.

If EDF build over budget they’ll make a modest profit because they’ve been guaranteed a high energy price.

If EDF build to budget they’ll make a modest profit because government will confiscate the payments consumers pay to EDF because they’ve been guaranteed a high energy price.

As well as being an arsebackwards roundabout way of getting you and me to subsidise the building of power stations it completely eviscerates any financial incentive for EDF to run the project to budget and to schedule. I’ve a soft spot for giant infrastructure projects, complicated engineering and carbon free electricity, but we are running this project like we want it to fail and to cost everyone a lot of money to get there.

The £1.1bn Sellafield Infrastructure Strategic Alliance (ISA) was signed in December 2012 and awarded to a joint venture between engineering, design and consultancy firm Arup and construction and regeneration group Morgan Sindall. Delivery of the contract begins in May 2013…The main contractors in this case operate on the basis of three renewable five-year terms.

That’s some serious money. Justifying spending that must require a pretty nuanced communications strategy, eh, Sellafield spokesman Karl Connor?

“The chances are [a firm on a two-year short term contract will] come in and build it, using migrant workers, and then leave when it’s built.  However, if they have a 15 year contract to help us across a wide range of similar pieces of work, they would be more likely to set up an office locally and invest in training local apprentices.”

I’m being a little unfair to Karl, but only a little. I think it’s pretty reprehensible to use anti-migrant sentiment in this way. It’s a cheap shot even if Sellafield are intimately tied to the people living in West Cumbria. It’s also a bit fucking rich considering its a US/British/French consortia running the show at Sellafield.

Mervyn King coined the term “inflation nutter” in 1997 to describe those who embraced stability of inflation above all else.  Governor King in 2013, along with an entire generation of central bankers, will still claim “nothing is more important” than price stability.  That is the legacy of King and the rest of the modern-day inflation nutters.

In a paper which makes me miss my Athens’ subscription, Alex Coads highlights that profit isn’t a very good predictor of firm growth. [3] In fact firm growth is a little random. But something which definitely prevents firm growth are diseconomies of scale.

Normally these refer to limits on staff monitoring, communication costs, duplications of effort and office politics. None of these are particularly relevant  for pig farms (pigs actually don’t collude, sadly for them), so they’ve just kept getting bigger and becoming more profitable to the point where they are discovering industry specific diseconomies of scale:

The problem is menacing: As manure breaks down, it emits toxic gases like hydrogen sulfide and flammable ones like methane, and trapping these noxious fumes under a layer of foam can lead to sudden, disastrous releases and even explosions. According to a 2012 report from the University of Minnesota, by September 2011, the foam had “caused about a half-dozen explosions in the upper Midwest…one explosion destroyed a barn on a farm in northern Iowa, killing 1,500 pigs and severely burning the worker involved.”

Apparently this just did not happen before 2009. Factory farming has helped us to feed the world. Intensively farmed pigs [2] have allowed for more protein to be produced at a great cost in terms of animal suffering and at little costs in terms of money. Negative externalities where they have existed have been more diffuse, like water pollution, such severe diseconomies of scale at the farm level are relatively new.

What we are seeing is a limit to farm size. There aren’t many firms that are limited in size by the quantity of waste produced, but it appears we’ve found one. I think it is safe to say Coase couldn’t have seen this one coming in 1937.

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[1] Is this the sort of post I should be writing if I want this job? I presume so.

[2] Writing this post makes me want Mario at Brindisa to cut me some Iberico jamon. From organically farmed, acorn fed pigs, that stuff though. And very expensive: Tesco value ham is £0.41/100g while Iberico jamon is more than ten times that, those prices tell a story.

[3] Do I really have to keep writing via Chris?

The young man stood up.
“Mrs. Bylaxis came in this morning,” he said. “She said the proverb you did for her last week has stopped working.”
Didactylos scratched his head.
“Which one was that?” he said.
“You gave her `It’s always darkest before dawn.’ “
“Nothing wrong with that. Damn good philosophy.”
“She said she didn’t feel any better. Anyway, she said she’d stayed up all night because of her bad leg and it was actually quite light just before dawn, so it wasn’t true. And her leg still dropped off. So I gave her part exchange on `Still, it does you good to laugh.’ “

Terry Pratchett – Small Gods

Noah points out that there’s an oft overlooked argument in favour of austerity. It’s a stupid argument, but that doesn’t mean we shouldn’t take it seriously. The argument runs that stimulus will work but that is bad because it will delay “necessary” reform. This idea has a long heritage and it’s always been a good idea to mock it. I’ll try to provide some constructive examples against it.

First of all, let me say, I am a dedicated can kicker. Karl Smith is right, do you realise that everyone you know someday will die? The future is uncertain so simply making a bad thing happen later is valuable because we might not be here. Problems also sometimes solve themselves and erstwhile solutions become problems. Pretending to have the foresight necessary to say “you now must suffer now so that they then do not” is insulting.

I also think the idea is bad on its own terms. Crap policy begets crap policy for a number of reasons. Most mundanely I’d posit there a correlation between following good short-term and good long-term policy. If a government is adopting crippling austerity now, it is more likely not less that they’ll be adopting bad long term policies.

Most of all I think this “butter tomorrow, sawdust today” policy has been tried before and sown disaster. Here are a few examples:

• Hayek thought the depression would force down wages by brute force and trigger the end of unionised workers. He thus resisted efforts to end it. The result? Starvation! Smoot-Hawley! Nazis! Bet he felt pretty silly about that one.
• He’s in good company. Lenin in the 1900s argued that mitigation of the worker’s condition would delay the inevitable revolution and that nothing should be done to mitigate it. He actually got that one right. This time it was the Tsarist industrialists who must have felt silly (as much as dead people feel silly).
• The little depression seriously derailed efforts to tackle climate change. Short-term suffering crowds out the long-term thinking needed to make policy effectively. Extending austerity makes it harder to talk about long-term sensible sacrifices because you’ve less to sacrifice.
• As Ben Friedman argues “History suggests that, in the past, a rising standard of living has promoted tolerance for others, commitment to economic opportunity, and democracy. But stagnating incomes due to inequality can lead to the opposite outcomes.” Suffering makes people worse human beings and worse human beings make worse long-term policy.

To underline my point: the worst case scenario is Nazis. It is such a bad idea you can legitimately say “no because Nazi.” I can think of at least one apposite positive counterexamples too, also from Germany.

• Via Scott, the German labour market reforms of the mid-2000s took place against the more benign global and domestic macroeconomic circumstances imaginable, the great moderation was in full flow. The reforms were so successful that German unemployment continued to sink  lower even as Europe was mired in depression.

Coincidentally, just as Noah laid out the argument hypothetically, Steven Pearlstein comes along and positively endorses it. Only austerity and suffering can save Greece apparently. By embracing  short term suffering interest-groups can be defeated and illogical and burdensome regulations can be removed. Only brave short-term sacrifice can engender long term growth.

So how is Steven’s strategy paying off? Yep, same as last time, fucking Nazis again:

Via Greek Left Review

First of all a defense. Greece is one of the few countries which spent the late 20th century moving from a middle-income to a high-income country. A round of applause please before you lecture them. Their politics and economy are dysfunctional and that will make them poorer, but it doesn’t need them to be in a depression. Being poor is bad, but being unemployed is evil.

Of course if unemployment is an evil, using unemployment as a punishment for being poorer than optimal is really evil. If the Greek economy is dysfunctional they should have higher inflation and lower real incomes, what they shouldn’t have to suffer is a manufactured unemployment crisis. It’s not just stupid and evil it’s perverse.

It is a bad idea that policy should be actively destructive in the short-term to act as a bargaining tool or cudgel to implement a certain pet policy. Suffering is bad, it makes us worse people and worse people make worse policy. If your leg does fall off, laughing probably isn’t the worst thing you could do, you could listen to these bozos.

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Edit: Matt Yglesias makes similar arguments, positively citing Mario Monti’s reforms which were scuppered because they didn’t stop Italy being in a depression.

MY MOTHER fought cancer for almost a decade and died at 56. She held out long enough to meet the first of her grandchildren and to hold them in her arms. But my other children will never have the chance to know her and experience how loving and gracious she was.

We often speak of “Mommy’s mommy,” and I find myself trying to explain the illness that took her away from us. They have asked if the same could happen to me. I have always told them not to worry, but the truth is I carry a “faulty” gene, BRCA1, which sharply increases my risk of developing breast cancer and ovarian cancer.

My doctors estimated that I had an 87 percent risk of breast cancer and a 50 percent risk of ovarian cancer, although the risk is different in the case of each woman.

Only a fraction of breast cancers result from an inherited gene mutation. Those with a defect in BRCA1 have a 65 percent risk of getting it, on average.

Once I knew that this was my reality, I decided to be proactive and to minimize the risk as much I could. I made a decision to have a preventive double mastectomy.

As everyone is saying, hopefully this will be taboo busting, raise awareness, lots more women will take mastectomies seriously as the correct medical intervention and an appropriate number of women will get screening as required. Won’t be enough because patriarchy. But it’s a tap, tap, tap that works against it.