The Fisk

Wat Tyler: BBC Business Editor on the Stern Report

When the Stern Review on climate change was published last October, the BBC’s Business Editor, Robert Peston - along with the rest of the BBC - immediately gave it a big thumbs up:

"The Stern Review says that climate change represents the greatest and widest-ranging market failure ever seen. And on the basis of this intellectually rigorous and thorough report, it is hard to disagree."

Peston had clearly not read the same 700 page dodgy dossier I had, shot through as it was with gross exaggeration and laughable bias (see this blog for some numbers). Luckily he's now been fisked by his BBC colleagues Simon Cox and Richard Vadon, ably assisted by some of the world’s leading climate change academics.

"Intellectually rigorous and thorough"? Professor Richard Tol gives us the real assessment:

"If a student of mine were to hand in this report as a Masters thesis, perhaps if I were in a good mood I would give him a 'D' for diligence; but more likely I would give him an 'F' for fail. There is a whole range of very basic economics mistakes that somebody who claims to be a Professor of Economics simply should not make."

For your information, Prof Tol (both Hamburg and Carnegie Mellon Universities) is one of the world's leading environmental economists. He’s so important, the Stern Review itself cites his work 63 times. Peston goes on:

"If you take the present value (the value in today's money) of the benefits over the coming years of taking action to stabilise greenhouse gases by 2050, then deduct the costs, you end up with a "profit" of $2.5 trillion (£1.32 trillion). Any way you look at it, the financial case for tackling climate change looks watertight."

Watertight. Professor Tol again:

"Stern consistently picks the most pessimistic for every choice that one can make. He overestimates through cherry-picking, he double counts particularly the risks and he underestimates what development and adaptation will do to impacts,"

Then Peston says:

"So here's the winning formula: Stern says spend 1% of world GDP to be 20% richer than we will otherwise be. It looks like a no-brainer."

No brainer. Yale University Economist Robert Mendelsohn says the 1% cost estimate is far too optimistic and the figure could easily be much higher.

"One of the depressing things about the greenhouse gas problem is that the cost of eliminating [it] is quite high. We will actually have to sacrifice a great deal to cut emissions dramatically."

Peston has no time for such tedious detail: we’re talking Biblical truths here: why worry about cost accountancy when you’re staring straight down the barrel of The Apocalypse?

"…droughts… floods… devastating storms… famine… the grotesque market failure that is currently taking us on a path to poverty… How do we start to pay a price for carbon that reflects its true economic and social costs… a price that includes the present value of future climate change?"

Professor Mike Hulme, director of the Tyndall Centre for Climate Change Research, is rather less hysterical. He says that when the Intergovernmental Panel on Climate Change (IPCC) report comes out next week, there will be a big difference between the science it contains and the climate debate in the UK.

"The IPCC is not going to talk about tipping points; it's not going to talk about 5m rises in sea level; it's not going to talk about the next ice age because the Gulf Stream collapses; and it's going to have none of the economics of the Stern Review. It's almost as if a credibility gap has emerged between what the British public thinks and what the international science community think."

There’s certainly a gap between what serious people think and what Robert Peston thinks. Why is he the BBC’s Business Editor again? Anyone would think they didn’t want properly informed business commentary.

Wat Tyler: Blair's commentary on inflation

Yesterday’s shock inflation figures were the subject of a typically misleading Blair commentary at his monthly press conference:

"Inflation has risen in most of the major countries because of rising energy prices, rising oil prices, which have doubled, tripled over the last few years. That, however, is expected to come down in 2007 and we expect to come back to 2% inflation."

It is completely untrue that "inflation has risen in most major countries". The reality is that Britain’s inflation rate has risen much more than elsewhere. 

Even sticking to the government’s preferred but rather narrow measure - the Consumer Price Index (CPI) - over the most recent twelve months, our inflation rate has increased by more than one-half, from 1.9% to 3%. In the US the rate is down by 1.5%, in Germany it’s down by 0.6%, in France it’s down by 0.2%, across the Euro area as a whole it’s down by 0.3%, and across the G7 it’s down by 0.6% (source ONS - January CPI Release and HM Treasury Pocket Databank - January). 

We’ve all heard of damned statistics, but most people would mark that down as an outright lie. And quite why wage negotiators would attach any credence to his 2% forecast for the rest of the year is a complete mystery. Blair went on:

"The underlying position of the British economy, even with the recent interest rate rise, is one of strong economic growth, historically very low interest rates, inflation under control and employment and living standards high,"

Again, the reality is different. Much of the growth Britain has enjoyed over recent years has been driven by public spending and debt, not by any fundamental improvement in productive potential. Indeed productivity growth has slipped markedly since he took over. And combined with higher interest rates, that debt is now starting to squeeze living standards.

What’s more, although employment has continued to rise, because of mass immigration, unemployment- the key component, along with inflation, of the traditional “misery index”- has increased sharply. In the last twelve months, Britain’s unemployment rate has risen by over half-a-percent, while it has actually been falling in the US, Germany, France, and the G7 as a whole (source: HM Treasury Pocket Databank - January).

With inflation and interest rates both rising, what chance Blair’s next economic commentary will at least nod in the direction of honesty?