One of the great joys of economics is that parts of the subject are very simple indeed. Prices matter and people change their behaviour when prices change -- we all know that's true because we can see it in our own lives when prices change on us.
One of the useful things about economics is that these simple bits also work. Yes, there are times when it gets more complicated, but these simple observations do still work. Which is one of the reasons I like the subject because it means there are bits that simple people like me can understand.
This works even on the really grand problems that face us. Even something that threatens our entire civilization -- climate change -- is still subject to these few and simple rules.
We have the proof here in this newspaper: “Solar, battery-powered products see sales surge amid Bangladesh power crisis.”
Load shedding -- also known as not getting any electricity from the grid -- can also be described as an infinite price for electricity. However much you're willing to pay, you cannot have any.
So, people are turning to alternative methods of getting electricity -- solar systems and so on. As is also said: “Experts believe that with effective policies and investment, Bangladesh’s current crisis could accelerate its transition toward renewable energy.”
We have changed the price of grid electricity so people are using a different source.
Prices work and prices matter. Change prices and people’ behaviour changes. This is why nearly every economist insists that the basic solution to climate change is to change the price of making emissions.
Currently we don't pay for the damages our activities do to other people in the future. So, we do too much of that damage.
If we change prices so that the damage we do is included in what we must pay, then we will do less. This is exactly the same as grid electricity prices rising so we all storm the solar supply shops.
The two big economists on the subject are William Nordhaus -- who got the Nobel -- and Nick Stern who did a 1,200 page report for the British government and was made a Lord. The central insistence from both of them was to change the price of fossil fuels -- of the emissions from fossil fuels -- by a carbon tax.
This will change behaviour. People will be faced with the full costs of fossil fuels, of their emissions, in every price they face -- and then we'll all storm the solar panel shops.
Emissions will fall, the damage in the future will fall and we'll have achieved this by the one, single and simple, action.
Note the really important point they're trying to make. All of us, every one, face the same information in prices on everything we do. Therefore all our decisions, about everything, are affected.
The alternative system is that a few bureaucrats -- say in the Department of Climate Change -- try to make decisions for all of us. This will work less well, obviously.
Because the bureaucrats will do a few things, some of which might even be useful. But they'll not change every decision, made by everyone, all at once. Not unless they change the prices that we face. So, therefore, the answer is to change prices for everyone.
I agree that the lessons of basic economics are terribly simple. Most of them we could work out ourselves over a really good cup of tea.
Really? People change their behaviour when prices change? Do they? But as I say, the lovely thing about the subject is that these really simple bits do actually work.
The price of fossil fuels has changed so we're all off buying non-fossil fuel sources of electricity.
Prices work. When we are building plans about what to do, we should not forget these simple bits. They just are how we, and reality, work.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.
