Fewer the mushrooming green party vote in the UK too much at all about the environment. It certainly not the major reason for going green.
Green voters are not radically left-wing on economic issues nor are they primarily driven by environmental concerns. How, therefore, can we explain their decision to vote for a party with a far-left, environmentalist agenda?
One way is to look at who prospective Green voters turned to in previous elections…. Around half voted for the Liberal Democrats in 2010 and around a third voted for the junior coalition partner in both 2005 and 2010. There are a number of ways of interpreting this.
First, Liberal Democrats and Green voters traditionally hold similar socio-demographic profiles. Both are likely to be university educated and to work in professional or managerial jobs.
Second, the Lib Dems were, until the 2010 election, the protest vote of many on the left. Since entering government, they have lost this niche and, subsequently, have seen their poll ratings plummet.
Third, the Greens now have a monopoly on certain policies that they once shared with Nick Clegg’s party – for example, ending university tuition fees.
The Green Party of New Zealand wants the New Zealand superannuation fund to sell its $676 million in fossil fuel investments. For those not in the know, this government investment fund is worth about $25 billion and is funded by present taxes to pay for the universal old age pension in New Zealand. Its current investment strategy seems to rely heavily on index linked funds that minimise management and trading costs.
The Government uses the Fund to save now in order to help pay for the future cost of providing universal superannuation.
In this way the Fund helps smooth the cost of superannuation between today’s taxpayers and future generations.
In common with the endowment funds of the American universities, that $676 million is about 2% of the total New Zealand superannuation portfolio of about NZ$25 billion.
Any portfolio manager risks considerable fees if she must monitor the entire portfolio because 2% is of dubious moral stature.
The main cost of divestiture is compliance costs to prevent fossil fuel investments drifting back into the portfolio through the routine day to day investments of other companies within their portfolios as these other firms expand into new businesses or diversified. The entire portfolio must be monitored for this risk.
American universities found that fossil fuels divestment rules out indexed linked funds as a class, along with their low management and trading fees. Ethical investors must move to actively managed investment funds which are perhaps a third more expensive in management fees.
If a move to a fossil fuel free portfolio rules out passive indexed linked funds, that is a major risk to future returns of the New Zealand superannuation fund. Would this fossil fuels disinvestment including selling the recently acquired Z petrol station network by the New Zealand superannuation fund?
Z Energy now owns and manages these businesses, which include:
a 15.4 per cent stake in Refining NZ who runs New Zealand’s only oil refinery.
a 25 per cent stake in Loyalty New Zealand who run Fly Buys
over 200 service stations
about 90 truck stops
pipelines, terminals and bulk storage
As usual, in the course of argument for disinvestment by the government investment fund, the Green Party makes an excellent argument for the privatisation not only of state owned enterprises but of the New Zealand superannuation fund.
Rather than have one victory at a time, the Greens want the NZ superannuation fund to use the funds from the disinvestment to reinvest in pet projects of politicians. The green party co-leader said:
Money released from divestment can be reinvested in the rapidly growing renewable energy and energy efficiency sectors, helping to hasten the transition of our economy to a low-carbon future.
This makes government investment funds the playthings of politicians so they can never match the returns of a genuinely privately owned investment fund.
It is actually expensive to divest from fossil fuels both from the trading costs of selling, and more particularly, continuously monitoring your portfolio to make sure that fossil fuel companies have not entered surreptitiously in the course of companies in your portfolio buying shares in other companies that have subsidiaries in the fossil fuel industry.
Fischel’s study bases its conclusions on a historical comparison of two hypothetical, diversified, value-weighted stock indices for the period 1965-2014. One index included typical fossil fuel stocks, the other did not. The result: The fund that excluded the fossil fuel investments performed worse than the one that included them. Adding in a variety of other factors — attitudes toward risk, compliance and transaction costs — the analysis suggests that the climate-friendly fund would have earned 23 percent less over the last 50 years.
The Guardian quotes studies that argue the following:
Here are some studies, not funded by the oil industry, which indicate recent divestment would, if anything, have had a positive impact on returns and can reduce investment risk
That actually makes their arguments a wee suspicious. Too good to be true. It’s too much of a happy coincidence that moral choices such as disinvestments are also profitable.
Indeed, if disinvestment was profitable, actively managed portfolios would already have disinvested or marked down the returns and exposure from those shares already to account for the risks of fossil fuel and the temporary profits of peak oil.
The environmental movement manages to believe in both peak oil – oil will run out in the next two decades or so – and global warming based on runaway carbon emissions for the rest of the century burning the increasingly expensive and increasingly scarce crude oil that had ran out a long time ago previously. Global warming will solve itself as long as we are willing to accept that the environmental movement is genuine in its predictions about peak oil.
At bottom, the Guardian is trying to argue that an actively managed portfolio offers superior returns to an index linked passive portfolio that minimises trading costs. Furthermore, that form of active management requires detailed monitoring of the entire portfolio to ensure that fossil fuel investments do not inadvertently re-enter through the investment decisions of each company in that portfolio.
I can’t remember whether its 70% or 80% of actively managed share portfolios fail to beat the market in any one year. The Guardian’s previously warned in its business pages about actively managed share portfolios swallowing up to 1/3rd of investment returns as management fees.
Figure 1: Who Routinely Trounces the Stock Market?
Actively managed portfolios fail to beat a passively managed portfolio with the same composition and diversification as the whole share market itself which trades in shares only for liquidity and to rebalance the portfolio to match new compositions of the share market. Just 2 out of 2,862 actively managed funds managed to beat the market five years a row in the US stock market.
Divestiture from fossil fuels is not a one-off act. There are continual compliance costs and an investment strategy that forecloses using a whole range of low-cost index linked passive investment share portfolio managers. That cannot be denied. . American University said that divesting from these companies would require that AU investments be withdrawn from index funds and commingled funds in favour of more actively managed funds [and] estimated this withdrawal would cause management fees to double.
One of the things I noticed in the 2008 US presidential campaign was everyone was appealing for the middle class vote. Presidential primary and general election debates were about how things were getting harder for the middle-class and the Republican or Democratic candidate who happen to be pitching for votes would stand up for the middle-class better than their competition in the presidential primary or general election at hand.
Another big feature in the 2008 presidential campaign was Joe the plumber. This was the small businessman who asked then candidate Obama at a rope line three days before the final presidential debate about his plans to put up taxes. Obama replied he wanted to spread the wealth around. Obama’s response was
It’s not that I want to punish your success. I just want to make sure that everybody who is behind you, that they’ve got a chance at success, too… My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody.
If you’ve got a plumbing business, you’re gonna be better off… if you’ve got a whole bunch of customers who can afford to hire you, and right now everybody’s so pinched that business is bad for everybody and I think when you spread the wealth around, it’s good for everybody
Andrew Cherlin did the service counting up references to the working class in State of the Union addresses since President Obama was elected.
In his State of the Union addresses, Obama has used the term middle class 28 times. But he has never said “working class” except in 2011, when he described Vice President Biden, who was seated behind him, as “a working-class kid from Scranton.”
This dearth of references to the working class is no surprise in light of Director’s Law and the median voter theorem. Politicians who do not pitch to the American middle class will not win elections unless there is a lot of expressive voting by the educated middle class. In general social surveys of Americans, 44% identify as working class and 44% identify as middle class.
Republicans consistently win voters making $50,000 or more – the U.S. median income. The margin doesn’t vary much: In 2012, Mitt Romney got 53% of this group’s vote; in 2010, Republican House candidates got 55%.
The margin by which the Republicans win income brackets above 50,000 doesn’t vary much if you just look at those earning above $100,000 or those earning between $50,000 and $75,000. These margins only matter in a close election, a very close election.
Democrats consistently win voters making less than the median but the margin varies. Whether the Democrats win these voters earning less than $50,000 by a 10-point or a 20-point margin tells you who won every national election for the past decade.
The Democrats would also do well among the college educated vote. Obama won this over Romney and 2012 by 10 percentage points. This may explain why the Democrats are slightly conflicting: they must win the working class vote as well as the college educated vote to win.
Andrew Cherlin didn’t give many reasons for the disappearance of working class from modern American political discourse, but he showed some insight into expressive politics when he observed that:
Politicians may prefer to call working-class families by the class position they aspire to rather than the one they hold.
Why Evolution is True is a blog written by Jerry Coyne, centered on evolution and biology but also dealing with diverse topics like politics, culture, and cats.
In Hume’s spirit, I will attempt to serve as an ambassador from my world of economics, and help in “finding topics of conversation fit for the entertainment of rational creatures.”
“We do not believe any group of men adequate enough or wise enough to operate without scrutiny or without criticism. We know that the only way to avoid error is to detect it, that the only way to detect it is to be free to inquire. We know that in secrecy error undetected will flourish and subvert”. - J Robert Oppenheimer.
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