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A basket of bad ideas

I’ve often wondered whether the band on the Titanic really played-on bravely even as they approached their watery fate, or more likely that they were suffering from what psychologists refer to as denial.  That is, faced with growing evidence of their own, imminent icy end, might they have unconsciously grasped at the belief that surely someone would arrive at the last minute to rescue them.  I wonder too whether a similar psychological denial has affected the collective leadership of Western Europe as they face the biggest economic crisis since at least the 1890s.

Certainly, the European – including the UK – technocracy has constructed its own mechanisms for filtering out any expert testimony which might challenge its view of how the world works and its beliefs about how it might be improved.  Despite appearances to the contrary, Klaus Schwab and his western political minions are trapped in an even narrower echo chamber than the ones you and I get caught up in.  This surely explains why more thought and preparation did not occur before the two years of economic vandalism of lockdown and the mortiferous decision to disconnect Europe’s main gas supply.  They blithely assumed that gas – and energy more generally – is just another cheap input to production.  In any case, they are not the ones who will have to shiver in the dark this winter.  As Mary Harrington writes:

“Elites might well be blithe… about the downstream political consequences of quadrupling ordinary families’ energy bills in pursuit of abstract principles such as ‘rules-based international order’. But this policy might not garner mainstream support further down the socioeconomic food chain.

“More broadly… despite the wishful thinking of liberal internationalists, the End of History has well and truly ended, and geopolitics should adjust accordingly. Looking back, I was both right and wrong.  I was right about the predictable consequences of sanctions. The ‘cost of lockdown crisis’ is already bad enough for the just-about-managing; piling a cost of Ukraine crisis on top is tipping millions into grim hardship. I was wrong, though, about two things: firstly, political leaders’ willingness to immiserate their own electorates in pursuit of abstract principle (they are more willing than I thought); and secondly, the ability of electorates to join the dots (they are taking surprisingly long to work it out).”

Markets too, as Keynes observed, have an ability to remain insane for far longer than the rest of us can remain solvent.  How else do we explain the frankly bizarre fall in the wholesale gas price – on the same day that Gazprom discovered another “maintenance issue” which required shutting off the gas supply – following technocrat-in-chief Ursula Von Der Leyen’s announcement that the EU was now prepared to intervene in gas markets.

The trouble is that nobody is sure what this means.  What we do know though, is the Europe doesn’t have any gas.  We also know that the various Gazprom “maintenance issues” – which we can expect to become chronic as autumn transitions into winter – have thwarted the Germans’ cunning plan to fill up Europe’s gas storage so that – with a large dose of rationing – Europe can get through to next spring.  Current estimates are that Europe will be out of gas before Christmas, and if Russia continues to cut the flow of gas, even this may be an optimistic forecast.

Despite earlier claims of a deal by German Chancellor Olaf Scholz, attempts to secure compressed gas from Qatar have come up empty handed.  Additional supplies from the USA floundered on the absence of infrastructure and of additional tankers.  OPEC more generally, irked, no doubt, by western governments and banks rushing headlong to the fantasy of a green economy, are in no hurry to come to Europe’s aid – and there is more than a suspicion that their gas production is close to peak anyway.  China seems to be the only country offering some new gas supply to Europe – ironically, they are offering to re-export gas imported from Russia but at a much higher price.  But again, the lack of LNG terminal capacity in Europe means that this will have little impact.

The shortcomings of the non-renewable renewable energy-harvesting technologies (NRREHTs) which Europe’s leaders bet the family silver on, will be exposed in the cruellest way possible this winter as, without gas back-up, they become little more than art installations as sub-zero high-pressure air settles over the continent.  And despite pledges to restart coal and nuclear plants, the reality is that those plants which haven’t already been demolished will have been cannibalised for spare parts.

That’s the deeper issue.  Schrödinger’s Putin – who is both an existential threat to the west and at the same time incapable of capturing more than a few miles of territory in the face of Ukraine’s volunteer army – may be leveraging Russia’s gas, but it is the European technocracy which has left us woefully exposed to precisely this kind of economic retaliation.  Buying into the corporate myth that renewable energy could be anything other than an appendage to the fossil fuel system has left Europe with far less energy than it needs not just to keep its people warm, but to power the businesses which keep its economy afloat.

Europe agreeing to pay for gas in roubles – the one thing which would end the crisis overnight – aside, then, the promised European – and UK – “intervention” can only be financial.  That, in turn, means either a radical redistribution of income, a massive bailout package, or some combination of the two, even though none of these can be a satisfactory response to a lack of energy.

The various – now rendered inadequate – measures introduced by former Chancellor Rishi Sunak, were a politically adept approach to bailing out energy supply companies.  Rather than simply handing the cash to the companies directly – which would have led to public outrage – Sunak has handed most of the cash to consumers in the hope that they will spend it on their energy bills.  Although, of course, with prices and interest rates rising, many may be unable to avoid spending the handouts elsewhere.  This, no doubt, is why Ovo Energy’s Stephen Fitzpatrick is calling on government to fund the energy companies directly, with the companies then deducting the funding from consumers’ bills.  But with government facing increasing pressure to target support on the most needed, and with growing support to simply nationalise the industry, it is doubtful governments will do this.

There is an argument that with the British state having already run up a £2 trillion debt, adding a further £500 billion or so to bail out industries and businesses which might otherwise go bust this winter is not such a bad approach for the short-term.  After all, on paper at least, Europe and the UK can still borrow at acceptably low interest rates and as happens with war debt, the loans can be rolled over across the next century or more.  Indeed, it would not be at all surprising if governments do precisely this in the next few months as energy costs and energy shortages begin to bite.

There may also have to be some form of redistribution – particularly in the UK where pension and benefit rates are among the lowest in the developed world.  Both pensions and benefit rates are pegged to the rate of CPI inflation in September, but the increase does not take effect until April.  So, one fairly easy option for the incoming UK Prime Minister would be to bring forward the increase to October, when the energy price cap also rises.  It is also simple enough for the incoming PM to cut the VAT on energy and to remove the various NRREHTs subsidies which are part of the regressive flat-rate standing charge – possibly repackaging them as some kind of “green” government bond repaid via progressive taxation.

There are two show-stoppers here though.  The first is that no amount of borrowed or printed currency is going to generate energy which simply doesn’t exist.  The second is that all of the proposed interventions assume that the problem is short-term.  But short of surrendering the economic war to Russia, European gas shortages are not only going to continue for years to come, but they are also going to worsen with each passing year as the North Sea fields continue to deplete.  Meanwhile, proposed alternatives like opening new nuclear and coal power stations would have taken the old, functioning European economies a decade or more to bring online.  In the new, under-powered and over-inflated economies, the task is likely beyond them… barring inviting China and Russia to build them for us.  Even the deployment of NRREHTs – which are two-thirds useless at the best of times – is all the harder now that Europe’s wind turbine industry has gone bust.

The two reasons we have high gas prices are first, that energy policy over three decades has left us dangerously dependent on gas, and second, that prices are how we ration everything in a neoliberal system.  That is, if there is not enough gas to go around – and there isn’t – then the price is bid up accordingly.  As a result, only those with the most currency can afford the new price.  This, of course, is why the energy companies are demanding government support – because without it, demand will slump and many more of them will go bust.  But it is also why governments – whether they like it or not – will have to act if they are to prevent widespread unrest and possibly something much worse.  As Michael Every reminds us:

“Steps will be taken to de-link the price of electricity, now over EUR1,000 per MWh(!), from the price of gas, which while still at insane highs, tumbled yesterday in thin trading. Furthermore, measures will be taken to ensure renewable energies are generated at lower costs, and consumers directly benefit, price caps, windfall profits taxes, and, potentially, rationing. Talk about a retreat from neoliberalism!

“On one hand, this is no surprise. Polanyi argued markets are ultimately always subservient to society, and right now society does not want to freeze or go hungry. However, understand this is not just a ‘technical decoupling of marginal trading linkages’ – it is dismantling market pricing, and the moral (and financial) argument for having the private sector involved in energy at all, except where their capital is directed by government, for a socially-acceptable rate of return…”

Within the current system, state intervention of the kind being considered can only worsen the inflation and international currency crises which look set to pull the rug out from beneath the entire western (dollar) economic system:

“The brutal lesson is that neoliberalism is like a chocolate teapot – it looks amazingly sweet until things get ‘hot’, and then it serves no purpose at all. Yet industrial policy/corporatism/fascism/Common Prosperity also needs to be based on the real, and realpolitik, not the ideal. If the EU throws de facto MMT/printed money at energy subsidies within a neoliberal framework with no concrete, achievable plan for more energy supply (of what? From whom?) then it is simply going to drive global energy prices higher, many EM into the ground – some of whom are located close to Europe, EUR well through the parity floor, and inflation still into the sky…”

Nationalisation has become highly popular in the UK, including among Tory voters.  And in the case of energy, there is a logic to it insofar as it removes many of the distortions in the current quasi-market system.  Not least because it obliges us to meet the true cost of NRREHTs – including the essential balancing and storage solutions without which they cannot operate.  But nationalisation is not a free lunch.  The downside of subsidising the cost of essentials like energy – one must also assume that food shortages will be met by similar approaches – is that the benefits of neoliberalism – primarily low-cost discretionary, and not-so-discretionary goods – will also be lost, simply because of the inevitable currency reset which will leave the Euro and the Pound with far lower purchasing power than we have become accustomed to.

In any case, bereft of genuine leadership, Europe – and especially the UK – is likely to produce the worst of all worlds because, instead of getting ahead of the crisis, the technocracy – largely out of perceived self-interest – will tinker around the edges even as their economies and societies disintegrate.  In which case, nationalisation will arrive not as part of a new mixed economy which seeks to develop the best of both state and market, but in the arms of a revolutionary mob wearing jackboots and armbands.

As you made it to the end…

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