One of my favourite books as a teenager was Douglas Adams’ The Hitch Hiker’s Guide to the Galaxy. Marvin the paranoid android is one of the finest comic characters to make it into print, although I don’t think I understood the naming of the character Ford Prefect until I lived in Houston (he was an alien who adopted the name after misunderstanding the dominant life form on Earth).
I was less of a fan of his other major work, Dirk Gently’s Holistic Detective Agency, in which the Holistic part was a semi-mystic ‘everything is connected’ sentiment. But right now, I feel like buying 195 copies and depositing them on the desk of every world leader.
I don’t share Dirk’s mystic view on cause and effect; I prefer to start with Newton’s third law and work through the science of tradeoffs (which I think is a more broadly understandable name for economics).
So why are we force-fed a political diet that seems to eschew this fact?
You don’t need me to tell you about the rise in energy prices and the associated consequences for inflation (or to point out that this was well underway before Russia invaded Ukraine). You also don’t need me to tell you that the cure for high prices is more supply.
Let’s start with the UK. What on earth is going on?
In my lifetime – at the ripe old age of 43 – I don’t think it’s ever been clearer that more oil and gas supply is needed, and I include the $147 of 2008 in that statement because of the inflation situation. People are hurting – and, as usual, the poorest amongst us are hurting the most.
And the government – the Conservative government – has imposed a windfall tax on oil and gas producers. At a junction of history when the price signal clearly says “more production needed - NOW”, Boris decides he’s Robin Hood. Who will be willing to invest now?
Astonishingly, both Keynes and Friedman are simultaneously rolling in their graves. It’s economic vandalism. If wealth redistribution is the objective, then they seem to have missed the need to create the wealth in the first place.
Meanwhile, down under, the newly “elected” Australian Federal Labor government (32% of the primary vote, a lower share than that which scored them opposition benches last time) is considering triggering a legal mechanism to restrict LNG exports in order to ease east coast domestic gas prices… while the Victorian state Labor government has had a moratorium on all gas exploration for years, only lifting it for conventional exploration recently.
Hardly a stable regime to make the investment decisions that would bring down prices – currently A$40/GJ, compared to A$6.50/GJ on the west coast (with a domestic gas reservation policy).
At the same time, the glorious wisdom of the World Economic Forum is to tout their Alibaba-developed individual carbon footprint tracker. Haven’t heard of this? The mainstream media has been oddly silent on this one. CBS Austin (God Bless Texas) is about as mainstream a link as I can find.
Maybe this is what the Trudeau government (elected with just 32.6% of the primary vote) meant when it said “If we take the same approach to the climate crisis as we are to the COVID-19 pandemic… we will win the race against climate too”. Personally, I struggle to see the similarity with a fast-moving pathogen.
Given Trudeau’s proclivity for using the WEF as a primary policy advisor, get ready to scan your QR code when you put a tiger in your tank1. When you get on the bus. When you buy groceries. When you decide to turn on the increasingly expensive heating (thank you, C$170/t carbon tax) so that your Mum doesn’t freeze.
New Zealand has just announced a plan to tax cow and sheep burps. No, it’s not April 1. The only possible consequence of a new tax is higher prices (aka even more inflation).
The US continues to send mixed messages to the industry, paranoid about gas prices but not releasing land for exploration (or approving pipelines from friendly northern neighbours), creating a pseudo-Venezuelan investment environment. The EU’s embargo will clearly precipitate a price response, yet Groningen remains restricted despite proposals to manage the earthquake risk.
I could go on, but the trend is clear: governments, often without majority support, with their hands on the necessary levers to ease the cost of energy – but choosing to prosecute strategies with the opposite effect.
Meanwhile, Russian oil and gas is finding its way into eastern markets at a hefty discount, with reports in the area of 30%. This is creating a 2-speed inflation environment – for example, Chinese inflation is falling while America’s is plateauing at a 40-year high, giving a further competitive advantage to the Made in China brand.
Remind me, to whom are we trying to redistribute wealth?
Just how long will the west persist with this economic self-flagellation?
I’ve used this Macaulay quote before, but it’s worth revisiting:
“The great cause of revolutions is that, that while nations move onwards, constitutions stand still.”
Pendulums swing. They always do – actually, that’s all they do – and the faster and further they move, the harder the swing back. And there are lots of them. We’re seeing exactly this swing in the remote vs office work arena at the moment, a subject I tackled a couple of years ago (yes, before Elon).
I don’t know where or when it will start, but when people get cold and hungry, I fear for where this might lead.
I don’t claim to be an expert in the politics (although regular readers will know me to be an enthusiastic amateur), but the nature of western electoral practices are partly to blame here. It’ll be a brave politician who takes that one on, so I won’t hold my breath – so let’s hope that they come to their senses instead. The recent rumblings against the ESG pendulum maybe constitute the tiniest of green shoots.
I do know that the energy industry isn’t comfortable with this situation and these prices. Bar the traders, most would take an efficient, regulated market over insane volatility any day. American shale producers and pipeliners these days need a similar level of fortitude to a reforming politician.
On the current trajectory, sooner or later, someone somewhere will put together some kind of protectionist platform, promising to bring down costs. I really fear for what else might get packed into such a platform.
In amongst this, I find myself in a strange situation – I’m somewhat wedged. OK, I’m an odd beast… a British / Australian dual national, living in Canada, paying tax in three countries (including the US), but with no voting rights anywhere. And this is a problem.
This is going to the ballot box, and I won’t be there.
I’m counting on you.
AB
In case you’re not old and British… this translates as filling up your car.
Eloquent as always mate.......I'm much less so: your comment ".....the nature of western electoral practices are partly to blame here" needs to be tweaked a tad to "the nature of western electoral practices are 99.99% to blame here". When it comes to Energy Policy Down Under, the only time I recall ANY government making a decision with a longer-than-electoral-cycle-impact was the Gas Reservation Policy introduced in WA. At the time, chicken-little's of all persuasions were running all around the place predicting the "falling sky". It was a brave decision in the face of all the opposition but it WORKED and the sky didn't fall in. Maybe current politicians can reflect on this learning and make some more "brave" decisions. I'm ever the optimist.
Old and British - and currently allowed to vote in both UK and Canadian elections - I will do my best for you. Douglas Adams also wrote "Last Chance to See".. visiting endangered species... perhaps we (Western Democracies) should be on that list?