Monday 28 March 2022

'Germans Don't Understand Markets', part 94

From time to time I am moved to observe that Germans, as a rule, have no intuitive grasp of how markets work.  Perhaps their postwar social-democrat / Christian democrat tradition is so inherently mercantilist and dirigiste (and, by many lights, successful!) and now so deeply ingrained, that market dynamics pass them by.

At the state level the French 'Enarchists' aren't much better (though you meet far more French business people who know the score).  So there's little hope that 2022 Brussels, with no leavening of UK influence, will have the first clue.  Here's some up-to-date evidence.  

EU leaders pledged to bulk buy natural gas jointly and review the role of the fuel in setting electricity prices as part of plans to protect European consumers from spiralling energy costs ... “Instead of outbidding each other and driving prices up we will pool our purchasing power,” said Ursula von der Leyen

Where to start?  We all know where bulk buying and large-scale procurement by state entities leads, and it ain't prone to driving down prices++.  (It is prone to monstrous corruption: the mysterious middlemen who will insert themselves in this process when the politicians realise they are totally in the dark in such technical matters, will ensure an extra € or two gets added to the unit price, and is silently shared around a bunch of deeply undeserving individuals.  (Libel laws forbid me elaborating, but suffice to say the gas sector has not proved in any way immune from this in the state monopoly days of yore.)  It's just one of those things that can be made to 'sound sensible', sort-of, and is promoted by people like Peter Mandelson who has advocated it in the past.  But experience tells heavily against it.

The one that really amuses me is "review the role of the fuel in setting electricity prices".  Boris - another ignorant prick - has mouthed similar words.  Well, review away, fellahs; but I can tell you in a couple of sentences what the answer is.  The price of any traded commodity** is set by the cost (or opportunity-cost) of the marginal source of supply (or demand, in some cases), which for most of the time in European electricity is NATURAL GAS.  Occasionally it is something a bit more obscure and we get negative prices (something else that has always puzzled German politicians).  But the dynamics are exactly the same.

Gottit, Ursula?  Great: so you can save that million € being asked for by McKinsey or whomever to answer the question for you.  All part of the C@W service.

By the way, this situation is destined to prevail for many years - in fact, decades, as far as anyone can see - however much new 'renewable' electricity capacity is brought on line.  The only truly 'dispatchable' renewable source is hydro from reservoirs (as opposed to run-of-river).   In practice, biomass can be, too (if it isn't already running baseload because of the vast subsidies involved) - but large-scale biomass ain't renewable: its deemed renewable status is a massive scam.

Of course, Ursula's oh-so-predictable follow-up question is: what can we do about it?   Ans:  well, you can suspend the laws of gravity for just so long as you are willing to throw money at it.  But that's what happens:  you waste even more money, and it still comes out the same when, eventually, you've had enough.   Gottit?   Well no, sadly; probably not.



++ presumably, as dearieme has wittily observed BTL, "in homage to their success in buying vaccines jointly"  

** the physical commodity, that is.  Forward prices are set by completely different dynamics.


dearieme said...

"EU leaders pledged to bulk buy natural gas jointly" in homage to their success in buying vaccines jointly.

Nick Drew said...

haha! excellent, dearieme - have updated the footnotes with that

have a free lifetime subscription

Qwang Go said...

China seems to have spent a huge amount of effort, to try and void peaks and troughs and booms and busts.
Unlike the western economies who have few serious long term plans for anything, the Chinese do.
The communist party is in power forever. So it can and does plan for the cities of 2075. The resource sets it requires, or thinks it will require, it can seek to obtain.

Living standards are what the CCP says they are.
Wealth is what it permits.

This is the Dominic Cummings fantasy of bureaucrats, technocrats, scientists and diplomats, planning for the NEXT Century needs, without any pesky political, short term, self serving, interference.

And even the CCP can’t ensure their goals.

The EU haven’t a hope. The idiots who until last month were preparing to buy even more gas and oil than ever before, from Putin’s stocks, now have to do a U-Turn.
And haven’t much idea how to do it.

decnine said...

Meanwhile, back in the land of Free Markets(!), Grant Shapps intends to impose higher cost labour on P&O. Does he realise that zero P&O is a possible outcome of outlawing low cost P&O?

Don Cox said...

The Dominic Cummings fantasy was the H G Wells fantasy of how the world government should work. See "The Shape of Things to Come" for instance.

Is there a good hard-headed book on how markets really work in this wicked world ?

The P&O problem seems too obvious to be true. They're bust. Either they close down, or they run with cheap labour (lascars ?), or they get nationalised like banks in 2008. I don't think the UK government has any money left for nationalisation, and if they print any more inflation will go up more. (Mugabe will be laughing in his grave.)


AndrewZ said...

"They're bust"

The way in which P&O is trying to change its entire workforce at once, apparently breaking employment law in the process and without any regard for adverse publicity, certainly looks like an act of desperation. It suggests a company that has no time left to do anything gradually.

iOpener said...

Most Germans have a very good idea of how markets work.

The Germans' real problem is that they have no idea at all how politics and politicians works and tend to support politicians who are attractive or well spoken, even if a mix of stupid, vicious and crazy.

E-K said...
This comment has been removed by the author.
E-K said...

Lack of understanding of economics would certainly explain their greenism.


O/T Or maybe not. This is pertinent to our present situation.

The whole woke Academy audience laughed at the Chris Rock joke - how are they getting away with it ? They were full members of the Rock gang at that moment. Somehow the BBC/MSM are making Smith's actions acceptable, alopecia victims are constantly being interviewed on the BBC now.

OK. Make Smith the hero-victim but how are the audience getting away with it too ? Cake and Eat it ?

Smith is gradually being turned into a hero. Even the BBC's cycle-greenie Jeremy Vine is on the fence somewhat. I'm sure the BBC/MSM would have hidden it if they could but this incident was so in yer face (literally) that they couldn't, so what's the alternative ?

Muddy the waters. That's the alternative.

This was - without doubt - the most witnessed physical assault in human history.

A major star got up and whacked the presenter of the biggest event in the entertainment calendar. He then (worse in my view) effed and jeffed at him from the sideline.

Tom Hanks would not have dealt with it in Smith's way. He would have waited until afterwards and dealt with it in a lawyerly way instead. Roger Moore would have delivered a heart rending piece on alopecia in his acceptance speech and humiliated Rock with pure class.

At the very least Smith lacked class and intelligence.

My point here.

The same BBC/MSM covered for the Bidens' corruption in Ukraine and left Biden Snr untested and his dementia hidden from the voters at election.

They will make anything they want right and anything they don't want wrong and this is how the West is being led at the moment.

patently said...

A sense of shock and amazement fails to take hold across Europe, as Brussels decides that yet another intractable problem can be solved by simply centralising the decision-making.

AndrewZ said...


The "BBC/MSM" are trapped by their leftist ideology. They can't criticise a black man for engaging in violence without the risk of being accused by other leftists of racism and perpetuating stereotypes. By acting on behalf of his wife, Smith has also played the victim card by proxy. In diversity Top Trumps, a black female victim with a condition which might possibly be spun as a disability clearly outranks a black man who has been assaulted.

djm said...

Roger Moore winning an Oscar ?

*raises eyebrow*

E-K said...

Andrew Z... worse than that. Smith played the victim card by likening himself to the character he played in the film King William, that he'd won an Oscar for... meaning it's all probably whitey's fault again, a build up of anger for bad treatment.

A) The whole hall laughed at the joke

B) The whole hall reacted in shock when he belted Rock.

We can infer therefore that the original sin wasn't as bad as the second and that it was well OTT and out of order. Either that or Hollywood is full of racist misogynists who couldn't see what was wrong with A and right with B until the BBC/MSM squared up B for them - A could be a difficult one, probably best not handled, which is why it is being ignored.

The same BBC/MSM that brought you geriatric Biden and Looney Left Harris when we badly needed a Kennedy.

E-K said...


dearieme said...

It's rarely wrong to be cynical about showbiz. The Oscars are desperate for viewers, so ...

Bill Quango MP said...

The Wild Geese


Sir Roger Moore requested to have fewer lines in his scenes with Richard Burton and Richard Harris. This kind of request was almost unheard of from a major star. His reasoning was, "You don't seriously expect me to act against these guys?"

E-K said...

I had the pleasure of seen Sir Roger on tour in the year he died.

Such a lovely and witty man, even in very old age.

The old girl next door (when younger and her husband was still alive) met a couple in a pub they were staying at, got drunk playing pool as a foursome. Got on like a house on fire.

The landlady said "You realise who that couple was, don't you ?"

"Um. No ?"

"Elizabeth Taylor and Richard Burton !"

And it was. They both looked totally unremarkable in their scruffs. He smaller than expected.